“Retail will not die. It’s just changing.” So says Fifth Wall co-founder Brendan Wallace as the California-based venture capital firm puts a stake in the ground firmly supporting a modern iteration of the retail sector.
Fifth Wall has just closed a $100m (£78m) retail fund backed by some of the largest retail real estate owners and service providers in the world, including Acadia Realty Trust, Cushman & Wakefield, Macerich and Nuveen Real Estate. Crucially, the fund will not be focused on traditional retail but will invest in emerging brands and retail concepts to “accelerate their bricks-and-mortar expansion”.
“The retail sector has been somewhat challenged,” says Wallace (pictured right). “But we need to replace the old with the new and we have noticed that a number of emerging brands are expanding offline incredibly fast.”
The challenge of scale
Some of Fifth Wall’s existing investors told Wallace they were keen to invest in “new, emerging occupiers”, the creation of the Retail Fund made perfect sense, he says. Why? Because while it is easier than ever to start a new brand digitally, it is counterintuitively more difficult than ever to scale and differentiate a brand without also establishing a physical presence.
“There are so many of these new, online brands emerging,” he says, referring to the likes of clothing company Bonobos in the US. “But because it is so much easier and cost effective for them to launch, it is getting harder for them to differentiate.”
He adds that moving into the bricks-and-mortar space is the ultimate “next step” for online brands looking to expand their reach and grow their profile. Furthermore, having an online presence on which to build an offline brand is creating a renewed buzz around retail beyond e-commerce.
“Consumers have such an intimate and enduring relationship with these digital native brands,” says Wallace, adding that this in turn creates excitement and anticipation around the launch of new, offline outlets.
“There is a dramatic shift within e-commerce because of this trend,” he says. “It is cheaper and easier than ever to acquire customers and space as larger retailers are shutting up shop and it is leaving room for growth within the omnichannel space. We are actively supporting offline expansion in a way that I haven’t seen in another market.”
He adds that more flexible leases and “customer centricity” will be at the heart of the offline expansions. Emerging brands opening their first stores need to have a “consultative advisory relationship” with landlords to help with everything from site selection to store design. “For a new brand this is a big change and you will need a lot of help,” he says.
Reaching potential
Kevin Campos (pictured left), a Fifth Wall partner who leads the Retail Fund’s investments in omnichannel brands adds: “New e-commerce brands know the importance of being wherever their customers want them to be at all times – they simply cannot reach their full potential if they remain solely online.
“However, digitally native brands often aren’t familiar with the challenges of retail real estate expansion and we’ve observed that many traditional VCs lack the experience to be able to meaningfully engage on issues like site selection, store design, merchandising, and staffing.”
The goal of Fifth Wall is to support brands on these very issues, Campos says. “We’ve assembled a consortium that includes many of the largest retail real estate owners, and we believe they’ve invested in the Retail Fund because they want to see these new brands earlier and help them succeed with thriving stores.”
The close of the Retail Fund comes just a month after the launch of Fifth Wall’s $200m Carbon Impact Fund.
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