Transitioning Emerging Brands into Brick-and-Mortar Retail; A Real Estate Perspective

Boston — There comes a time when nearly every successful small business owner who sees their enterprise growing asks themselves, “Do I want to take this to the next level?” Whether it’s a home-based business selling its wares at a farmers’ market, an online distributor of handcrafted items, or a food truck with a dedicated following, that next step often means taking the leap to brick-and-mortar. While many entrepreneurs have successfully executed that conversion, the journey can be treacherous without proper guidance.

To help emerging brands navigate the challenges and potential pitfalls of transitioning to a physical space, the New England Chapter of the Retail Design Institute (RDI) recently held a webinar, “The New Rules of Brick-and-Mortar Success,” which focused on the design and real estate aspects of making the move. Moderated by Corgan architect Paul Koch, president of the New England RDI chapter, the panel featured 20-year retail veteran Ann Ehrhart, founder of retail consulting and brokerage firm EVERSTREET, who works with both landlords and emerging retail brands. Ehrhart was joined by Kaity Cimo and Katharine Requa, who co-founded retail incubator For Now, which helped emerging brands grow, before co-founding Founder Fives, which provides consulting and coaching for early-stage consumer brands.

Ehrhart began by noting that for businesses that successfully transition, “having a physical space [is like] brand expression on steroids. When you are online, people are using two of their senses, but when you get someone into your physical space, you can satisfy all five of their senses. How does it sound in here? How does it smell? I can touch the merchandise, I can see it, and it [enables a proprietor to connect and engage with the community.”

Cimo cautioned that there are “stepping stones” businesses should consider before moving into a physical space, including test-driving their concept with a “pop-up” store, preferably in an established location. While operating For Now, she and Requa offered entrepreneurs shell retail space where they paid rent and shared expenses with other small businesses. This allowed the brands to experience offering their products in a physical space—one where they could drive their online customers without the burden of managing the full scope of the real estate. “To see how it goes,” said Cimo. “If it’s working really well and you find yourself selling more in-store than online by a lot, it’s time to start thinking about the next step.”

Erhart stresses that once a business owner has decided to take physical space, it’s crucial to adopt a data-driven approach to understanding the targeted consumer during the site selection process—something that both established and emerging brands often fail to do. When working with clients, EVERSTREET conducts extensive consumer research to determine what drives people to a retail neighborhood or street, whether it’s dedicated shopping, socializing or simply running errands. “Understanding the context and the consumer is one of the biggest, costliest factors that gets overlooked in retail,” she emphasized. “Understanding your consumer is not just about who they are and whether they are here, but also about whether they are behaving in a way that makes them want to come to my shop.”

The next step is to conduct a thorough analysis of the financial viability of the move long before a lease is signed. This involves performing a break-even analysis by determining the average transaction value of goods sold and calculating the exact number of weekly sales required to cover overhead, rent, and employee salaries.

Once a business decides to transition to brick-and-mortar, the focus shifts to designing the space. “To say [design] is critical is the understatement of the century,” Ehrhart joked. “But the key to successful and viable retail is that all these pillars have to be aligned. Your merchandising has to be dialed in. Who is the landlord? If you’re the retailer, what co-tenancy do you need to be successful? If you’re a landlord or a designer, you’re designing a space to [ensure] the merchandising mix can be successful, so who are the tenants you’re trying to attract? Design, merchandising…all of those things have to be synced with the context of the location, but design is the number two thing that we look at.”

While national brands are able to install custom millwork, tile, flooring, etc.—all of which require long lead times—in new-location buildouts, the budgets for most emerging brands are typically a fraction of what established retailers can spend, so they should allocate accordingly. “Brands should prioritize a consistent consumer experience, and translating your digital presence to an in-store experience can be daunting, especially if you don’t have a design background, but there are also ways to get really creative and really scrappy with that,” said Requa, who added that she and Cimo took an innovative bootstrap approach when they opened their first location. “It wasn’t until year two that we started to think about investing in a more aesthetically pleasing space, and started reaching out to people who had much more sophisticated design experience.”

Ehrhart said that leasing core-and-shell space and building it out can be cost-prohibitive and time-consuming, so the focus should be on the branding rather than the structural elements of the buildout. One of EVERSTREET’s clients opted for a “mint condition, second-generation space in a ‘B’ location,” and the compressed cost and time frame to get open allowed them to succeed and grow their business. “A lot of these groups don’t have 18 to 24 months like a national brand,” affirmed Ehrhart. “And a local operator doesn’t want to wait that long to open. They want to find space and get going on their dream.”

Closing Thoughts From a Real Estate Perspective

In her closing remarks, Ehrhart offered three pieces of advice for emerging brands transitioning to brick-and-mortar. That sentiment was echoed by Cimo, who added, “I think the assumption is that if I take a bigger space, then I will make more sales, my revenue will be higher, and it’s not going to be an issue. But you don’t know that, especially if you don’t have the product to support it.”

Earlier in the webinar, Requa made the point that having professional guidance makes for a far smoother transition. “Kaity and I have always felt that having a physical presence is the most cost-effective way to grow your business,” she said. “But it is so daunting to think about opening a store, so having someone who can help champion the process and who you can really trust is important.”

Ann Ehrhart