Calling out Amazon for destroying brand differentiation and citing customers’ demands that brands be wherever they want them, real estate venture firm Fifth Wall closed a $100 million Retail Fund to help digital natives add stores in malls.
The fund is backed by some of the largest retail real estate owners and service providers in the U.S. and globally, including Acadia Realty Trust, Cushman & Wakefield, Macerich, and Nuveen Real Estate, Fifth Wall said in a news release.
Fifth Wall’s Retail Fund will invest in emerging brands and retail concepts to accelerate their physical expansion through retail partnerships with Fifth Wall’s consortium of more than 50 corporate strategic investors, the release said.
“New ecommerce 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,” Fifth Wall Partner Kevin Campos, who leads the investments, said in the release.
Digitally native brands aren’t familiar with the challenges of expanding into a real estate footprint, and traditional VC firms lack experience on issues such as site selection, store design, merchandising, and staffing, Campos said.
“Clustering matters, and this is a really critical point we work with our customers on,” he elaborated in a YouTube video, calling the Retail Fund’s focus on helping ecommerce brands get physical a great opportunity for landlords, who “now more than ever are the curators of retail.”
Brick-and-mortar stores, when coupled with an ecommerce strategy, provide a viable and sustainable path to mainstream scale and profitability for emerging brands, Campos said in the video.
While ecommerce has grown from 4% to about 11% of retail sales in the U.S. over the last decade, thousands of startups have had difficulty scaling and differentiating themselves without a physical presence. Fifth Wall pointed to Bonobos and Warby Parker as pioneers that opened dozens of stores as part of an omnichannel strategy.
“What these brands are realizing is that it is so hard to grow online,” Brendan Wallace, Fifth Wall co-founder and a managing partner, told the Wall Street Journal. Citing an intensification of competition as an obstacle, he called Amazon “the company that destroys brand differentiation rather than augments it.”
Altogether, digitally native brands have opened more than 1,800 stores in the U.S. over the last 10 years, Fifth Wall said, counterbalancing the trend of traditional retailers closing stores.
Anjee Solanki, national director of retail services at real-estate-services firm Colliers International, told the WSJ that 9,300 stores in the U.S. closed last year, 35% more than in 2018.
DTC brands moving into physical stores “have already harvested a lot of good credit-card data of where customers are coming from,” she said. “So if they open in that market where there are high-profile shoppers and spenders, they have found a boost of both their online and offline sales.”
“We started online, but always knew we would have a physical presence to better serve our customers,” Aaron Sanandres, co-founder and CEO of UNTUCKit, said in Fifth Wall’s release. “When Fifth Wall backed UNTUCKit, we had 15 stores and the goal of growing that by another 100 in five years. In part through the help of Fifth Wall’s real estate network in the U.S. and abroad, we’re already well ahead of those ambitious plans.”
Fifth Wall works with brands and retail concepts to navigate the complexities of offline expansion, tapping its network of 50+ real estate investors globally. Part of the Retail Fund’s focus is centered on Fifth Wall’s belief that some of the most innovative users of retail space will come from outside of traditional retail categories, such as flexible office as a tenant within shopping centers.
After Fifth Wall’s investment in Industrious, Macerich collaborated with the flex office provider to open a location at Scottsdale Fashion Square in a 40,000-square- foot space formerly occupied by Barneys New York, Fifth Wall said.
In addition to UNTUCKit, Fifth Wall’s has invested in brand startups Allbirds, Carbon38, Cotopaxi, Foxtrot, Heyday, Industrious, Interior Define, Madison Reed and Taft.
Based in Los Angeles and founded in 2016, Fifth Wall has approximately $1 billion in assets under management. Its partners in 11 countries include CBRE, Hudson Pacific Properties, Marriott International, MetLife Investment Management, News Corp, Starwood Capital and Toll Brothers.
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