Can the “WeWork for retail” save the department store?

To the average shopper, Neighborhood Goods will likely feel like your good ol’ department store.

The store — which opened November 17 in Plano, Texas’s Legacy West shopping district — is stocking labels shoppers know, and possibly even love, in a central location. It sells clothing, skin care products, home goods, gadgets, and more. It has a sneaker museum, where shoppers can learn about the history of “drops” and presumably get some great shots for Instagram — exactly the kind of experience that malls are trying to give shoppers more and more these days.

But your local Macy’s doesn’t sell direct-to-consumer brands like Hims and MeUndies, and it almost certainly doesn’t have advanced cameras that track shoppers’ movements and an app that will send you targeted recommendations based on items you browsed but didn’t buy. And, behind the scenes, the business model — which allows startups to rent space in the store, the way office workers can in a WeWork or vacationers do via Airbnb — could potentially disrupt brick and mortar retail as we know it.

Neighborhood Goods is one of two new retail initiatives that is bringing the principles of the sharing economy to the mall. The other, Re:store, opens in February in San Francisco and is even being marketed as “the WeWork of retail” by its founder, Selene Cruz.

While the sharing economy got its start with Uber and Airbnb servicing individuals, it’s now for businesses too. WeWork professionalized Airbnb’s same proposition, creating a way for workers and businesses to efficiently share the cost of office space. WeWork is now the largest office tenant business in New York and has spawned an entire industry of copycat co-working spaces. (Airbnb, with about $5 billion in the bank and a $31 billion valuation, is wreaking havoc on hotel chains and is causing city councils to panic too.)

The fundamentals of these multi-billion dollar disruptors — how sharing can lower costs and limitations — is exactly what retail needs, says Neighbor Goods co-founder and CEO Matt Alexander. Take Soho, one of New York’s top shopping destinations, where rising rents have turned the neighborhood into a ghost town. Madison Avenue, another top shopping destination in New York, has rows of empty storefronts too, as do formerly retail-heavy neighborhoods in the Bay Area and Los Angeles.

Neighborhood Goods has corners of experiential retail throughout its store.
Neighborhood Goods

“There needs to be more done with the retail space to lower the barriers to entry and bring brands to the door in a more efficient way,” he says. “The real estate industry operates on a totally different pace than startups. Startups want to move quickly and easily, and not be tied down to a 10-year lease.”

The proposition of joining a space like Neighborhood Goods or Re:store makes sense for new companies.

“The Neighborhood Goods model enables us to test and learn about physical retail for a fraction of the investment that would be required to do something like this on our own,” Galyn Bernard, the co-founder of kids clothing brand Primary, says. “The fact that we can trust them to manage our physical space for us means that our small team can continue to stay focused on the thing we are best at, which is making awesome clothes.”

Re:store’s Cruz can relate. She had previously started a handbag company, Archer Brighton, and her experience didn’t just show her how impossible it is for small companies to expand into stores — it showed her how retail was a Catch-22. While having a real-life outlet is necessary for growth, it’s impossible if you don’t have enough product or funds.

“At Archer Brighton, we sold just handbags, and we weren’t interested in expanding into coats or shoes,” she says. “A small company should be able to move into retail without spending their entire budget or attempting to fill a space. Re:store gives them an opportunity to lean on the followings of like-minded brands.”

Re:store will launch its first location selling products from about 60 smaller brands that have only been available on Shopify or Instagram up until now. Cruz adds that many of the small Instagram brands she’s speaking with are sick of relying on social media to boost their brands.

Kids clothing brand Primary’s first retail presence is inside Neighborhood Goods.
Neighborhood Goods.

“These cool Instagram brands would rather tap into their networks and share their following than continue to give money to Facebook, which will take their ad dollars and then place them right next to a competitor,” she says. “I think they realize that there are customers who want to learn about new brands, but don’t know how to discover them when there are hundreds of Instagram ads working against them.”

The power of discovery — without direct competition — is a huge potential benefit of brick and mortar. Before launch, Neighborhood Goods raised $5.8 million in funding from VC firms like Forerunner Ventures and Maveron, which are frequent investors in digital, direct-to-consumer brands.

This means the company will have unlimited access to the latest direct to consumer brands that don’t sell to other stores. So far, luggage brand Away and sneaker company Allbirds are already signed on to join the store later next year. The star power of known brands like these stands to bring greater attention to the smaller brands already sharing the space.

Neighborhood Goods intends to open in tertiary markets, adds Anarghya Vardhana, a partner at Maveron, which invested in the startup, allowing for new customers: “A brand like Allbirds is opening up stores in New York, LA, San Francisco, but most startups won’t have the capital or human resources to launch stores in a secondary market. With the proliferation of Instagram, a lot of people have learned about these direct to consumer brands and want to access them in stores, and so we think of Neighborhood Goods as a place where they’ll discover new brands.”

Neighborhood Goods’ array of products will also include lingerie from MeUndies, clothes from Reese Witherspoon’s Draper James, men’s grooming products from Hims, rare sneakers from the marketplace Stadium Goods, children’s apparel from Primary, and bedding from Allswell.

For a monthly fee, these brands will each get a spot inside the 14,000-square-foot space as well as the costs of staffing, marketing, and retail design covered. New companies will roll in and out of the store on a regular basis. (Neighborhood Goods declined to comment on the total cost of the retail space.)

Similarly, Re:store will offer three types of membership: $350 a month will get brands a space inside the store, $550 will get them both retail and co-working space, and $850 will cover retail and co-working space, as well as inventory and stocking services. In exchange, Re:store will take a 20 percent commission of sales.

While Re:store’s tech edge might come from the Instagram-friendly brands it will house, Neighborhood Goods has some innovative tech components. Vardhana likens the startup to “rebuilding a concept like a Nordstrom or Neiman Marcus, but imagining how these stores would look if they were built for 2018.”

Sneaker marketplace Stadium Goods has a museum about the “drop” inside.
Neighborhood Goods.

For example, the store will have a dedicated app that, with the help of 30 security cameras dotting the space, will track shoppers and provide personalized notifications. If a camera sees a shopper pick up a Draper James bag but decline to buy it, the app could send them a push notification a few days later, offering 10 percent off.

“The cameras and beacons will be capturing data to see how people interact,” Alexander says. “Department stores already have tons of cameras on shoppers, they just don’t do anything with the footage. We’ll be providing useful information for brands to determine what their overall retail plan will be.”

Stores have been using beacons and facial recognition technology for years, but there’s something eerie about a store boasting these type of surveillance capabilities as a draw. Alexander admits Neighborhood Goods is currently tiptoeing a delicate line between innovative and creepy, and maintains it will be slow to roll out the full capabilities of its surveillance system. The store has screens all across the space; they can track a shopper as they walk by and display ads from the brands they browsed. It’s like those Facebook targeting ads.

“We’re not using tech that will identify people with eyeballs or holograms,” he jokes, referring to the 2002 film Minority Report, “but we are leveraging location data so that staff can come over and help customers. We don’t want to jeopardize the feeling of a well-designed room with hyper-creepy messaging, so we’re going to see how people respond to the space first.”

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