Several years ago, at an industry conference overseas, I got into a debate with a pundit about the necessity of brick-and-mortar stores. Prove to me, he said, that a web-based retailer needs a physical presence and should take that risk. My reply: “Amazon is opening stores.”
Amazon, of course, could afford to experiment with a physical bookstore and convenience store and later afford to acquire an entire grocery chain in Whole Foods. Smaller web-retailers don’t have those resources, even though real estate owners, managers and brokers have been turning to internet-based retailers to fill vacant spaces. The argument, mostly justified, is that shoppers want the full omnichannel (a word we’re all heartily sick of) experience, including the possibility of returning items in person. So who helps smaller “clicks” become larger “bricks?”
One answer is real estate venture capital firm Fifth Wall, which in February closed its $100 million Retail Fund. Backed by many of the largest retail real estate owners and service providers in the U.S. and globally, including Acadia Realty Trust, Cushman & Wakefield, Macerich and Nuveen Real Estate, the fund will seek to invest in emerging brands and retail concepts to accelerate their brick-and-mortar expansion through retail partnerships with Fifth Wall’s strategic consortium of more than 50 corporate strategic investors from 11 countries.
Even though e-commerce has more than doubled from 4% to 11% of retail sales in the U.S. over the last 10 years, nearly nine of 10 retail transactions take place in a store. According to Fifth Wall, digitally native brands have opened over 1,800 stores around the U.S.
Fifth Wall has been a part of that expansion, the announcement noted. The firm has invested in emerging omnichannel brands and retail concepts, including Allbirds, Carbon38, Cotopaxi, Foxtrot, Heyday, Industrious, Interior Define, Madison Reed, Taft and Untuckit.
“We started online, but always knew we would have a physical presence to better serve our customers,” said Aaron Sanandres, co-founder and chief executive officer, Untuckit. “When Fifth Wall backed Untuckit, we had 15 stores and the goal of growing that by another 100 in five years. In part through the help of Fifth Wall’s real estate network in the U.S. and abroad, we’re already well ahead of those ambitious plans.”
Money is just one — albeit extremely important — factor as internet retailers explore real estate. Landlords have become more open to pop-up shops. The new fund goes beyond offering financing to creating networks that bring together investors who aren’t expert in the challenges of physical retail, landlords who may not know of all of the brands that are looking to expand (especially if they’re relatively young), and the brands themselves.
“New e-commerce brands know the importance of being wherever their customers want them to be at all times — they simply cannot reach their full potential if they remain solely online,” said Kevin Campos, partner at Fifth Wall, who leads the Retail Fund’s investments in omnichannel brands. “However, digitally native brands often aren’t familiar with the challenges of retail real estate expansion and we’ve observed that many traditional VCs lack the experience to be able to meaningfully engage on issues like site selection, store design, merchandising, and staffing. Fifth Wall aims to support brands on these very issues. We’ve assembled a consortium that includes many of the largest retail real estate owners, and we believe they’ve invested in the Retail Fund because they want to see these new brands earlier and help them succeed with thriving stores.”
Many landlords have individually encouraged local entrepreneurs to try physical retail through specialty leasing programs. It’s great to see industry giants come together to find the tenants of tomorrow. Will they all succeed? Of course not. But these brands will have a better chance with the connections, expertise and, yes, funding available through this collaborative effort.
“Our top properties in top markets are natural platforms for a wide range of innovative concepts, such as Industrious, Untuckit and b8ta, benefiting from Fifth Wall’s expertise and investment,” said Tom O’Hern, Macerich chief executive officer. “This new Retail Fund, which supports the ecosystem of emerging retailers, is an exciting step.”
Debra Hazel
Debra Hazel Communications
Arverne, NY 11692
debra@debrahazelcommunications.com
201-618-5247
