Put ‘Er There: Unlikely (But Critical) Tenant Partnerships
Mattress brand Casper was one of the millennial brands that was supposed to save retail.
Born and raised online, Casper began opening stores in top retail corridors across the U.S. as it grew in popularity, next-door to luxury brands, fast-fashion chains and fellow digital native brands like Warby Parker and Everlane.
Like a true millennial, Casper even launched an experiential retail store in the heart of SoHo, called The Dreamery, where customers could pay $25 to nap on a Casper mattress.
Whatever these more novel approaches, brands like Casper are increasingly partnering with more traditional retailers, including big-box stores like Walmart and Target, department stores and other national chains to sell their products.
In October, Casper partnered with Nordstrom to sell its products in 31 stores and online on Nordstrom.com, adding to its roster of more than 20 retail partners that also includes Macy’s, Mattress Firm and Sam’s Club.
The mattress firm, which went public in February, plans to expand those retail partnerships further in 2021, according to the company’s third-quarter earnings call on Monday. “Our Casper stores and retail partnerships are critical to our strategy,” Philip Krim, Casper CEO and co-founder said on the call. “Many customers want to try a mattress and experience a product before they make a purchase.”
Also, in the last few weeks, six-year-old dental brand Quip partnered with Walmart and is now available in over 3,000 Walmart stores as well as online; sectional maker Lovesac partnered with Best Buy; and Lululemon announced that it would sell in its stores smart mirrors from fitness startup Mirror, which it acquired earlier this year.
While retail partnerships between direct-to-consumer brands and traditional retailers has been the trend for several years, they appear to be playing a larger role during the pandemic, as big-box retail emerges stronger than specialty retail, even as customers are increasingly shopping online.
Target’s foot traffic had not only recovered by October, it was above 2019 levels, according to data from Placer.ai, but its online channels were doing even better. Its same-day channels, which include delivery through Shipt, in-store pickup and curbside pickup, increased 273 percent annually in the second quarter, according to a report from Interactive Advertising Bureau. (Target will report Q3 results this week.)
While Walmart’s traffic is not back up to its pre-COVID levels, per Placer, its in-store sales revenue is exceeding it, because the average basket size has increased.
For younger brands, a partnership with a retail behemoth means access to its retail footprint, but, perhaps more importantly and somewhat counterintuitively, its website. The main purpose of retail partnerships is that it allows brands to reach customers they wouldn’t be able to reach otherwise, said Seth Basham, an analyst at securities firm Wedbush who covers specialty retail. “It’s a marketing play,” he said.
As more people shop for more types of products online, the online reach of the big-box stores could be just as valuable as their physical footprint. “There’s more prominent merchandising of some of these brands within the big-box retailers’ website[s],” Basham said. “I think that’s the biggest change that we’ve seen in the pandemic.”
Lovesac’s recent partnership with Best Buy, for example, is expanding an existing relationship and moving it online. In early 2020, Lovesac piloted their products in a handful of Best Buy stores, until COVID put a halt to their plans, but it was enough to prove the two were a good match. “Given the traction that we saw in the short term that we had with them, they wanted to go online with it,” Lovesac CEO Shawn Nelson told Commercial Observer.
Known for its modular sofas called Sactionals, Lovesac hardly seems like a natural fit for an electronics store, but Nelson said that their product is not simply furniture. “It’s a techy product,” Nelson said. “And it really appeals to men, which as a furniture category is rare.”
The partnership, both online and offline, is a departure for the brand, which has traditionally relied on its own direct channels, Nelson said, but it’s strategic. “We’re not trying to be everywhere,” he said.
But the deal will provide Lovesac, a public company with a sliver of market share, exposure to a whole new set of customers, even as its core retail strategy remains its own 105 showrooms. “Our overall strategy in retail is to have as few locations as we can get away with and still reach everybody,” he said. “That hasn’t changed.”
Casper also has its own showrooms, with 65 stores in total, but the firm scaled back its plans for retail expansion in May due to the pandemic. Its current, more modest plans are to open up to 10 more stores by the end of 2021, according to Monday’s earnings call. So the purpose of its retail partnerships is not only for the physical footprint.
“The expansion of our retail partnerships allows us to grow our reach at a relatively low cost while positioning us where our customers want to shop,” Emilie Arel, Casper’s president and chief commercial officer, said on the earnings call, though she did not specify whether she meant online or offline customers.
It’s the need for both that makes traditional retailers so important, analysts say.
“I do believe that Casper thinks that people will go into a Target store and they’re going to walk past the Casper mattress and they’ll be intrigued,” said Ethan Chernofsky, an executive at data startup Placer.ai. “But it’s also the fact that Target checks every box. They’re strong offline, they’re strong online. The strength across the channels is what makes Target such a powerful partner.”
It’s important to note that retail channels are generally less profitable than direct channels because retailers take a cut, Basham said, so brands will only turn to partnerships to expand to customers they couldn’t reach on their own. “If they were cannibalizing the sales, they would have already gone through the DTC channel, so it wouldn’t be a good tradeoff,” he said.
The wave of new alliances is not limited to direct-to-consumer or digitally native brands, as retailers of all types attempt to adapt to ever shifting tides. Beauty chain Ulta recently announced a partnership with fellow retailer Target, in which it will open 100 mini-shops inside of Target stores. That won’t affect Ulta’s own retail footprint, Ulta CEO Mary Dillon told Women’s Wear Daily. The company has over 1,200 stores in the United States, and still plans to reach up to 1,700, Dillon said.
One lesson from these partnerships is that the theory that there is no middle—that what sells is either discount or luxury—is not the case, said Placer’s Chernofsky. “Target’s strategy is telling us there is this middle,” he said.