Naked Retail works to take DTC model to the next level

Article courtesy of Forbes here



Physical retailing is going through its toughest challenge in generations. New York City businesses have been decimated by the pandemic. And the direct-to-consumer retail model is in the midst of a major reinvention.


Just the conditions to open a new store, Justin Kerzner and Bruce Gifford decided. Even more so, to give it a provocative — and certainly eye-catching — name: Naked Retail.


Earlier this month Naked Retail opened (it’s actually a reopening, but more on that later) in Manhattan’s Nolita district, a physical location for direct-to-consumer online brands to showcase their products and make an in-person connection with shoppers.


It’s the newest retailer to work this model, following a similar — though the partners say a different — strategy from players like Neighborhood Goods and Showfields, both of which operate stores in Manhattan not too far from Naked Retail.


“We believe this is the perfect time to open a collaborative-facing retail experience,” Kerzner told Forbes.com after conducting a video tour of the 7,000-square-foot (4,000 of which is selling space) store located on Mulberry Street.


“We’re quite a bit different than the average store. We developed our model to offer any sized brand an opportunity to showcase their product in a physical environment. It’s cost-effective and focuses on collaboration in order to boost awareness, sales and content.”


Kerzner believes that with the Manhattan retail real estate situation so Covid-impacted the opportunities are there for the right store with the right format — in the right neighborhood. “The physical landscape isn’t going away — it’s just changing. We’re confident that our model presents an exciting adaptation to traditional retail practice.”


That model is the one originally digital-native brands are increasingly turning to as they try to seek less expensive ways to find — and keep — customers. Online-only marketing and selling have proven to be the Achilles’ heel for many brands who are finding a physical presence is a better way to reach shoppers.


While some larger DTC brands like Warby Parker and Everlane have opened their own stores, others like Harry’s and Purple have sold to existing third-party retailers and still others like Casper have done both, many smaller startups have turned to retailers like Naked Retail that show dozens of them under one roof. Some of the DTC brands look upon these retail ventures as marketing more profit centers onto themselves.


The financial model usually involves paying rent for a specified period of time and sometimes a percentage of sales. Naked Retail employs a combination, with rents generally in the $600 to $900 a month range for three-month runs and a revenue share of 8% to 35% depending on the brand.


Naked Retail runs anywhere from 42 to 50 different brands at any given time, some taking 350 to 400 square feet of dedicated space and others grouped together in shared space that has a more conventional retail format. The merchandise runs the gamut from fashion to home to health and beauty to food and beverage. Some brands are exclusive to the store, but most are not.


Kerzner isn’t worried that DTC-showcase type formats are getting too common. “There’s always room for other retailers in this space. There are so many categories that are ripe for a collaborative, curated environment.”


And what makes Naked Retail — which first opened a year ago in a test format but closed for a period before this second phase reopened this fall — different from the competition? “From the consumer/curation side, this isn’t rocket science. We simply curate brands we love and are inspired by. The hard part is figuring out how we bring them in without confusing the customer journey and overarching theme.


“My cofounder and I both came from the brand side (Kerzner shows his own DTC brand in the store) and we know how difficult it is to entrust someone else with our brands,” he said. “I’m incredibly proud with how available and communicative our team is with every one of our brand partners. In addition to consistent team education and daily trainings, we prepare weekly feedback reports, bi-weekly selling and inventory data and consistent streams of content and strategy.”


For the suppliers, Kerzner says there are advantages to the physical presentation beyond just the customer acquisition cost factor. He says the ability of smaller brands to be co-located with better known larger ones pays off, as do added services like content creation for social media, events and press coverage. Naked Retail did not provide any hard numbers on its revenues or projected sales but did say its own Naked Cashmere brand averages $100,000 monthly for its 250-square-foot space while another, smaller brand, KraveBeauty, averages $15,000 monthly for its 40-square-foot space.


Kerzner says he and his partners hope to expand beyond the original store at some point and will be launching a transactional website in the first quarter of next year.


And what about that name? He says in this age of transparent everything, “We don’t want to encroach on our brands’ identities. We want a naked identity for the store.”

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