Managing fixed costs
The core challenge in building a physical retail business is simple: managing the fixed costs. From rent to staff to managing physical inventory, brick and mortar retail businesses take a substantial amount of cash to operate. And, for similar reasons, they are not easy to iterate quickly. It takes time to find the right space/negotiate the right deal and many retail businesses have to apply for local licenses to get up and running lawfully.
Embrace the 'pop-up'
Popup shops of all kinds have become commonplace in major cities across the globe. In just the United States alone, recent estimates suggest there at least 3,000 to 4,000 pop-ups at any given time.
Big online brands like Warby Parker and Bonobos have used them to test the waters of physical retail. Chloe & Isabel and Zipcar used pop-ups before they became the industry leaders they are today. And countless other retail outlets, from clothing to restaurants (including a personal favorite -- Semilla), have run pop-ups to test and refine new ideas before committing to the significant fixed costs of a retail business.
Here are our tips for designing and running a great pop-up:
Your variables. The first key step in designing your popup is to identify the key variables you want to test. In general, there are two basic types of variables you’ll be testing: macros and micro.
Nail the macro first. Macro variables are things like the length and location of your pop-up. They’re both very important and hard to test quickly, so you’ll need to run multiple pop-ups to test them.
Length: ultimately, experiments are all about constraints. And the single biggest constraint of a pop-up is the length you run it for. Your pop-up needs to be long enough to properly test your micro variables, but you also don’t want to break the bank.
Location: As the saying goes, in retail it is often the case that “location is everything”. Things to think about when choosing your location include: sending the right brand message, optimizing for foot traffic, and understanding local competition.
Then focus on the micro. Micro variables are more specific to your business and should be your core focus after you decide on your threshold macro variables. Micro variables vary based on the type of pop-up but here are some common examples:
Pricing: playing with price points is an important part of any retail experiment. A helpful rule of thumb is to make sure you make money off every item you sell (gross profit or ‘unit economics’), but don’t worry about how much you take home at the end of the day (net income).
Presentation: even though we’re told not to, people continue to ‘judge books by their covers’. Pop ups are a great way to experiment with different designs, layouts and presentation for any retail business. Try a new look for at least one part of your shop every day
Product mix: this is probably the most important variable in all pop up experiments. Whether you’re a restaurant testing menus or a clothing shop testing the size and/or variance of your inventory, it’s important to use pop-ups as an opportunity to test various iterations of your core products on real-live customers.
Speed: The only constraint (other than cost) in testing microvariables is the speed with which you can rotate new ideas. If you get enough traffic (e.g. 200+ visits per day), you can test new concepts as often as every day.
Collect data & feedback. The best part about retail is that the data is fairly self-explanatory. Either people buy your products or they don’t. That said, pop-ups are also a great source of brand-level feedback. To collect that, we suggest doing NPS surveys on exit from the pop-up as well as via a follow up a few days after purchase.
Build community. Pop-ups are really giant experiments in community & early adoption. Make sure to collect as much information as appropriate from your early visitors/customers so you can continue to be in touch as you grow and iterate your business. They made a bet on you just by visiting your pop-up, so you should return the favor! Feel free check out our Community Blueprint for further advice on building communities.
Bizly / Liquidspace / WeWork. For non-retail oriented popups (e.g. one-off events and/or professional networking), take a look at these providers for beautiful event, conference and meetings rooms. If you end up posting your pop-up to Nextt Experiments, we may even be able to work out a discount for you.
Hana Kitchens. Given regulatory requirements of commercial kitchens, finding a space to test a restaurant pop-up can be tricky. Hana Kitchens is a great way to find turnkey access to commercial kitchens that can help you test your menu ideas even if you’re unable to convince a restaurant/space with approved commercial kitchen to give your pop up a shot.
With more and more customers asking to try on clothes before they bought, Bonobos was faced with the "online v offline conundrum." Sales were great online, but people still wanted to wear the close. So they ran an experiment: they set up two sales reps in the lobby of their office...and each ended up generating $250k in sales. Today, the clothing maker has physical locations across the U.S. Read more about the story here.
Warby Parker used their own brand of pop up shop using what they called a "Class trip" campaign which had yellow school bus-based shops traveling across the country. Read more about the Warby Parker story here.
- If you're considering opening up a restaurant pop-up shop, be sure to avoid these traps highlighted by Matt Duckor in Bon Appetit.