Kate Hudson's athleisure brand is doubling down on a strategy it borrowed from Apple and Warby Parker

Facebook/Fabletics

Shawn Gold is CMO of Fabletics.

It might seem counterintuitive to start a successful online business only to open stores with actual people and products in them.

But Apple and Warby Parker, two of the world’s five most valuable retailers in terms of sales per square foot, started online and opened stores later. KPCB’s latest Internet Trends report predicts that more companies will soon follow their lead.

Even Amazon announced it's opening more bookstores, which is ironic given what its online business did to so many incumbents, like Borders.

The trend isn’t about overconfident e-commerce executives, though. There’s real value here, and Fabletics is looking to capture some of it.

Let me lay out why and how.

15% of all clothing and accessories are sold online, with an anticipated year over year growth rate of 20%, according to Goldman Sachs' 2016 DotCommerce report. If Goldman’s ambitious projections are accurate, more than 50% of the market will remain in brick-and-mortar stores by 2020.

Facebook/FableticsHalf of a giant market is a lot to ignore — even for organizations built online. In fact, today's e-commerce companies can maximize the benefit of physical stores to their bottom line with less investment than ever.

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. 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. Even the biggest investments – in ad spend, product offerings and physical locations – are informed by deep data, reducing risk and cost.

Brands like Warby Parker and Bonobos already advertise and ship nationally, so they can afford to focus on fewer stores in better locations.

Facebook/FableticsAt Fabletics, retail introduces our products to consumers who are uncomfortable with online ordering. It allows us to service existing online customers at an even higher level. It’s the paradox and payoff of going from online to off.

Our next 18 to 24 stores will be where our online customers are and where brand awareness is strongest.

Since we already have deep data about our online customers, we can customize what we stock in a given store. Local customers will consistently see products on the rack that are more likely to appeal to them. Unpopular merchandise, which a traditional retailer would eventually have to sell at a deep discount, is dramatically minimized.

We also use Omnicart software to reveal how customers are reacting to our stock.

It sends alerts 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. Potential fit and fabric issues are rapidly addressed.

Plus, if a size or product is out, an employee can use the software to add the product to a subscriber’s online shopping cart for subsequent delivery.

Facebook/FableticsWe're seeing that our customers with a store nearby have twice the lifetime value as those without one. These customers also report much higher satisfaction.

All this has encouraged us to double down on retail. Over the next few years we plan to put a store within a convenient drive of 80% of the US population.

Interestingly, about half of our retail customers had not shopped with us online before coming to the store. (For some, there’s no replacement for trying on a pair of leggings in a fitting room.) Of these new retail customers, half end up joining our online membership program to access discounts.

It’s true that the old model of retail is dying. But there’s still a place for physical stores for brands that are built online.

Shawn Gold has over 20 years of experience in communications planning, content strategy and revenue optimization for consumer facing internet companies. Shawn is currently Corporate Marketing Officer at TechStyle Fashion Group. Previously, he was CMO, head of marketing & content for MySpace during its growth from 25 to 110 million users.

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