Small Business Success Story: Online Retailers Get Physical

Small Business
Small Business Success Story: Online Retailers Get Physical

This is the era of Internet shopping, with tens of millions of people doing their purchasing online every year. So when Eyal Levy decided to sell a new generation of bean bag chairs called Yogibo, he figured an e-commerce shop was exactly the right move.

Yogibo, however, did not translate well online.  The chairs are made of stretchy fabric and, when you sit, mold to the body, Levy says. But just try to persuade customers to buy the product without a test drive. It didn’t take long for Levy to realize that Yogibo wasn’t catching on with customers on the Web.

“I realized that people fell in love with the product only after they tried them,” he tells NerdWallet. “The message of how comfortable they are is very hard to convey through online or any ad or any review.”

So Levy adjusted his business strategy. In 2010, he opened the first Yogibo store at the Natick Mall, outside of Boston, nine months after launching the online business. Although expanding into the physical world, in addition to selling online, is working for Yogibo, it has meant new challenges for Levy, such as obtaining capital to fund store openings. Today, Yogibo has 22 stores at malls along the East Coast, with several more new stores expected to open this year.

The challenge of succeeding online

Like many small-business owners, Levy saw launching an online shop as low-risk, especially for a first-time venture. You can start an online shop these days with a few clicks and a minimal cash investment.

Yogibo

Yogibo’s Eyal Levy

But just because you create an online business doesn’t mean customers will find you. It’s getting harder to grow a business on the Web, says Steve Dennis, a retail consultant and former Neiman Marcus executive based in Dallas. With so many savvy shoppers looking for the best deals online, Dennis says, marketing costs to acquire customers are going up.

Even with a successful online shop, it may make sense for you to open a storefront to attract both loyal and new customers. Gwendolyn Wright, a small-business consultant in San Francisco, says some shoppers want to touch the product, even if it’s just a pair of jeans or a shirt.

Wright points to eyeglasses brand Warby Parker as an example of an online business that has been opening stores to increase sales and attract new customers who would rather try on glasses at a store.

Brother-and-sister team Rishi and Tapasya Bali, whose native country of India is believed to be the birthplace of yoga, opened an e-commerce site in early 2013 to debut their luxury yoga apparel brand, YogaSmoga.  Rishi quit his job at Goldman Sachs to launch the business.

Rishi Bali

YogaSmoga’s Rishi Bali

The next year, YogaSmoga expanded into brick and mortar, opening a first store in Greenwich, Connecticut. A second store in Brentwood, California, followed.

Rishi Bali says retail stores were always part of the brand’s strategy because YogaSmoga aims to go beyond clothing sales. Its retail stores help “connect consumers who are seeking a wellness lifestyle,” Rishi says. YogaSmoga’s Greenwich store, for instance, is in a two-story townhouse whose second floor will be used for yoga classes and other events when renovations are complete, Rishi says.

He says having an online presence first helped YogaSmoga make the transition to brick and mortar because it provided consumer and market insights, such as demographic and geographic information.

“Everything we do helps the next thing,” he tells NerdWallet. “Online helps the first store and the first store helps the second store.”

YogaSmoga will open two additional stores in Southern California this summer, and there are plans to open another 10 stores later this year. The business raised nearly $12 million from outside investors to support its expansion into brick and mortar.

Finding the financing

For most small businesses, though, finding capital could pose a challenge. Real estate costs, especially in a high-traffic area, can range from $40 to $100 per square foot or more, according to Dennis. Add fixtures and other store renovations, as well as inventory, and “it’s a large upfront cost for a small shop,” Dennis says.

YogaSmoga-Greenwich

YogaSmoga’s store in Greenwich, Connecticut.

To support Yogibo, Levy initially raised seed money from friends. As sales increased, he put the profit back into the business to fund store openings. To help with continued expansion, Yogibo also recently obtained a $300,000 loan from Funding Circle, an online lending platform for small businesses.

Because Yogibo was new, Levy targeted shopping centers for his stores as he expanded. “We wanted a space with high traffic that people walk by and stop and say, ‘Wait a second, what is this?’” Levy says.

For him, the brick-and-mortar strategy has been successful. “This was a great way for us to grow fast and improve our branding,” Levy says.

Yogibo also has expanded into other products, such as pillows and home decor. The business is profitable and Levy expects sales to increase by 30% this year.

Making the move

Want to take your shop offline? Here are some words of advice.

Start small: Before committing to a permanent location, consider opening a pop-up shop, Wright says. That way, you can learn what customers want and whether a store is a viable model for your business. “You don’t want to go and sign a five-year lease and not know what you’re doing,” she says. “People get in trouble all the time with that.”

Consider if it’s the right move: Ask yourself whether your product is unique enough to justify a store. “Opening a brick and mortar [is] not for every product and not for every business,” Levy says. “But the idea when opening a store is to create a different customer experience that’s unique and very fun, because I do believe that if you don’t have an exceptional experience then people will go and shop online.”

Have a plan: Make sure you have a well-thought-out strategy for opening a storefront, because execution will be crucial to your success, Bali says. “Building and running a store isn’t easy,” he says. “Every day you have to work on it.”

For more information about how to start a small business and how to get funding, including small-business loans, visit NerdWallet’s Small Business Guide.

Hanah Cho is a staff writer covering small business for NerdWallet. Follow her on Twitter @hanahcho, on Google+ and on LinkedIn. Contact Hanah at hcho@nerdwallet.com.


Top image via iStock.