Retail Rap:

As pure-play retailers take to the streets, what are the site considerations? At a time when more and more online retailers are successfully expanding to brick-and-mortar locations, it’s worth taking a moment to examine how those brands are approaching the site selection process. The specific and strategic considerations that online retailers review when assessing possible brick-and-mortar locations not only tells us a lot about what’s behind that thought process, but provides important hints about the priorities and perspectives shaping retailer behavior in an increasingly omnichannel world.

It shouldn’t surprise anyone that it all starts with the customer. The vast majority of online retailers moving into brick-and-mortar spaces appeal to a younger demographic (their success has been built in online and mobile, where shoppers tend to skew younger). With that in mind, decisions about where to begin taking a virtual business to physical storefronts boils down to two questions: where are those consumers living, and where are those customers shopping.

While the first question is fairly straightforward, the second is a little trickier. Fortunately, online retailers have a resource that many smaller brick-and-mortar retailers and startups don’t: a sophisticated understanding of who their customers are. This deep knowledge includes everything from where they live and what they buy, to surprisingly detailed consumer profiles. While supermarkets, drug stores, and other large retailers with robust customer loyalty programs collect similarly detailed customer origin data, online retailers can do so with relative ease—simply because of the realities of online shopping.

Those psychographic and demographic profiles make it possible for online retailers to glean enormous amounts of information from a simple ship-to address, and they also make site selection a more precise and targeted exercise. It’s all about the data– information that enables retailers to separate good locations from not-so-good options. And it’s clear that many online retailers have concluded that the right location for them is typically not “the mall.” Brands like Warby Parker, Athleta and Amazon Books have chosen their initial brick-and-mortar sites in locations calculated to appeal to younger shoppers.

Athleta has mostly chosen to take non-mall sites, either in lifestyle centers or street retail locations. Warby Parker is very focused on street retail, working to emphasize the brand’s destination status. Amazon Books’ first location was in University Village, an open-air lifestyle center in Seattle, and while its second is slated for a traditional mall location (Westfield UTC mall in San Diego), that store will be optimally positioned opposite an Apple store and next to a Tesla store.

While age and income play a role in site selection, perception is also a factor–specifically, the desire to be perceived as something different or special. And while demographic and psychographic data is useful, another important consideration for virtual retailers looking to plant their brick-and-mortar flag is the strength of their existing business in the market. Online retailers’ brick-and-mortar iterations consistently perform best in locations where they already have a strong online presence–and they are understandably leery of opening store locations in areas where they don’t have strong brand recognition. On one level this may seem a little counterintuitive, but strong brand recognition is the best way to establish brick-and-mortar traction, and initial forays into brick-and-mortar cannot afford to underperform.

Additionally, while some online retailers may have initially looked at brick-and-mortar as a novelty—or as a showcase for their online marketplace—they quickly recognized that boosting brand recognition from an established brick-and-mortar presence subsequently increases online sales. This creates a positive reinforcement loop, where multiple channels of distribution create a kind of 1+1=3 effect. Perhaps nobody knows that better than catalog retailers, which have a third channel to consider. One of the first retailers to leverage this strategy effectively was Talbot’s, which had a strong catalog business and made a point to open stores where catalog sales were highest. A more contemporary example is Sundance, currently rolling out the third leg of its multichannel operations by expanding into brick and mortar.

Ultimately, this speaks to a larger truth about today’s evolving retail marketplace: to be competitive, retailers must be effective multichannel operators. Creative relationships are forming between traditional and online retailers—cultivating new and different mechanisms for traditional retailers to establish their omnichannel credentials. I’ll explore those dynamics in my next column.