Glossier’s $80 Million Raise Signals the Enduring Importance of Stores

Glossier, which started as an e-commerce outgrowth of Emily Weiss’ Into the Gloss beauty blog, was for a long time synonymous with its Soho store. From the day it opened in 2018, its Millennial pink interior and jumpsuit-clad sales associates attracted lines of customers that snaked down the block, rain or shine.

Covid-19 forced that store to close, along with outposts in Los Angeles and London. Even as rivals reopened last summer, Glossier said it would permanently shutter those locations.

Nearly a year later, Weiss told BoF that her company would be getting back into the brick-and-mortar business, with new stores in the works for Seattle, Los Angeles and London, and more planned. This week, the company announced it had raised $80 million from investors to pay for the new retail push. The funding round valued Glossier at $1.7 billion, up from $1.2 billion in a 2019 round.

What changed? For starters, mid-pandemic predictions that beauty stores, with their testers and hands-on approach to retail, would become permanently unappealing to consumers, proved overly pessimistic. Ulta Beauty, a large US multi-brand beauty chain, has seen foot traffic consistently above 2019 levels since March, according to Placer.ai, an analytics firm.

Glossier also appears to have absorbed the same lesson as many other digital-first brands: far from becoming obsolete, physical stores remain an essential part of the retail formula, even for a company like Glossier that generates 80 percent of its sales online.

At the start of the direct-to-consumer boom of the last decade, stores were viewed by some founders and investors as a relic. But declining foot traffic and shrinking sales per square foot obscured the key role that brick and mortar continued to play in customer acquisition. As online advertising costs have risen, the importance of finding alternative ways to acquire new customers has grown. Some stores may have lower sales productivity than they used to, but they make for great billboards.

Many DTC brands have learned the hard way that it’s easy to get to $100 million in annual sales via Instagram ads, but making the leap to $1 billion in revenue requires something more. Stores, along with other old-school techniques, ranging from catalogues to television ads, are part of the path to scaling a business. The steep drop in retail rents in many cities during the pandemic has created a golden opportunity for online brands looking to make a big real-world expansion.

Glossier’s stores have always exemplified the new, discovery-first strategy, creating an immersive experience that made customers want to visit and try products, even if it was easier to buy online. A Seattle pop-up in 2019 boosted average weekly e-commerce sales by 56 percent.

Glossier needs to get its post-pandemic retail strategy right. Warby Parker, Allbirds and other early DTC success stories are profitable and on track to IPO. The beauty brand’s last funding round, in 2019, saw its valuation double. But momentum stalled with its last major initiative, the colour cosmetics sub-brand Play, which was shut down last year. After that detour, the sudden focus on physical retail represents a return to Glossier’s core competency in skin care and design. Opening more stores could unlock new avenues for growth, both online and off.

The smartest DTC brands have built their physical retail networks around their online business. Warby Parker chooses new locations in part based on where its online customers are located, and has been able to cut back on digital ad spending as its physical store count surpassed 50, and then 100. Glossier’s inclusion of Seattle, along with the usual global cities, as part of its expansion plans indicates a similar strategy is at play. The brand opened a pop-up there in 2019, and since the start of the pandemic, the city ranked second behind San Francisco in the popularity of Google searches for the brand.

The modern store also needs to reflect both the brand and its surroundings. Glossier has always tailored its stores to their location; the new Seattle store will have a mushroom theme, meant to evoke the technology-meets-nature vibe of the Pacific Northwest. The key is to create an experience that draws on a brand’s essence, but can also be endlessly iterated upon. That will draw repeat visitors and curious new customers better than an attention-grabbing, but static installation, which runs the risk of quickly fading into the urban scenery.

The pandemic has been clarifying for retailers: despite the boom in online sales, there’s something irreplaceable about physical interactions. That’s true whether it’s buyers who want to view the latest collection in a physical showroom, rather than on a screen, or shoppers who need to see, touch and smell face cream before they buy it (even if the actual transaction takes place at home on their phone).

Source: BoF