Winter 2010
Success with Clicks and Bricks By Melissa Kellogg

From Online to Brick-and-Mortar

Most gift stores these days have a presence online. But what if an online-only business decided to branch out to brick-and-mortar? GIFT SHOP explores the challenges and possibilities of this business move.

The success of retailers like Jennifer DeMaria, Trace Walsh and Tara Mediate proves this: There is room for all types of business models in retail. Walsh and Mediate, the co-owners of KooKoo Bear Kids, started their successful retail business as an online-only model. Soon customers from the local area started showing up on the doorstep of their warehouse wanting to look at the products in person. This trend provided the impetus to open a brick-and-mortar location, which they did. Last April, the business moved into an 8,000 square-foot flagship store in Roswell, GA.

Jennifer DeMaria too started out as an online retailer. She sold handbags, jewelry and accessories through JennyBoston.com. Six successful years later she’s now opened a brick-and-mortar retail store during a recession with consumer confidence at historic lows. Some may call her crazy but since opening her store her annual revenue is up and so are her profit margins and customer numbers.

Making the move

KooKoo Bear has found the transition easier than expected. Joe Mediate, vice president of sales and marketing (and Tara’s husband), has found many advantages to the combined online and brick-and-mortar presence. For one thing, having the store gives the website more credibility. “Customers will browse online but if they can, many prefer to come and buy in the store. Our online store gives us greater reach to faraway places, but in the store we can build closer relationships with our customers by spending time with them,” Mediate says.

In her business, DeMaria says, customers love to touch, interact and try on her products, which they can now do. She says the resulting impulse buys have increased per-transaction sales by 30% to 50%. New and changing visual merchandising displays have increased revenue from repeat customers because every time they visit the store it is completely different. Having a brick-and-mortar location has transformed DeMaria’s customer service model from one mainly consisting of email and phone contact to face-to-face, personal service.

Although these retailers have been successful at making the move, it has not come without its challenges. “Maintaining and running a storefront and an online store are very different,” says retail expert Ted Hurlbut, principal of Hurlbut & Associates, a merchandising and inventory management consulting firm based in Foxboro, MA; “it is important to recognize that it takes different skill sets to do both well.” Business planning, the upfront investment, managing operating costs, inventory planning, staffing and marketing, are just some of the issues retailers are advised to evaluate before making the move.

Business planning

When DeMaria started her online business she did it in small steps and grew incrementally as demand grew. However, opening a brick-and-mortar location means a huge upfront capital investment for necessities such as store build out, start-up inventory and marketing, says Hurlbut. So before a retailer opens its doors Hurlbut says extensive planning is key.

The first step to business planning is to develop a sales plan. Use what you have already learned from your online store in terms of sales volume of items and sales between items, says Hurlbut. One must understand the size of the market and who and where your core customers are. Once you have developed a detailed sales plan, out of that flows the inventory plan, says Hurlbut.

In both Jenny Boston and KooKoo Bear Baby & Kids cases, they had many years of customer data to use for planning their stores. DeMaria had also spent time meeting customers face to face by going to festivals and hosting house parties. Both retailers had existing customers and knew the demand was there before having to make a large upfront investment to open the store.

“I was fortunate,” says DeMaria “because I was online first I was able to build my customer base with a low overhead to start out.”

Upfront investment

For DeMaria, the upfront investment of time and capital to open her store presented a new challenge. Having a physical retail space is more expensive—repairs, inventory, and more have to be factored in. DeMaria’s overhead increased by 40% to 50%. Inventory for a retail store can comprise 75% to 85% of the total assets of the business, according to retail experts and co-founders of the Retail Owners Institute, Dick Outcalt and Pat Johnson. Outcalt recommends that retailers have three times the amount of capital they think they’ll need; he says most retailers fail because of under-capitalization.

Inventory

Hurlbut says the practice of spending more money than you have to build a larger than necessary inventory is over. He says retailers cannot afford to carry excess inventory and must operate as lean as possible. The key to being profitable with a retail store is effective management of inventory and creating synergy between the online and brick-and-mortar stores.

