Digital Brands Crave Bricks-and-Mortar Retail

As Frank Sinatra once sang in a song called “That’s Life,” when “you’re riding high in April, you’re shot down in May.”

Digital native brands that flourished in the surge of e-commerce during the pandemic may be humming that tune as they race to buttress their growth strategies by securing bricks-and-mortar outlets.

Several CRE giants told us at ICSC 2022 in New York that the migration of direct-to-consumer digital native brands to bricks-and-mortar outlets is now one of the hottest growth sectors in retail.

“Digital native brands have to go to bricks and mortar to grow,” Barrie Scardina, Head of Americas Retail for Cushman & Wakefield told GlobeSt. “It’s very expensive to grow online. The cost of customer acquisition is very high, the cost of shipping is high. Having a [physical] store gives you a broader opportunity to grow faster.”

“Almost every digital native fashion brand we work with is demanding bricks and mortar retail,” she said. “We’re spending a lot of time on digital native brands.”

According to Scardina, the expansion of digital native brands to bricks and mortar is on a par with the expansion of medical outlets—an estimated 20% of new retail leases involve medical outlets like walk-in care, she said—as a major growth sector that will see positive growth even as economic headwinds increase, along with luxury goods.

According to JLL’s new report about prime urban retail corridors—City Retail 2023, released this week at ICSC 2022—digital native tenants who have been unable to compete with “extremely well-capitalized” luxury retailers in Soho have redirected bricks-and-mortar expansion plans to prime corridors in Philadelphia, Washington DC and San Francisco, among others.

“Walnut Street, M Street and Hayes Valley offer comparable foot traffic to SoHo and have average asking rents around 40% less, making them especially appealing to these retailers,” JLL’s report said.

The growing base of direct-to-consumer brands in these cities has also been augmented by the presence of Leap, a service that helps online retailers open and operate physical stores, JLL said. Leap’s turnkey model has allowed digital brands like NAADAM, ThirdLove, A Pea in the Pod and more to open in SoHo and on Michigan Avenue, Melrose and M Street.

Many other digital native tenants have entered the Georgetown market, including Glossier, a makeup giant that has been ramping up its physical presence in recent months, opening in 4,000 SF on M Street in addition to new outlets in Miami and Philadelphia.

Digital native accessories brand Gorjana opened stores in both Philadelphia and DC this year, while home furnishings retailer Brooklinen went to Hayes Valley in San Francisco for the sister store to its new Philadelphia location, the report said.

Within the direct-to-consumer category, apparel and athleisure brands continue to expand aggressively, JLL said. Faherty opened new stores this year in Philadelphia and San Francisco, while cashmere company NAADAM opted for locations in San Francisco and DC.

Vuori, an athleisure retailer whose comfortable joggers gained popularity at the height of the work-from-home era, plans to open 70 new stores in the next five years, starting with its first East Coast locations in SoHo and on Newbury Street, JLL said.

Lululemon opened two prime urban locations in Canada this year—on Sainte-Catherine Street and Bloor Street—in addition to store in the Fillmore district in San Francisco.