1) Build-A-Bear thrives—Toys R Us dies.

What happened

  • Build-A-Bear has posted four consecutive years of profitability and remains debt free in an era when brick-and-mortar retail is deteriorating for former industry giants, often because of private equity-induced debt loads.
  • The workshop’s success is particularly stark compared to Toys R Us, which announced in March 2018 that it would shutter all 735 of its stores. Build-A-Bear has even grown its brick-and-mortar stores by 12% in the last five years.

Why it matters

  • While other brick-and-mortar retailers, whether in the toy sphere or not, are striving to update their in-store experiences as foot traffic and sales get swallowed up by ecommerce, Build-A-Bear has been keeping it experiential since its founding in 1997.
  • Toys R Us, a main Build-A-Bear competitor, sought to stay afloat by slashing prices and reducing inventories—Disney, which saw its retail sales dip 10%, down to $1.21 billion in the first nine months of 2017, seriously remodeled its stores to incorporate movie theater-sized screens that bring its theme park entertainment to brick-and-mortar locations. But the Build-A-Bear workshop has always considered itself a retailer of memories, rather than a retailer of toys—and it’s point of departure has always been an experience, something that’s inherent to its own name.
  • Though Build-A-Bear isn’t immune to the changing retail landscape—revenue has decreased over the years—the experiential component in its stores has maintained a pliable real estate strategy. Over time, the company has evolved away from traditional mall locations to build customizable sites and establish workshops in AMC movie theaters, Caribbean resorts and on Carnival Cruise liners, meeting its target customers—often tourists—where they already are. It also continues to sell experiences that appeal to children and adults alike, a strategy that other companies are sure to increasingly adopt in the future.

2) The lingerie brand Adore Me will establish a serious brick-and-mortar presence, built on a philosophy antithetical to that of Victoria’s Secret.

What happened

  • Adore Me, a digitally-native direct-to-consumer lingerie startup founded in 2012, plans to open 200 to 300 stores near the stores of industry competitor Victoria’s Secret. The company predicts the expansion into physical locations will take five years and will start with up to ten brick-and-mortar stores in 2018, adding another 20 in 2019.
  • Meanwhile, L Brands, Inc., the parent company of Victoria’s Secret, saw same-store sales fall 6% in Q4 of 2017 as it continues to double down on its dated retail strategy.  

Why it matters

  • Though buying lingerie online hasn’t caught on as quickly as other products because sizes and styles matter much more, changes in the market—the growing prominence of bralettes and sports bras—are making ecommerce a more appealing option with lower frequency of sizing error. This runs counter to the idea that Victoria’s Secret—and lingerie more broadly—was insulated from the growth of online shopping. Adore Me also caters to plus-size shoppers, whereas L Brands does not.   
  • Victoria’s Secret is intent on maintaining its brick-and-mortar presence, which is says is what consumers want. But the company has not attempted to evolve the in-store experience—in fact, the long-time CEO of L Brands, Leslie Wexner, doesn’t believe the internet has had an effect on shopping. However, the Victoria’s Secret retail experience, which is primarily built for men as the buyer—not women—clearly has its days numbered.  
  • Meanwhile, Adore Me is planning on creating an in-store experience that stays top-of-mind for female shoppers by integrating offline and online retail. Sales associates will check customers out on mobile devices and some physical locations will be showrooms where shoppers can try on items and get them shipped to their doorstep. Because Adore Me already has a strong customer base, it doesn’t have to rely on its physical stores to increase sales and can use them to enhance awareness for the brand instead.

3) NYC Mayor Bill de Blasio is toying with creating a commercial vacancy tax for landlords to rejuvenate New York City retail.

What happened

  • Bill de Blasio announced last week that he is shaping a vacancy fee or tax policy that will penalize landlords who leave their storefronts empty for long stretches of time in order to find the most lucrative tenants. The City Council is also considering creating a database that will track retail vacancies across the city.
  • Manhattan’s retail vacancy rate has doubled from 2.1 to 4.2% between 2012 and 2017, according to a December 2017 City Council report. Vacancy rates in the Upper West Side along Amsterdam Avenue are at 27%—retail along Broadway in Soho is 20% vacant, according to The New York Post, which considers 5% or less to be a healthy rate.

Why it matters

  • As more brick-and-mortar stores shutter, surrounding real estate, neighborhoods and cities run into more obstacles—even New York City, a global center for commerce, is not immune. Landlords keep waiting for big national chains that want to sign long leases to show up, but they largely are not, which leads to endless empty storefronts. But as brands and retailers experiment with ways to update and rejuvenate their physical presence, policymakers can also establish practices that incentivize landlords to fill up retail spaces with quality tenants—which do still exist—rather than holding out for a dream tenant.
  • Paradoxically, many cities have rushed to create appealing proposals—with massive tax breaks on online shopping—to Amazon in the hope that the company will establish its second headquarters in the area. While De Blasio submitted the paperwork for New York City, he remains opposed to ecommerce giants taking away business from local companies and emptying out retail spaces. The mayor’s proposal also did not include big tax breaks, emphasizing consistency between his two proposals.

4) Goop raises $50 million, but will have to offset an increasingly high valuation.

What happened

  • Goop, Gwyneth Paltrow’s lifestyle brand that started out in 2008 as a newsletter and now sells products, has raised a total of $75 million. It will use the money to expand its ecommerce operations and bring the company to international audiences, particularly in Europe—a large part of this growth will come from an expanded line of Goop’s private-label products.
  • The company expects to double its revenue in 2018 and says it tripled its revenue year-over-year for 2016 and 2017—2016 revenue was estimated at $15-20 million, meaning 2018 revenue should surpass $100 million.

Why it matters

  • Goop’s newest funding round increases the valuation of the company to $250 million, making it all the more necessary for the brand to expand to new markets and keep selling products. Goop began shipping to Canada in December 2017, which likely has been a boon to the company, attracting more investors and markets for expansion.
  • The premise of celebrity-driven brands is that they can market and grow for much less money because of their existing audience and publicity—but Goop, like Jessica Alba’s Honest Company, continues to move in the opposite direction, raising tens of millions of dollars. This could be because things are going well, which seems to be the case for Goop in some respects, but it still calls into question how much building a brand around a celebrity is worth and how much it really increases the efficiencies needed to scale.