ECONOMY

The ‘Department Store of the Future’ Plots New Course

Neighborhood Goods opened its first store in 2018 to lots of fanfare, with retail observers touting its assortment of internet-only brands as the “department store of the future.” In 2019, Fast Company magazine said it would save New York from the retail apocalypse.

But two-and-a-half years after its debut, Neighborhood Goods has only opened three stores (two in Texas, where it’s based, and one in Manhattan). Co-Founder Matt Alexander, who also serves as CEO, says Covid-19 put the retailer’s expansion plans on hold. To help it get through the pandemic, the startup, which has raised $27 million from investors such as Maveron, received a $680,000 loan from the federal government’s Paycheck Protection Plan.

To revive growth, the retailer, which has an assortment spanning $25 dog bowls to $375 shirt dresses, is expanding to food brands. Many so-called direct-to-consumer companies (meaning they mostly sell through their own website, instead of retail partners) eventually need to move beyond their internal distribution network if they want to keep growing. That’s where Neighborhood Goods sees its role. Bloomberg recently spoke with Alexander about this latest venture, and what’s next.

With that first store in 2018, the company got a lot of press because with e-commerce booming a bet on physical space seemed counterintuitive. Why is the concept different?

We don’t have a traditional department store. We don’t have 100,000 square feet and stuffed full of so, so, so many different brands. It’s much more relevant and much more edited.

And why did you think all these digitally-native brands need a concept like this?

A digital-only strategy doesn’t often result in a profitable and completely sustainable business. You ultimately are going to have to add new channels.

Physical retail is a big component of that. It’s difficult to pursue for a lot of these younger direct-to-consumer, digitally-native brands. It’s expensive, time consuming and landlords may require long-term leases.

This move into food brands—what you’re calling The Marketplace—has a twist because you are going to be serving some of these items in the restaurant section of your stores. Why will this work with these categories?

It just yields a lot of opportunity for everyone involved to really, as I say, socialize the product.

When you started, it seemed like the plan was to grow pretty quickly. Stores make up the majority of your sales, compared to your website. You said you wouldn’t disclose any financial results, but what are your expansion plans now?

We put everything on pause last year, and now, given the environment, real estate is more affordable than it’s been in the past. There’ll be more locations coming online later this year. And certainly lots more next year.

The pandemic forced you to temporarily close your stores, including one in Austin that had just opened. With vaccinations increasing, how quickly are shoppers coming back?

Just in the past three or four weeks, traffic in the stores is now at, or about to be above, what we were seeing in the holiday season last year. In the next six to eight weeks, we’ll probably see traffic at or above the pre-pandemic level. We’re seeing a very optimistic customer.

The company also set itself apart with events, like exercise classes. What does the future hold for in-store experiences, which before the pandemic were seen as one of the solutions to the retail industry’s woes?

We’d love to at least do two or three [events] a week. In our minds, there’s this real opportunity—not just for us, but for everyone—in retail. We see this being a really crucial aspect of what we can offer. There’s a huge amount of opportunity ahead.

But obviously at the moment, the only thing that we really are thinking about is safety.

Editor’s note: This interview has been edited and condensed.

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