Latest / The DTC Marketing Podcast with Fexingo: Direct-to-Consumer Brands, Shopify, and E-Commerce Growth / Why DTC Brands Are Investing in Physical Retail Stores Now
Transcript
- Lucas: So Luna, I want to talk about something that feels almost counterintuitive for a DTC marketing podcast: physical stores. Luna: Oh, I've been watching this trend. After years of 'digital-only is the future,' suddenly every DTC brand seems to be opening a store. Lucas: Exactly. Warby Parker now has over 200 stores. Glossier has about a dozen. Even Allbirds, which had a rough public market debut, still operates around 60 locations. But the question is: do these stores actually make money, or are they just expensive billboards? Luna: I remember when Casper tried it. They opened like 60 stores and then shut most of them down. That was a pretty public failure. Lucas: Right, Casper is the cautionary tale. They went from 60 to about 20 stores. But here's the thing: Warby Parker's stores are reportedly profitable on a unit level. Their average store does about $2 million in annual sales, with margins that actually beat their e-commerce channel. Luna: Wait, so the store is more profitable than the website? How? Lucas: It comes down to customer acquisition cost. Warby Parker's online CAC was around $100 to $150 per customer. In-store, it's closer to $50, because people walk in organically or come from word of mouth. Plus, the average order value in-store is higher — you try on five frames, you're more likely to buy two pairs. Luna: So the store is essentially a lower-cost customer acquisition channel with higher revenue per visit. That flips the old narrative on its head. Lucas: Exactly. And that's the key metric DTC brands are chasing now: not just store profitability in isolation, but blended CAC across channels. If a store generates enough foot traffic to offset its rent, and the customers it acquires have a high lifetime value, it's a win. Luna: But rent is brutal. Especially in prime locations. How do they make the math work? Lucas: They're not opening 5,000-square-foot flagship stores. Most DTC stores are small — 500 to 1,000 square feet. Warby Parker's average store is about 1,200 square feet. Rent might be $15,000 a month in a good location. But if that store brings in 2,000 customers a month with a $100 average sale, that's $200,000 in revenue. The rent is less than 10% of sales. Luna: And they don't carry inventory the way a traditional retailer does. Most DTC stores are showrooms with tablets for ordering. That keeps inventory costs low. Lucas: Right. Glossier's stores are almost entirely experiential. You go to smell the products, test textures, then you order on your phone. They carry very little backstock. That's a huge advantage over legacy retailers who have 40% of their capital tied up in inventory. Luna: But not every DTC brand can pull this off. What about brands that sell low-margin, bulky products? Like mattress companies? We saw Casper struggle. Lucas: Casper's problem was that they opened stores that were too big, too fast, in expensive locations. Their stores were 2,000 to 3,000 square feet, because they needed room for multiple bed displays. And mattresses are a low-frequency purchase — you buy one every 8 to 10 years. So the customer acquisition cost math doesn't work when the repeat purchase cycle is that long. Luna: So the lesson is: physical retail works for DTC brands with high frequency, high margin, or high average order value. And small footprints. Lucas: And a clear omnichannel loop. The store drives online traffic, and online traffic drives store visits. Warby Parker found that customers who shop both channels have a lifetime value 50% higher than single-channel customers. Luna: That's huge. So it's not about replacing digital with physical. It's about using physical to amplify digital. Lucas: Exactly. And that brings me to a newer trend: DTC brands partnering with existing retailers instead of opening their own stores. You see this with brands like Function of Beauty in Target, or Native in Walmart. Luna: That's a whole different set of economics. You don't pay rent, but you share margin with the retailer. And you lose control over the customer experience. Lucas: Right. But for a brand that's scaling fast, it's a way to get national distribution without the capital expenditure. The trade-off is margin compression. Native, for example, went from 70% gross margin online to around 40% in retail. But they grew revenue 10x. Luna: So the decision comes down to: do you want to control the experience and capture full margin, or do you want to scale quickly and accept lower margins? Lucas: And there's no one right answer. Look at Allbirds. They went public with big plans for stores, but their stock tanked. Now they're closing some stores and focusing on profitability. Their stores were never the problem — their cost structure was. They spent too much on corporate overhead and marketing. Luna: So it's not that stores are bad. It's that you have to run them efficiently. Lucas: Exactly. And there's one more thing: the data play. When you own the store, you own the customer data. Warby Parker captures email and phone numbers at the point of sale, then retargets those customers online. That's a closed loop that wholesale can't give you. Luna: That's a good point. If you're in Target, you don't get that data. Target does. Lucas: So for a brand that's serious about building a long-term relationship, owning the store gives you a strategic asset that goes beyond the transaction. Luna: Okay, so if I'm a DTC founder listening, what's the one thing I should take away from this episode? Lucas: Don't think of a store as a profit center. Think of it as a customer acquisition channel that, if optimized, can be the most efficient one you have. Start small, track blended CAC, and make sure your product has the margin and frequency to support it. Luna: And if you're not ready for your own store, consider pop-ups or partnerships first. Test the water. Lucas: Totally. Pop-ups are how Warby Parker started. They rented a hotel room and invited people to try on glasses. That was their first 'store.' Luna: I love that. So the physical retail strategy is really just a scaled-up version of that initial guerrilla marketing. Lucas: Exactly. And if this episode gave you a useful framework for thinking about your own strategy, you know where to find us. Honestly, if today was worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo. Luna: Yeah, we keep the show ad-free, and listener support is what makes that possible. So if you've gotten value from these conversations, it really helps. Lucas: Now back to the retail question: one brand I think is doing this really well right now is a newer DTC sneaker brand called Cariuma. They opened a small store in SoHo, and they're using it as a testing ground for new styles before launching online. Luna: Oh interesting. So the store doubles as a focus group. You can see what colors people pick up, what sizes they ask for. Lucas: Exactly. And they're using the store to generate user-generated content. They have a photo booth where customers can try on shoes and post to Instagram. That content then feeds their social media ads. So the store is almost a content studio. Luna: That's a great example of the blended model we've been talking about. The store isn't just a place to transact; it's a marketing asset. Lucas: Right. And I think that's the final evolution: the store as a media channel. If you can capture content, data, and sales from one physical space, the ROI becomes much easier to justify. Luna: So maybe the future of DTC isn't direct to consumer at all. It's direct to consumer plus store. Lucas: I think you're right. The brands that win will be the ones that blend digital and physical seamlessly, using each channel to reinforce the other. Luna: Great discussion. Let's check in a few months and see if any new brands have opened stores. Lucas: We'll do that. For now, thanks for listening, and we'll see you next time.