The team behind Pact knew the time had come to get into brick-and-mortar retail. After several years of significant growth as a direct-to-consumer e-commerce apparel, bedding and bath brand, the company’s leadership felt the next logical step would be to move into physical retail.
“We were looking at ways to continue sustaining our high levels of growth, and that means that digital doesn’t necessarily have to be the only place you go,” said Drew Cook, CFO and head of operations, wholesale, Pact. “Brick-and-mortar was one avenue we’d always felt would work well—we’ve got a relatively broad assortment that we thought would play well in retail, and we have customers concentrated in places like New York and San Francisco.”
That’s why the Leap platform felt like a good fit for Pact as it explored moving into brick-and-mortar. Leap serves as a conduit between e-commerce brands and physical retail, assisting them in the process of securing retail space, designing stores, hiring workers, and managing sales data. The company has helped multiple online brands such as Naadam, Social Tourist, Hanky Panky, ThirdLove and Rent the Runway set up physical stores in New York City, Los Angeles, San Francisco, Chicago, Texas and Florida, among other locations.
“More than ever, it’s just as important and necessary for brands to grow in omnichannel ways and be not only digital, but also in retail and wholesale and every channel in between,” said Jon Levy, Leap’s brand management VP. “Because that’s what shoppers expect, and brands that are really trying to connect with customers and showcase their product are looking to physical retail to help them do that.”
While e-commerce has seen major growth over the past decade, brick-and-mortar retail still has power among consumers. According to the State of Consumer Behavior report from brand experience platform Raydiant, 44.4 percent of consumers prefer to shop in-store. And more than a quarter cited in-store experiences as a driver for physical retail shopping.
That in-store experience is especially important to home goods brands like Sunday Citizen. The company specializes in soft goods like bedding, towels, pillows, throws and lounge wear—items that shoppers generally want to touch and feel before buying.
“Our product is very tactile, and the reason that our bedding is special compared to the rest is because of the softness and texture,” said Mike Abadi, co-founder and CEO, Sunday Citizen. “We’ve been able to scale and grow very well through e-commerce, but at the end of the day, we’re not giving customers that experience. We’re showing them great pictures and describing the product, but they can’t reach through the screen to actually touch it.”
But for smaller companies like Sunday Citizen and Pact, the investment in experience-based brick-and-mortar retail can be costly and overwhelming. Levy said the Leap platform was created to make that process easier, allowing small brands to tap into the resources of a larger company with a wider network.
“We have a ton more data than one brand would have, so we can drive better location decisions,” Levy said. “We drive smarter merchandising decisions on what products to bring to the store, and we deliver a lift in traffic because we have many stores that are next to each other.”
In New York City, for example, Leap operates 25 stores for multiple brands. That’s where the company’s data comes in, allowing Leap to evaluate customer behavior, store traffic and other factors across multiple outlets and different locations to help retailers make more informed decisions.
“Outside of food and beverage or Duane Reade, there’s no other retailer that has 25 stores in New York City,” Levy said. “Because they’re all run on a single operating platform like Leap, we can look at that data in all sorts of different ways to get smarter on the 26th store and drive better decisions.”
Leap, which raised $50 million in January, also offers brands money-saving benefits by sharing labor and infrastructure costs. The company buys fixtures in bulk for many of its retail outlets, and store employees work for Leap rather than the individual brands. That allows Leap to tailor its employee training based on the focus of the store and the shopper data it has collected about the area to create experiences.
That time and cost savings appeals to smaller companies like Pact that want to try brick-and-mortar retail but don’t necessarily have the budget or manpower to launch a store the traditional way. The company has opened two stores in the past year, one in New York City and one in San Francisco, using Leap.
“Physical retail is something where we see longterm growth, so we wanted to make sure that we were testing in a way where we did it right but didn’t necessarily over-invest or disrupt the organization to do so,” Cook said. “That’s where Leap hit a sweet spot for us, in that they have a lot of the expertise, the support and the knowhow to launch and test retail without requiring a ton of full-time bodies on your team.”
For Sunday Citizen, which is slated to open its first store in New York’s SoHo neighborhood in September, the possibility to leverage online selling in conjunction with in-person shopping made sense. Abadi said New York is the company’s largest e-commerce market, with average orders of $250 or more that often lead to second purchases.
“What that’s showing us is they get the products—they feel it, they touch it, they like it. Then they say, ‘Okay, I want my whole bed in this,’” he said. “What we hope is that in the store, they’ll be able to touch it, fall in love with the softness and right away want to get the whole bed experience. That’s where the average order value could be a lot bigger—we expect the brick-and-mortar to have higher AOVs than online.”
The cost for setting up a store through Leap varies. Brands don’t pay setup or onboarding fees, but they do share in the capital expenses including design, development, furniture and more. Leap charges a monthly fee, which can vary but averages $30,000 per month, which covers rent, labor, utilities and other expenses. Then each brand pays a percentage of sales to Leap—usually around 10-15 percent. Tenants also provide all signage and branding collateral for the stores.
For companies like Pact, which plans to open a third location in Los Angeles this year, those expenses have been worth the freedom the platform has given them to experiment with brick-and-mortar retail without a huge risk.
“The stores don’t have to be perfect for us to view them as beneficial, in terms of us getting smarter and learning how to do the next one better,” Cook said. “We believe in the (physical retail) channel, and we believe in what it can do for our brand.”