The past decade in retail has been the golden age of direct-to-consumer (D2C) and digitally native vertical brands (DNVBs) that use the internet to communicate with customers, execute transactions, handle distribution and offer better economics.
But as small independent startups have scaled into unicorn territory and as countless brands have saturated digital channels, customer acquisition has gotten harder and costlier. Companies are now trying to meet customers with different purchase habits by developing physical stores.
However, building an effective brick-and-mortar presence can be expensive and risky for DNVBs, requiring resources outside their core competencies. Chicago-based startup, Leap, is hoping to make it easier for digital brands to grow physical retail footprints without the typical risks of store development by taking care of the entire process for them.
Leap offers a full-service platform covering the complete life cycle of a brand’s brick-and-mortar launch. In addition to owning the lease and the financial commitments that come with it, Leap covers everything from staffing, experiential design, tech integration, and even day-to-day operations.
Less than a year since its founding, Leap announced today the launch of its first store and the close of a $3 million seed round, led by Costanoa Ventures, with participation from Equal Ventures and Brand Foundry Ventures.
The debut store will act as the first Chicago location for Koio, the high-end D2C sneaker brand backed by headline-grabbing names like the Winklevoss twins, director Simon Kinberg and actor Miles Teller.
Instead of paying a monthly lease fee, along with all the other variable costs associated with operating a physical store, companies like Koio pay Leap on a percent of sales basis, effectively minimizing risk and incentivizing performance.
On top of minimizing development expense for brands, Leap believes its customer insights and intelligent logistics platform can help improve shopper engagement, increase customer traffic and drive brand lift. If the startup’s thesis proves true, brands can improve both sides of their brick-and-mortar unit economics by reducing customer acquisition costs and amplifying customer value.
At its core, Leap simplifies a DNVB’s physical retail operations into a single line item on its P&L, allowing the company to focus on brand building and supply chain rather than retail strategy, while also allowing them to scale faster.
With the latest fundraise, the company hopes to build out its team and continue new location expansion. Longer-term, Leap’s co-founders hope to build a vast network of sites, that can help provide intelligence around new store development and shopper preference.
“We want to be the platform to help brands go to market in the offline space”, said co-founder Amish Tolia. “We want to help brands build direct-to-consumer relationships in local neighborhoods across the country and enable them to focus on what they’re best at. Enable them to focus on product innovation, supply chain management, great marketing and brand building.”
A glimpse into the future retail
While Leap’s value proposition is straightforward, its business model points to a bigger trend in the world of retail.
By opting to sell its software and brick-and-mortar services rather than creating its own brands, Leap effectively acts as a “retail-as-a-service” platform. The as-a-service strategy is already quietly growing in popularity in the retail space, with companies like b8ta, the Internet of Things gadget retailer, launching its hardware-oriented “Built by b8ta” platform earlier this year.
Though likely heavy in upfront capital costs, retail-as-a-service businesses don’t have the same constant concern around supply chain, manufacturing, consumer acquisition and marketing spend. And in certain pricing models based on a monthly fee or percent of square footage basis, platforms can see more stable revenues relative to pure retail startups.
From a brand perspective, DNVBs have been looking for ways to extend growth runways while minimizing the cost and uncertainty that deterred them from physical stores in the first place. The as-a-service model can make brick-and-mortar retail a much more scalable engine, possibly even cooling rising concern around bubbling consumer valuations.
As more of the young digitally-born D2C giants resort to as-a-service companies to find marginal customers, we may see the rise of a new set of startups fighting to establish themselves as the platform on which brands operate.
If the last decade was defined by retail online, it’s possible that the next decade will be defined by retail-as-a-service.
And if you find yourself in Chicago, feel free to check out the Leap-enabled Koio Store at 924 W Armitage in Lincoln Park.
By Arman Tabatabai