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Why Online Retail Is Going In Store

Reading the retail trend tea leaves and following the VC investment breadcrumbs would have everyone thinking that physical retailers should more or less fold up their tents and move online. But that’s exactly the opposite of what one online retailer is doing and scored $55 million in VC funding to pursue. Why is Bonobos doubling down on physical store locations and why do they think it will increase sales?

With the trends showing drops in in-store sales as online sales soar, why would a business that specializes in online sales want to open more physical stores? The trend appears to be growing, at least among businesses that specialize in clothing sales.

The answer may rest in reasoning not altogether shocking for a clothing retailer: one size doesn’t fit all, and many folks like to touch and try on the stuff they wear before they buy it.

Among the latest such online businesses to announce plans to add more stores is online menswear brand Bonobos, which last week announced it raised $55 million in new Series D venture-capital funding, increasing its total funds raised to $128 million. Coppel Capital led the latest round, which also had full participation from insiders including Accel Partners, Lightspeed Venture Partners, Nordstrom, Mousse Partners, Glynn Capital Management, Forerunner Ventures, and Felicis Ventures, according to the retailer’s funding announcement.

Bonobos, which was founded in 2007, said it plans to use much of the latest funding round to add 30 more of its “Guideshop” store locations, which would bring the store count up to 40 nationwide by 2016. Guideshop physical locations average about 1,500 square feet, and they do not sell inventory. Instead, they serve as mini showrooms where “guides” serve customers before they make purchases from the company’s website.

“The guide the customer works with in the store will check them out at the end of the customer’s appointment through Bonobos.com,” a spokesperson for the retailer noted in a statement to PYMNTS.com. In doing so, it gains the sale from an attentive customer, who might just change his mind if left to conduct the purchase online later after having left the store.

Guideshops are designed as an evolved answer to the traditional retail experience in that they showcase the entire website offering in a range of sizes to try on “without sacrificing customer attention for inventory maintenance,” Bonobos said in the funding announcement. “With a focus on the customer and a high-touch personalized service model, in-store transactions are double the average order value online, with premium dress shirts and suits penetrating much higher in Guideshops.”

Bonobos says its tailored category, which includes suits, blazers and dress shirts, has seen over eight-times sales growth since 2011 and now represents 20% of the total business to date. Suits sell at twice the rate at the Guideshops as directly online, and dress shirts at a 50% higher clip.

“Customers are loving the look, feel and fit of our suits and dress shirts, and Guideshops have removed the friction of buying them over the Web,” says Dwight Fenton, Bonobos vice president of design.  “We’ve responded to this enthusiasm by introducing slim suits and tailored slim dress shirts this year, and plan to further invest in this category with additional sizes and offerings.”

To help reach its expansion goals, Bonobos will rely on its in-house retail and technology teams for offline and online support. The retailer’s technology team also will continue to play a significant part in supporting the omnichannel business structure as well.

Through an in-house team of 25 New York-based engineers, Bonobos will launch a new version of its mobile-optimized website through the Spree platform in the third quarter.

Bonobos is not alone among online retailers looking for more of a physical presence. In June, Gypsy05, a 10-year-old online California-lifestyle brand, for example, opened its first two retail locations, in Beverly Hills and in the Malibu Country Mart. Later this year, it intends to open a third location, in Orange County, pending completion of real estate negotiations now underway.

Similar to Bonobos’ thinking, the owners of Gypsy05 see the advantages of letting customers touch and feel clothing wear they may have seen others wearing while on vacation.

“We want you to feel like you entered a place that you came across while exploring on your summer holiday,” Osi Shoham, the retailer’s creative director and designer, said in a statement. “You will find things that are unique even for LA. You will want to stop in to find the perfect dress to attend a beach wedding or a special gift for your best friend but then stay for a moment to relax in our lounge area and catch the happenings on Robertson Blvd. It’s the full experience, and it is going to be stunning.”

As clothing-store operators see advantages to having brick-and-mortar locations, other companies that specialize in sales of commodity items such as electronics or office furniture are seeing the trend going the opposite direction. Staples, for example, says it plans to close 225 stores by 2015, or 10 percent of its global footprint, because of rising online sales, which now account for half of the office-supplier’s overall sales.

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