As DTC brands open storefronts, Shopify expands along with them

Walk a block in New York’s Soho neighborhood, and you’ll find a storefront for what was formally known as digital brands. Everyone from Warby Parker to Glossier to Casper has set up shop, part of a growing maturation of the direct-to-consumer brand industry to move beyond digital channels and into the real world.

That’s provided Shopify, the technology powering many of the digital arms of these DTC brands, an opportunity to expand its platform to offer a multitude of physical retail support offerings in the past few months. That includes technology that can help brands launch ship-from-store offerings as well as buy-online-pick-up-in-store programs. The company has also created its own point-of-sale hardware and software that’s iPad-based and also works with Apple Pay.

To showcase these capabilities, Shopify opened a retail services store in Los Angeles late last year where merchants can buy hardware. The space also doubles up as a meetup venue: Brands in the DTC world, whether they have physical presences or not, can meet and talk to each other about best practices, cementing Shopify’s role as the plumbing that’s behind this growing ecosystem.

The company has also offered up space to brands to try to use it to run their own pop-ups — and test Shopify’s hardware. For example, two weeks ago, the store hosted bra company Lively, which set up shop and invited customers and guests to check out their products and make purchases using the Shopify POS and scanner.

Sources said there is also now a dedicated “retail” team at the Shopify merchant conferences — Unite and Pursuit — and the company has been holding physical retail training sessions to help brands who are thinking about getting into the space with established brands like Outdoor Voices — which now has nine stores nationwide and Allbirds — which now has two stores in New York and plans to open eight more in the U.S. this year.

Another big effort has been the launch of Shopify Locations, which lets retailers demarcate multiple inventory lines by location. Luke Droulez, chief marketing officer at home goods company Parachute, said that’s been the biggest boost for the company. Parachute, which sold exclusively online its first two years, now has multiple stores and plans to roll out to 20 stores by next year. But Shopify previously only managed one inventory line, so the company had to create multiple Shopifys in order to have separate inventory pools. But Locations has changed the game. “This helps us have unified customer accounts,” he said.

“We want to help more online-first merchants power physical retail stores, and more retail stores to run online – because ultimately, that will increase merchant success,” said Satish Kanwar, vp of product at Shopify.

Like Shopify’s online plan, the physical offerings work on a monthly subscription basis. Sources said that Shopify drastically undercuts competitors when it comes to pricing. The platform recently rolled out a standardized cost model that they all said is cheaper than literally any other payment process, POS or inventory management platform. Most other platforms cost 5 percent of the gross merchandise value. Shopify is less than half of that, coming at between 2 and 2.5 percent of GMV. But the standardized cost model is also proof of how much this company is growing up — previously, Shopify brought everyone in at what multiple customers called “ridiculously low prices” just to get them into the ecosystem.

In a prior interview, Jeff Weiser, chief marketing officer at Shopify, told Digiday that the “21st-century brand is the direct-to-consumer brand.” And those “direct-to-consumer” brands were mostly born online, seeking to cut out the middlemen and go directly to a customer, without a lot of money or costs involved in setting up leases or even carrying a lot of inventory. But that’s changing — just take a look at New York’s SoHo neighborhood, where formerly online-only brands like Glossier, Casper and Warby Parker have all set up stores. As DTC matures, they’re starting to look a lot more like traditional retail brands.

“Expanding into brick and mortar is a natural extension for brands to grow beyond their online presence. Consumers today don’t follow a single path to a purchase,” said Kanwar. “The ability to buy across multiple channels provides consumers with full control over their individual commerce experience, which is a key success factor for many DTC brands today. We’ve seen merchants experience a significant lift in online sales in certain geographies after launching a brick-and-mortar presence.”

Sutian Dong, partner at the Female Founders Fund, said DTC brands are “taking good opportunities in arbitrage, wherever that is. First, it was search on Google, then it was display, then it was out of home, and now it’s physical retail,” said Dong. “What you’re seeing is that as prices go up on social media, having a retail presence — despite the traditionally prohibitive issues around it like lease terms — remains the more cost-effective way to acquire customers.”

For example, a brand in the Female Founders Fund portfolio is a company called WinkyLux, which is a beauty company. Anu Duggal, partner at F3, said the brand found last summer that paid advertising on Facebook and Google wasn’t making enough economic sense. “So she decided to think about it upside down in a way, opening a small store instead that was carrying inventory but also was Instagrammable.”

It makes sense. Shopify has built a vast, $19 billion company powering a DTC brand revolution. Now, it’s model of “we’ll help you sell your goods online” is transferring to physical retail. For $29 a month, businesses get online stores and, now, access to the Shopify point-of-sale app. Pay more: $79 a month or $299 a month, and businesses get access to register shifts and more.

But it’s through Shopify Plus, the company’s enterprise platform, that it’s able to target growing direct-to-consumer brands most. The Plus program is for giant brands like Reckitt Benckiser but also larger DTC brands as they mature. At Brooklinen, which has been on Shopify for four years and now uses Shopify’s physical offerings for point of sale and inventory management, founder Rich Fulop says it is the easiest and most seamless transition.

“They’re very willing and anxious to collaborate, whether it’s changes to certain reporting or data or anything else.” The company, for example, had asked Shopify about data on discounts in physical stores, and the team complied straight away. “It’s a natural extension.”

All of this is coming in stark contrast to DTC experience with Amazon. As Digiday has previously reported, Amazon considers its customers its own customers, and so is much more guarded about its business — doesn’t share as much data, and doesn’t offer as much in return. For direct-to-consumer brands, who often don’t have much else to go on other than the strength of their own brand, doing a deal with Amazon is tough. Even though Amazon is trying to help with pain points like inventory management, DTC brands are overall wary. 

Michelle Cordeiro Grant, the founder of DTC bra company Lively, started with just using Shopify for payments and the online store and is now doing more. The company has been launching pop-ups and “happy hour” shopping events around the country.

“We fly into these towns, bring our products and bring our Shopify POS scanner and swiper.” Shopify has sent teams into Lively’s spaces to try them out and sent over tips and other ways it can be better, without even asking. “When you’re building a company, you’re looking at the things you want to do for the next phase. I want to keep cohesiveness and discipline close to the vest. I can do that, and they can do the rest.”

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