Why DTC brands are prioritizing permanent retail over pop-ups

As a result, the pop-up era of DTC stores is giving way to a new wave of permanent retail. It’s a return to retail normalcy, but also a change of heart. Online retailers like M.Gemi and Everlane once operated on the belief that, as modern-day brands, they could lay out a new business strategy built on online sales, complemented by a series of temporary retail stints — they’d pop up in new markets, host events and build customer awareness before packing up and moving on the next town. Being nimble and moving at the pace of customer data rendered the long-term lease unnecessary. But, as it turns out, customers like consistency, and constantly building up and tearing down retail stores quickly eats up resources.

While brands may initially enter the market in a temporary pop-up, there’s a much clearer means to an end than before. And while pop-ups may have once sat within a retail strategy, they’re quickly shifting to pure marketing plays for brands with the resources to invest in them.

“It’s become more important to consider a long-term future in a space, post pop-up, than it ever was,” said Matt Siegel, founder of Lantern Real Estate. “Brands are much more reluctant to go through the exercise of building a store knowing that it’s a finite, three-month activation and that, even if it works, there’s not future in the space.”

The scramble
Opening a pop-up store is never not a last-minute effort.

Footwear brand M.Gemi secured a location for a temporary holiday store at The Shops at Columbus Circle in Manhattan last November only a few weeks out from its opening date, after the brand learned another tenant had dropped out. After nailing down a space, the team had to build out the infrastructure, stock inventory, hire staff and set up a data collection system on the fly. It didn’t need to be perfect, but it still needed to be on brand, said Cheryl Kaplan, the brand’s president.

The pop-ups are still an investment. While not as expensive as a permanent store, costing brands on average $50,000 to build and operate, they require a specialized team coordinating not just the opening but also the tear-down. For online brands, these are muscles they haven’t yet had to flex. For M.Gemi, its pop-up strategy required that it build a proprietary in-store app for employees and hire a dedicated five-person physical retail team to work alongside marketing and merchandising. So, these stores are engineered to pay themselves back.

“We don’t use our [temporary] retail spaces as marketing channels; that’s just a benefit of what comes out of it. But we’re negotiating leases as tightly as we can,” said Kaplan. “If we can build in a way to extend the lease if we want to stay longer, we do, but we’re making sure the agreement leads us to profitability so it can stand alone as its own retail channel, without us having to think about generating the retail traffic.”

According to Siegel, pop-ups are a function of the marketplace. When the retail market took a hit, leading to store closings — around 8,500 in 2017 — landlords began to accommodate new lease terms. What might have been a 10-year lease lock-in in the past was now open to negotiation.

The problem is that landlords won’t commit an empty space to a tenant only looking to occupy it for a short period of time too far in advance. It’s simple supply and demand: Landlords are looking for the longest-term tenant possible, meaning they’ll only agree to a short-term lease if no other better offers come along, bringing planning around a pop-up for brands down to the wire. That gave rise to a new type of middleman: the pop-up coordinating platforms, like Appear Here, Uppercase and Brandspots.

“Landlords won’t sign a pop-up tenant more than two months out at the most,” said Yashar Nejati, the founder of in-store retail technology platform Uppercase. “That leaves a lot of brands scrambling, so our job is to make it easy as possible.”

For M.Gemi, the end goal now is to secure a permanent retail store location, according to Kaplan. While the brand once saw a future retail strategy built on flexible, easy-to-relocate Fit Shops, Kaplan now foresees a combination of permanent retail and marketing-driven pop-ups that don’t resemble traditional stores, like the traveling gelato truck the brand took on tour to promote its new sandal last summer.

The fall out
Fancy.com, a social-selling platform that started testing physical retail in 2015, felt the pop-up burnout after opening its 20th temporary store. The company opened its first permanent retail store in August in Manhattan.

“Negotiating leases, dealing with construction and light fixtures, then tearing it down, starting all over and setting it all up again became a time and energy suck,” said Fancy.com founder Joseph Einhorn. “There’s only a certain amount of resources you have, and you can spend time on that, or you can spend time on the customer experience and the iteration of the merchandise. We found the temporary pop-ups to be barely lucrative. You get in, you get out, and it serves a purpose, but what permanent retail brings to the table is an enduring piece of business.”

Temporary retail isn’t a long-term strategy. The future of physical stores for online-born brands will still look different than strategies of past brands, however, according to Graham Brown, a partner at venture capital firm Lerer Hippeau, which has DTC brands like Allbirds, Glossier and Everlane in its portfolio. A pop-up store for research purposes — testing inventory mix, foot traffic and data collection — will be a one-time investment and experiment before launching into a store network. Siegel added that brands going forward will max out at around 50 stores, rather than 500.

After that, pop-ups will be pure marketing plays, meant to promote a new launch, a collaboration or a holiday sale.

“The pop-up will evolve to be within marketing versus a retail strategy,” said Brown. “It’s part of the overall cross-channel experience, but a pop-up is for introduction and experience, and then marketing. It’s important, but it’s not your retail strategy. And it’s not going to take the place of a permanent experience.”