It seems wildly counterintuitive: after building a thriving e-commerce company, powered by technology and data science, close customer relationships and tight logistics. You engage millions of regular customers and a significant run rate and then what? Start opening stores? With actual people and actual products in it! 

Or maybe not so much. At TechStyle Fashion Group we began doing it this past year, with our Fabletics athletic leisure brand. Now we have 16 stores, with many more coming.

We’re not alone either. Kleiner, Perkins analyst Mary Meeker pointed out in her latest Internet Trends report (http://www.kpcb.com/internet-trends) that two of the world’s five most valuable retailers (in terms of sales per square foot) started online: No. 1 Apple and spectacles-maker Warby Parker. She predicted many more online companies will follow suit.

Even Amazon, which knows a bit about online retailing, just announced it’s opening three more bookstores, ironic given what its online business did to so many incumbents back in the day (Remember Borders?). 

But this isn’t just some ego-maniacal madness attacking overconfident e-commerce executives. There’s real value here, and we look to capture some of it. Let me lay out why and how. 

Retail in the Age of E-Commerce

According to Goldman Sachs 2016 DotCommerce report, 15 percent of all clothing and accessories are sold online, with a year of year growth ecommerce rate of 20 percent. Even if those ambitious projections are accurate, that means more than 50 percent of the market remains in traditional brick-and-mortar by 2020. 

Half of a giant market is a lot to ignore, even for organizations built online. So expect retail to become a compelling next step for any growing e-commerce company. Even more compelling, retail initiatives by e-commerce companies are bolstered by strong name recognition from national advertising and deep data learnings from online sales. E-commerce companies will be able to maximize brick and mortar’s benefits to their bottom line with less investment than ever. 

A New Approach to an Old Market.

At Fabletics, we’ve seen this synergy in action. Retail not only introduces our products to consumers who are uncomfortable with online ordering, but also allows us to service existing ecommerce customers at an even higher level. It’s the paradox and payoff of going from online to off. 

Some were skeptical when we first announced the strategy about a year ago. After all, brick and mortar’s decline is well documented: Half-empty malls are being converted to other uses as anchor department stores are closing. Meanwhile, online reach rather than physical ubiquity is building the new brands.

“Opening in a city used to mean you’d have to open 15 stores in a day so you could afford a big local ad push,” says Fabletics’ President of Retail Gregg Throggmartin. “You had to have multiple locations to generate enough revenue so you could build brand awareness. That blanket-the-town approach is no longer necessary. If you’ve built a brand online, going retail is easier than ever."

Online brands such as Warby Parker and Bonobos already advertise and ship nationally, so they can pick just the right location to open up a given market. In contrast to traditional retail, they can afford to focus on fewer stores in better locations, and negotiate better deals for our outlets. 

Now we have 16 Fabletics stores in 12 states, and plan to open 18 to 24 more where our ecommerce customers are, and where brand awareness is strongest.

Improving the Retail Experience

This laser focus has already paying off. With fewer locations, online retailers can invest more in the in-store experience. From my own experience, That focus has helped us to earn a retail Net Promoter Score from customers that’s right up there with Apple and Warby Parker, which are some of the highest in the industry.

At Fabletics, we already have deep data about our ecommerce customers, which we leverage to customize what we stock in a given store. That means local customers consistently see products on the rack that are much more likely to fit well, and to appeal to them. In turn, that dramatically minimizes unpopular merchandise, what a traditional retailer would later have to sell at a deep discount.

We also use Omnicart software, which gives us real-time insight into how customers are reacting to our stock. It tracks consumer decisions from try-on to buy, breaking it down by SKU, size, style and customer. 

If customers repeatedly take an item into a dressing room but don’t buy, or they’re consistently buying a size larger or smaller than normal, the software alerts us to potential fit and fabric issues that we can rapidly address. 

The software also tracks current inventory. If a size or product is out, an employee can easily add the right product to a subscriber’s online shopping cart for subsequent delivery. 

By coupling store offerings with our digital organization in this fashion, we can afford to provide 30 percent more staff than an average retailer, and further enhance a top-notch customer experience in store.

Customer Satisfaction

Consumer brands are built through positive consumer experiences. That’s especially true in this combined approach. 

We are seeing that our customers with a store nearby have double the lifetime value than those without one. Such customers also report much higher satisfaction, in part because we can show them our devotion to their satisfaction in a way that’s impossible online.

These results have encouraged us to double down on retail. Over the next few years we plan to enter every major market, putting a store within a convenient drive of 80 percent of the U.S. population.

New Customer Acquisition

Beyond making our existing customers happier, retail also attracts new customers, especially those who’ve been wary of buying online. We learned that, while many potential online buyers admired our styles, some had reservations about quality because of our affordable prices, and wouldn’t chance a purchase. Basically, for some customers there’s no replacement for trying on a pair of leggings in a fitting room.

As a result, about half of our retail customers were non-ecommerce customers before coming to the store. After trying on clothing, about half of them then join our ecommerce membership program to realize deep discounts. Many tell us they wouldn’t have become members without first experiencing our products at retail. 

All of this is proof that retail still has a valuable place, even if its old model is clearly dying.

Taking the Risk out of Retail

The next phase of retail is embodied by companies like Fabletics, Bonobos and Warby Parker that build brands online, then move into the physical world. Online brands have an agility and deep customer relationships that traditional retail can’t approach. 

Brand messaging can be efficiently tested with a few Facebook ads. Big TV campaigns can be built on low-cost A-B marketing experiments. Product reception can be measured with online teaser campaigns even before going into wider production. Even the biggest investments – in ad spend, product offerings and physical locations – are informed by deep data, reducing risk and cost.

Retail’s new future combines the power of e-commerce with the at-your-fingertips appeal of brick and mortar. Done right, sales are higher, costs are lower and customers are more satisfied. The real bottom line: Retail isn’t dead. But it’s wearing a whole new outfit.