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Offline: our failed tests?

E-commerce is eating retail. Online is the only way. The world has "seen two years' worth of digital transformation in two months" because of covid said a big guy from Microsoft. True but even during a year of lockdowns, still 75% of purchases are made offline (at least in Europe). So probably there's an opportunity to try new things that blend both worlds together, what gurus and consultants refer to as onmichannel.

During our four years of existence, we have made many cheap, fast and easy tests. That's probably our competitive advantage: we can anticipate tendencies and try new things. Most of them fail but what doesn't kill you makes you stronger.

Guideshops

When we opened our offices in Barcelona we decided to copy a model championed by Bonobos. They are the grandfather of Direct-to-consumer brands, their founder even coined the unsexy term of Digital Native Vertical Brands. They also created the guideshop concept.

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A guideshop offers customers a physical space where they can touch, feel, try and interact with the brand in order to remove the friction of their first purchase. Once the customer decides to buy, the store representative makes the order digitally on her behalf: she leaves the store hands and worry free, knowing she'll get her order home. This kind of physical spaces solve one of the main problems for fashion digital brands: customers may like the your brand but hesitate to buy because: How is the fit? How is the quality? What size should I order? How difficult is to make a return?

For digital brands, this kind of spaces are a cheap way to de-virtualize, increase conversions and remove friction without compromising their operations. Because there's no offline stock, there's no disruption to their logistics. Digital brands can be offline but still have centralized fulfillment operations.

But this model is based on two premises: a) Either the brand has the digital firepower to convert online audiences into sizable offline foot-traffic for their second-tier locations. b) Or they need to make sizable investments for premium retail locations that helps them acquire new customers that discover the brand offline.

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We even had a two-side tactile screen so clients could check our website (and make orders!) while the guideshop was closed (we only opened during weekends).

In 2019 we tried a) because we had no money for b). And we kind of fail. Not in terms of profitability, because our Guideshop in Barcelona was inside our offices (so it actually helped to offset that fix cost) and our Guideshop in Madrid was dirty cheap (800€/month, Calle del Barco, Malasaña).

But we lack enough strength at the moment to move sufficient foot-traffic to our locations in order to move the revenues' needle. So we had an idea.

Offline marketplace, A.K.A micro-department store for Instabrands

A couple of years ago a new offline model emerged in the US: physical spaces designed to help digital brands be offline without the associated costs and aimed to digital customers that want to de-virtualize their fav brands. From URL to IRL. The reasoning goes as follow: lots of new digital brands want to be offline but they don't know how because of a lack of resources, knowledge or focus. Let's put them all together under the same roof so their cumulative digital audiences in the millions guarantee a constant flood of customers. For customers is a way to discover new brands while they shop the ones they already love from Instagram. For brands it's a way be available offline without headaches and benefit from mutual cross-selling in order to acquire new clients.

The champion of this model is Neighborhood Goods with three locations (2 Texas, 1 NYC) and $26Mn raised lead by Global Founders Capital. But smaller players like Re:Store (San Francisco, 1.8Mn from Sequoia, acquired by B8ta) have emerged.

In a nutshell, this model is just a modern twist of the century-old department store, albeit with cooler brands, locations, aesthetics and some form of accessory technology to seem disruptive.

But it makes sense, so we tried again. We joined forces with four other amazing Digital Brands (bigger than us in terms of audiences and sales) to test this hypothesis: what happens if we put together a group of brands with more Instagram followers than El Corte Inglés in a random location of Madrid? So we transformed our Madrid Guideshop into a multibrand store:

Vogue: "¿Y si las marcas millennials ya no tienen su negocio en Instagram sino en las tiendas físicas?"

From March to June 2019 there were five Digital Native Brands with 650k instagram followers inside a 50m2 space in the trendy neighborhood of Malasaña, just 100 meters from the main commercial street of Fuencarral.

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But those 100 meters mattered: you only passed by our Offsite store if you knew we were there. All foot-traffic came from the combined effort of turning all our online followers into potential offline customers.

And this were the results. There was some kind of correlation between revenues-followers, but some brands (like us) over-performed well above their digital base. but product mattered more to achieve cross-sell between brands:

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We validated the first hypothesis of the model: online likes can be transformed profitably into offline orders and digital brands benefit from the revenue synergies of being together even in second-tier location.

The cool thing? A new opportunity came up to validate the second hypothesis of the model: "put enough lit digital brands together in a premium location with already qualified foot-traffic and they'll acquired tons of new customers while they also convert their online audiences"

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La Roca Village is the most transited commercial area in Spain. Furthermore, it's the most visited location in Catalonia ahead of places like Camp Nou or any of Barcelona's museums. And they offered Offsite a pop-up space during the most busy months: June and July 2019. The space was not top-notch (a plug&play plastic structure on the outside) but the potential of impacting thousands of affluent international new customers was too appealing to start whining.

The results? no correlation at all between followers and sales. In this offline world what mattered the most was merchandising not digital storytelling:

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Conclusions

Offline is hard. Offline is expensive. Offline can help digital brands scale their sales if they know how, where and when.

For us, the experience was a way to validated that our products were likened even when you strip them from all marketing. With our current stockless model offline is not an option. But we believe guideshops for try-on + a darkstore for customers to pick up / return orders can be a wining formula in the future: reduce friction for clients, reduce logistic costs and reduce environmental impact.