Mediate says that with their brick-and-mortar store, planning inventory has been easier and they have been able to run their inventory leaner. For the online store, he says KooKoo Bear is doing more drop shipping—not taking possession of the inventory just to ship it out again. However, planning inventory for the online store is more challenging especially for seasonal items when the seasons across the country vary widely; for example, it could be snowing in the Northeast and sunny and 70 degrees in Georgia where the store is located, Mediate says. Another plus for the brick-and-mortar when it comes to inventory: It has been easier to sell clearance inventory in the store.

Hurlbut says that the management of inventory and rent are two of the most important pieces to surviving as a new retail store in the present economy.

Location

DeMaria was able to use the recession in her favor to negotiate a more favorable rent for her retail space. She chose a location central to her customers and near major highways so that her customers could easily travel to her store. She also researched how far customers were willing to travel to get to her and learned that some were willing to drive 45 minutes to get to her store.

Hurlbut says that site selection is very important for a new retailer and many get caught up in trying to find the A plus space when according to him they should be looking for a B minus or C space and working harder on making the store a destination.

Mediate also mapped hundreds of thousands of customer orders to decide on a perfect location. Careful research showed that the store’s target demographic—affluent moms, 27 to 37 years old—likes to dine before or after shopping. KooKoo Bear accordingly chose a targeted location in a swanky shopping center that has restaurants. The choice made their location a destination shopping and dining experience.

Staffing

Staffing a store can also be a challenge when moving from online to brick-and-mortar. “People open stores,” says Pat Johnson, “because they love the products and the people who buy them.” So the challenge for a new retailer in hiring staff is to find employees that also love the products and the customers.

To a large extent, DeMaria ended up hiring relatives and friends, which has worked out pretty well, she says. “It’s important to be able to trust the people working for you,” she adds.

Hurlbut suggests that retailers hire people who share their passion and have an ability to engage the customer. It is more about having a genuine love for the products than having a formal, complicated sales program.

Marketing

Hurlbut says that for retailers expanding from online to brick-and-mortar it is important to grow the online community even after opening the store. An important part of having an online presence as well as a storefront is to have a consistent message across all marketing channels both online and in the store. Hurlbut recommends retailers think of social media as a central part of their marketing plan. Start a blog, have a Facebook and Twitter page where you can offer promotions, exclusive deals and invitations to special store events just for your community of customers. He also recommends rewarding customers that bring others into the community. “Marketing in the age of social media is a different mindset,” says Hurlbut, “creating community is an important piece. It’s all about creating a relationship with your customer.”

Customer service

Creating and nurturing the customer relationship has to carry through after the sale with superb customer service. Providing great customer service online is a challenge, says Hurlbut, because “the execution has to be exquisite.” However, with a brick-and-mortar space the customer service becomes face-to-face, which can be easier but no less exquisite.

Mediate says they have found customer service in the store to be easier because customers can get instant gratification. At KooKoo Bear Baby & Kids staff members spend more time with customers, walk the store with them and provide decorating advice.

Mediate says the website and store customer service have to complement each other and work together, so that something bought either online or in the store can be returned through either medium. These days, says Hurlbut, “customer service is a prerequisite to get you in the game and exceptional service is [a] baseline requirement for survival. And those that don’t get it right will struggle.”

For Mediate and DeMaria, hard work has paid off. Despite launching brick-and-mortar extensions to their business in a recession, both have seen sales, profit margins and customer bases grow. Even with its challenges, both businesses say opening a retail location has been one of their best decisions.

Joe Mediate points out that branching out to a brick-and-mortar location is just what customers requested. We had to take the business where the customer wanted it to go,” he says.

Melissa Kellogg

Kellogg is a freelance writer specializing in mountain home and living trends, marketing, real estate and business. She is based in Edwards, CO, and is a regular contributor to Mountain House & Home magazine. Her work has also been published in various newspapers and magazines, such as Beaver Creek Magazine and the Vail Daily.




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