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Published: Jul 23 2021

How Stores-Within-A-Store Can Lower Costs for Direct-To-Consumer Brands

This week, the mattress brand Casper, known for popularizing the ability to order a “mattress in a box” online, announced its latest in a string of brick and mortar store-within-a-store partnerships, this one with Bed Bath & Beyond.

A store-within-a-store is a concept familiar to shoppers, where an independent outpost of a brand stands alone inside a larger store, i.e., a Starbucks within a Target. Casper’s soon-to-be presence in Bed Bath & Beyond is not the first of its kind for Casper, with the company now operating in over 70 locations including Nordstrom, Sam’s Club, and Target.

As a pioneer in e-commerce, the opening of brick-and-mortar stores within established retailer locations seemingly goes against Casper’s direct-to consumer-model. So why would Casper invest so heavily in a shop-within-a-shop model? Casper is not the only one, with many e-commerce companies crafting similar strategic partnerships, even as e-commerce sales are projected to continue to rise.

In this post, we’ll discuss some of the major benefits e-commerce companies can reap by adopting a store-within-a-store model to keep customer acquisition costs down and how this model provides a win-win for both the specialty brand and its host retailer.

Benefits for E-commerce Brands

Launched in 2014, Casper began as an e-commerce direct-to-consumer brand at a time when mattresses were purchased almost entirely in person. At that time, the founders initially had trouble convincing investors that consumers would even buy something touch and feel focused like a mattress online. Since then, Casper has become incredibly successful in selling mattresses solely online, proving that products once thought to be necessary to buy in person can be successful in e-commerce.

For brands that enjoy a sizeable e-commerce presence, however, having select brick and mortar locations can be highly beneficial. Though many direct-to-consumer brands originally saw an opportunity to sell directly to consumers online to cut out the middleman, the constraints of operating as a digital-only retailer have become more pronounced in recent years.

A significant constraint is that the cost to acquire customers online is so high that it is often prohibitive. Digital advertising costs, through Google or Instagram for example, fluctuate based on demand and can be hard to predict. As a result, marketing budgets can balloon, with Casper spending 33% of its total revenue in Q1 of 2020 alone, with many direct-to-consumer brands not far behind.

Even after customers are acquired at great expense, there is no guarantee of repeat purchases or customer loyalty. As a result, many direct-to-consumer brands have been looking to bring acquisition costs down, and many have looked at physical retail as a way to achieve this objective.

Why Invest in the Store-Within-A-Store Model?

Why opt for a store-within-a-store instead of fully investing in an independent location?

First, for many physical retail locations, real estate and operating costs can be high and necessitate a big long-term commitment. Lease negotiations can be complex and competitive, and construction cycles long. By partnering with an established retailer that is adept at building and managing stores, brands can save themselves years of operational efficiency gains and reap the benefits of a retailer that has already scaled. The brand renting the space can independently manage its operations, freeing up the host’s resources and allowing the outpost to fully control the merchandizing, inventory and customer experience.

Second, the right partnership not only offers the brand a physical space but also creates a win-win for both the specialty brand and the retailer where it’s operating. Smart partnerships highlight one brand’s customers to another without direct competition, including enabling the host store to offer access to a brand with significant online buzz, like Casper.

When the partnership is chosen and executed well, both parties see a higher ROI per square foot, in addition to higher margins.

Tying it All Together

Though it is not new, the store-within-a-store concept continues to prove itself to be a valuable option as the retail landscape continues to evolve. As high marketing costs associated with digital-only sales put into question the viability of a direct to consumer-only model, promising partnerships like the one between Casper and Bed, Bath & Beyond can lower the cost of the direct-to-consumer brand’s customer acquisition while driving traffic to the host store.

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