Digital-native retailers have struggled to find the right balance between online sales and opening brick-and-mortar locations. Having physical retail stores helps in that customers can sample products, which could lead to them becoming regular online customers.
I bought my first Untuckit shirt, for example, in a physical store after trying it on. Since then, I have purchased multiple times from the company’s website.
Brick-and-mortar chains, however, cost money and can be a drag on profits compared to simply running an online-only operation. It’s a challenge to maintain the cost edge of being a digital business while also finding ways to expose customers to your products.
That’s a challenge that has caused problems for Allbirds, a pioneering shoe company that began as a digital-first brand. At its peak, the company had over 60 retail stores and now it’s making massive cuts to those brick-and-mortar stores in the pursuit of profitability.
Digital native chains have closed stores before
- Parachute Home, a digital-first bedding and home goods brand, closed 19 of its 26 stores and refocused back on e-commerce and wholesale partnerships with retailers like Target and Nordstrom after physical retail proved unprofitable, according to Business Insider.
- Amazon is shutting down all Amazon Go and Amazon Fresh physical stores, reflecting struggles to scale certain tech-centric retail formats originally linked to digital innovation, reported the Wall Street Journal.
- Some digital-native brands like Warby Parker and Outdoor Voices opened physical stores but later reassessed their footprint as part of broader industry reevaluation of the cost and complexity of brick-and-mortar, according to the ICSC.
Many retailers find they need some brick-and-mortar presence.
“You can only accomplish so much being online,” Beta Agency Partner Rob Ury told ICSC.com. “There are products that people want to experience and touch, such as leather, which is a warm and welcoming smell when you enter the store.”
Finding the right balance, however, can be a challenge.
“There have been headwinds. DNBs that operate physical stores and could face bankruptcy include Sleep Number, Rent the Runway and Peloton, according to an October 2024 report from Health Merchant Services that cited CreditRiskMonitor,” ICSC shared.
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Allbirds closing nearly all stores
Allbirds has decided to close all of its traditional full-price stores in the United States, keeping only two outlets and two stores in London. At its peak, the company had 61 retail locations.
The shutdowns will be completed by the end of February. Allbrids called the closures an effort to enable the company “to dedicate resources toward its e-commerce platform, wholesale partnerships and international distributorships, all of which offer greater reach, flexibility and operating leverage,” it shared in a press release.
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After the shutdowns, the company plans to operate a “capital-light endeavor.”
CEO Joe Vernachio belives that these moves have to be made to bring the company to profitability.
“This is an important step for Allbirds, as we drive toward profitable growth under our turnaround strategy. We have been opportunistically reducing our brick-and-mortar portfolio over the past two years. By exiting these remaining unprofitable doors, we are taking actions to reduce costs and support the long-term health of the business,” he said.
Digital native brands struggle in physical retail
Digital-native brands have struggled when opening brick-and-mortar stores.
“In general, brands that think of their go-to-market channel as a defining strategy, much less a competitive moat, don’t tend to work,” Publicis Groupe chief commerce strategy officer Jason Goldberg told ICSC. They’ll find the tactic “isn’t likely to make them a winner by itself.”
Some retail experts still see having some brick-and-mortar presence as important.
“The main risk is that without physical stores it will be more difficult for some to build presence and win over new consumers. Online is a very crowded space, and a physical presence can help cut through the noise and give a DTC brand more significance,” GlobalData Retail Managing Director Neil Saunders told Retail Dive.
He did note that physical stores “won’t necessarily provide immediate relief to brands that have struggled to turn a profit for years.”
In addition, operating physical stores requires different expertise than running a digital operation.
“Brands rush into retail expansion without building the operational infrastructure to support it. They apply digital-first thinking to physical-first problems,” shared RetailBoss.
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