When Online Shops Move Offline

Tara Mediate didn’t believe in the Internet. She wasn’t exactly web savvy and more than that, she doubted that the online world had much, if anything, to offer in terms of business value. But when it came time to launch her own company in 2004, she decided to give the Internet a chance.

Together with her husband Joe and another associate, Tara launched KooKoo Bear Kids, a popular retail company that promises one-stop shopping for parents looking to buy high-end clothes, toys, furniture and more. In the beginning, however, there was no shop to speak of, no store window to peer into, just a website and a catalogue that they mailed out to customers. And if Tara had it her way, there would have just been the catalogue.

“It was my husband’s idea to launch the site. He believed that a lot of people were too busy to talk on the phone,” she said in an interview with MainStreet. “Personally, my background is retail, not the web, but my husband was a web person so he was really driving the web site.”

The couple had decided early on not to open a brick and mortar store in order to lower their overhead costs and forego the trouble of staffing it. They wanted to just keep things simple, and for a couple years it worked. Mediate oversaw the products they put out as well as the catalogue, and let her husband play around with their website. “I didn’t concentrate that much on the site and putting new products on it partly because I didn’t think it would be as powerful as it is today,” she said. “I just didn’t think people would make large purchases on it which is not true. It was kind of a learning curve for me.”

By 2006, the site had helped attract a strong cult following for the business. In fact, customers would turn up outside their warehouse in Roswell, Georgia in hopes of getting a glimpse of their products off the computer screen. “We had so many local customers saying they wanted to come and see and feel and pick up the product,” Mediate said. This, combined with the fact that the only other designer children’s store in their town had recently shut down, led them to finally take the plunge and open up a retail store.

In recent years, we’ve heard a lot about companies that are trying to use the Internet to promote themselves and reach new audiences, but some businesses have successfully done the reverse. For entrepreneurs like Mediate, the Internet essentially serves as a forum to sample and grow your business before you invest tens of thousands of dollars to rent out or buy a physical space. Plus, before you even open the doors of your new store, you’ll have to doll out money for office supplies and decorations, staffers to man the place, liability insurance to protect them and property insurance to protect the building itself.

By comparison, there are relatively few costs associated with launching an online-only business, though there are some. If you’re not web savvy, you’ll need to hire someone to design your web page, which can cost several thousand bucks for a proper e-commerce site. It’s important to remember that you’ll also want to continue optimizing your site on a regular basis, so it’s not a one-time fee. Beyond that, you may also want to incorporate your company at some point to make it official. However, your main cost will likely be to manufacture or ship your product, depending on whether your site is acting as the producer or just the middle man. But of course, if you had a storefront, you would have to pay most of those fees as well, in addition to all the other costs of maintaining the space, which is what makes the online-only option so appealing to small start-ups.

“It’s a great testing ground where you can prove a concept and see if you attract press and customers without the huge overhead of a brick and mortar,” said Beth Schoenfeldt, the co-founder of Collective-E.com, an online community for entrepreneurs.

During the last decade, several companies have followed this model. Tree Town Toys, a kid’s store in Michigan originally started as an online-only site called Brain Power. And if you wanted to buy women’s accessories from Jenny Boston, you used to have no choice but to shop at JennyBoston.com; now there are three stores in the Boston area. Last month, the San Francisco Public Press, a non-profit news site, published their first ever hardcopy issue, a 20 page newspaper, after having spent the previous year as an online-only publication. Even Amazon, the biggest e-commerce site of all, may be soon venture offline. At the end of last year, the London Times reported that Amazon was planning a “surprise invasion” of brick and mortar stores.

All of this raises a larger question. Is it really necessary to have a physical store in a digital age?

According to Schoenfeldt, the answer depends partly on what it is you’re trying to sell. “There are many products like clothes that many people love to try on, or food products that they want to taste before buying. Things like cosmetics and skin care need to be, in many cases, sampled and tried,” she said. Even more fundamentally though, there is what Schoenfeldt refers to as the “trust” issue. There are still many consumers out there who “won’t buy online especially from a smaller company that they don’t know or trust.”

The Mediates sensed this issue when their business was online only. “There was definitely a stigma a few years ago when we first started out. People didn’t know if we had an office, or if we were just working out of our homes,” Tara said. One of the main reasons they ended up opening a physical store was because “it made us more legit and showed customers that we are a real company.”

Besides adding legitimacy, businesses that began online can actually end up being more profitable when they open a physical space. The reason, as Igal Alon found out, is because nothing is as good a calling card as an actual storefront.

Alon launched a jewelry business online in 2003 after having been laid off from his telecommunications job the same year. “The fun thing about a website is that you don’t have to be committed to a certain place,” Alon said. He used the site to market his products, and because he didn’t have to watch over a store all day, he also had the opportunity to travel around regularly to industry events and shows. “But at some point, the volume and the time grew beyond something that I could just do from my house. So I decided to rent a store.”

Alon’s store, Mavrik Jewelry, opened in St. Louis in 2005 and he noticed an increase in his business thanks largely to the store’s visibility. “When you work out of a house, you just get totally different exposure than when you have a retail store,” he explained. “If you compete in the online world, you are competing with thousands of sites so your visibility is different. But when you have a store, even if you don’t do anything, you still can be seen.”

Mediate says her company also became more profitable after opening a retail store, but it didn’t happen overnight. “There was definitely a dry spell for about six months when we had trouble getting people to come in. It took a lot of advertising and post cards,” she said. Ultimately, though, having the physical store has helped to increase her market share and add more new customers. “A lot of people won’t ever shop online and a lot of people won’t ever shop in the store,” she said. So in that sense, having both a site and a store have helped capture a wider audience.

Schoenfeldt agrees that the ideal option at this point in time is to have “a nice combination of both” online and offline spaces. “If you aren’t going to open your own store, then sell into stores or consider a pop-up shop where you open a store for a short time,” she said. The bottom line is if you can afford it, why would you want to throw away your opportunity to market your brand offline too?

For Tara Mediate and her husband, marketing themselves in a store and on the web has come with an additional advantage. It has this couple to forge a good working partnership as they each have their role to play. “My husband wasn’t and still isn’t interested in retail, but he is excited about this project because it is going into his space, which is computers,” she said. “Retail is kind of in your blood or it’s not, and it’s in mine, but not his.”

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