E-commerce is dead
Of course it isn't. But neither is physical retail.
At Interlace Ventures, we invest in founders reimagining commerce.
Of course e-commerce isn’t dead. But neither is physical retail. In fact, it seems as though we’re in the midst of a physical retail renaissance.
Many believed that e-commerce would dominate retail sales in a post-COVID era. However, that’s not exactly the case.
E-commerce’s share of total retail sales is falling from its COVID peak, and today e-commerce makes up less than 20% of all retail sales in the US.
E-commerce has brought us peak levels of convenience; today’s consumers expect same- or next-day delivery. We have the world’s inventory at our fingertips and we’re more digitally connected than ever. However, we also feel lonelier and more isolated, which is likely an explanation for the recent resurgence among private (membership) clubs. According to Jennifer Enterprise, the founder of a club called CORE:,
There’s certainly been a global yearning, post-lockdown, to reconnect, to exchange ideas, to feel rooted in the culture of a city, and, most of all, to feel a sense of community again.
And, as this retail report puts it,
Humans are social creatures. We like to interact. To look and feel. To experience.
Not only are we yearning to reconnect and seeking out IRL experiences, but brands and retailers of all sizes are struggling to stay relevant as competition in every brand category becomes increasingly fierce. With these points taken into consideration, it makes sense that brands and retailers are (re)investing in their physical “IRL” presences.
This is true for legacy retailers as well as digitally-native brands, such as those pictured below. Relying solely on online (often direct-to-consumer) distribution channels is no longer sufficient.
Stores are becoming experience hubs, where customers can touch and feel products and interact with brands. Technology and innovation are key to meeting new customer needs, like seamless click-and-collect and tech-enabled change rooms.” (source)
Although stores are increasingly tech-enabled, competing along the convenience-axis is difficult when consumers can get virtually any product delivered to their door tomorrow.
Therefore, not all stores should be built to compete along this axis (there are of course exceptions, such as checkout-free stores that are built with ultimate efficiency in mind). Rather, the store should be viewed as an opportunity for brands/retailers to establish greater levels of trust and loyalty with their customers. An additional touchpoint absent in a purely online customer journey.
The store should act as a space where customers can physically and emotionally experience new dimensions of their favorite brands. A thoughtfully designed environment in which consumers can develop a deeper bond to the brand and browse a relevant curation of its offerings. A space to further discover the brand’s voice, become familiar with it, build intent, become a customer, and ultimately a member of that brand’s community. Perhaps even a space where consumers can connect with each other (IRL), through events or shared experiences facilitated by the brand. The store should be an engaging, welcoming, and fun multi-sensory experience (and it of course needs to fit into the brand/retailer's overall strategy).
There are numerous examples of brands developing new concepts of the physical store to enhance the customer journey, including emerging brands such as Bala as well as established retailers such as Dick’s.
IKEA, which has long experimented with various physical store formats, recently announced that they’re investing over $3B into store expansion. Target is investing $5B, a portion of which will help them expand their physical footprint. Both Macy’s and BestBuy are expanding their small-format retail concepts. Macy’s is expanding its “Market by Macy’s” concept, smaller-format stores with a more curated assortment of products, and BestBuy recently announced the opening of a smaller, digital-first retail store. Wayfair is expanding into brick and mortar retail with one location open and another coming later this fall. Visit NYC’s SoHo and you’ll see a constantly evolving variety of digitally-native brands opening a physical presence, including Otherland, Studs and Allbirds, each with their own take on experiential, physical retail (several of these brands are included in the image at the top). Digitally-native brands such as Vouri, Fabletics, and Parachute Homes are also further investing into physical retail. Vouri is said to be opening 100 new locations, Fabletics is adding another 24 stores on top of its existing 50 stores, and Parachute Homes plans to open 20 new stores in addition to its existing 10 locations. Restoration Hardware is known for their extravagant furniture galleries where consumers can spend hours discovering the brand. Glossier has been (re)opening a number of their stores as well. As you can see, many of these stores strive to be “Instagrammable”.
Side note: another interesting IRL retail trend to observe is the numerous partnerships between department stores and beauty brands, such as the partnerships between Macy’s and Clinique; Target and Ulta; and Kohls and Sephora.
Online and offline distribution, whether through owned channels or not, consist of unique sets of problems requiring different technological and logistical infrastructure.
In-store inventory management and curation; staffing; collecting, unifying, and leveraging online and offline data are just a few general challenges faced by brands and retailers, not to mention the process of actually designing and building an engaging IRL experience for the customer (ideally one that complements the online CX).
As this revival of physical retail further develops and the physical store becomes an important focal point of brands’ cross-channel strategies, we will likely see more investment flow into technology and infrastructure supporting this transformation.
We call this theme the “IRL renaissance”, and one of our recent investments in line with this theme is Higher.
Higher is modernizing local commerce. Jonathan, the founder of Higher, discovered a few key insights including the fact that consumers make 93% of their everyday purchases within 10 miles of their home, the majority of consumers agree that it is important to support local merchants, and 78% of consumers have “Amazon-like” purchase and delivery expectations.
Higher is creating a network of tech-enabled elevated shared-space cafés/omni-channel hubs, powered by recurring memberships, expansive product categories, same-day delivery, and more. Think of Higher Hubs as the convergence of a local commerce experience and a membership club.
“As our post-pandemic psyches start to emerge, one trend has crystallized: The big crisis has a number of U.S. consumers — bred on a steady diet of supersized stores and billion-dollar, boldface-named brands — thinking small.” (source)
Interlace Ventures is an early stage fund investing in founders reimagining commerce. Building in commerce-tech? DM me on Twitter or send me an email at erik@interlacevc.com