Interview: Macerich’s Chief Digital Officer On Creating Physical Retail For Digitally Native Brands
With retail design platform BrandBox, commercial real estate company Macerich has found a way to bring digitally native brands into its malls and shopping centers
Between 2016 and 2017, there was a 120% increase in number of physical stores opened by digitally native brands, and that number is expected to increase exponentially over the next five years. After working with brands like Warby Parker and Peloton, mall and shopping center owner Macerich recognized the real estate needs of these digitally native brands were different.
Enter BrandBox, a new solution that helps direct-to-consumer brands design, staff and open stores, with the added technological capabilities to manage sales and footfall data. This November, the first BrandBox location will debut at Tysons Corner Center in Virginia. It will include outposts from direct-to-consumer players in beauty and apparel, including NAADAM, Winky Lux, Interior Define, Nectar and UrbanStems.
PSFK spoke to Kevin McKenzie, Macerich’s chief digital officer, on the evolution of commercial real estate rental and how technology enables more successful physical retail spaces.
PSFK: Kevin, tell us a bit about what you do at Macerich and the thinking behind BrandBox.
Kevin McKenzie: I joined the company about a year and a half ago while I was at Westfield. Prior to that, I was purely in the digital space working on building digital marketplaces, looking at data in unique ways of online to offline convergence, and jumped into real estate and really fell in love with it. I fell in love with it because I think there are a lot of analogies to the digital world, which sounds a little backwards, but I also saw huge opportunities.
All of these brands that I spoke to said, “When we started our company we raised money, we fell in love with a category, and we understand our customer. We know our supply chain really well, and we had success building the business online through social media.”
When it came to open a physical retail, there's a lot of unknown about it and there's not a lot of information about it online. That correlated with conversations that our CEO had been having with a lot of digitally native brands. We had already done business with Warby Parker. We started to do a lot of business with UNTUCKit and Peloton.
He personally was drawn to it. He took a passion to understanding these founders, and understanding how they think about their customer and their supply chain. He also saw a huge gap. We typically work with real estate development groups, with big companies like Apple or Lululemon. They have brokers. They have research teams. They have architects. They just know how to do this.
When I knew these founders, they don't have any experience in any of that, so he kind of unleashed me. I had a lot of friends who are venture capitalists. I'm a product guy. Sometimes, I get emotionally attached to features and services.
I had partnered with some old venture capitalists friends. We profiled about 500 brands that are relevant to our merchandising mix. These are categories like home goods, fashion, beauty. We're blown away by the size. You look at Shopify. They have 600,000 active e‑commerce brands. Out of that, we found about 500 that we saw had huge social followings.
Then we took a step further. We actually interviewed 40 founders, asking if they were ever going to open a store. These were brands that typically do on a run rate of doing anywhere from $50 to a 100‑plus million in revenue in those categories. It's becoming more expensive and crowded to buy new customers on Facebook, Instagram, and Google. When we think about a store, we think about that as an alternative to acquiring customers.
These brands said, “We're used to waking up in the morning or in the middle of the night and seeing the results of our work in digital channels, whether it's a new ad campaign on Instagram or a new merchandising or way that we talk about our products on our website. We live or, sometimes, die of that. We need the same equivalent.”
We heard this over and over again from these 50 founders. What we did then is we formulated a solution. Typically, that comes from a digital world. They know data well. They know how to build platforms and digital products. I paired them with store architects.
What we did is we took 11,000 square feet at a really productive shopping center mall called Tysons Corner in McLean, Virginia. It sees about as many people as Disneyland sees a year. It's close to a billion dollars in transactions.
It hosts about 300 stores with really good co‑tenancy. These brands said, “Hey, I want to be next to Apple. I want to be next to Tesla,” because they either aspire to be like them or, I think, I have a similar customer.
We took the space, and we said, OK, can we make this modular? Can we design a system almost like a Tetris game where you can move walls in 500‑foot increment? Our customers don't know how much space they want. We challenge the architects. We came up with a really interesting solution. Then we marry that with technology.
Basically, it's similar to configuring Amazon Web services. You can go in. Once you get a space, you can provision technology to it. In this case, it's things like WiFi, things like security cameras, and then retail analytics.
On top of that, we went and researched some really successful store designers and train them on a modular aspect of both the space but also the modular aspect of the fixtures that we're putting in there. It's almost like equivalent to iOS SDKs for app developers.
We found six brands that wanted to test out store. We'll put it all together. We're so excited about it. We're not only launching at Tysons. We're going to expand it. We're also going to launch it across a lot of our major markets in the next year.
We also set up some interesting analytics that allows them to measure their e‑commerce traffic. We'd heard anecdotally that if you open a store within 10 miles radius, 15, your e‑commerce by zip code and proximity of that store goes up. We did some testing there. It was right. We're giving them that sort of analytic capabilities.
For the brand, most importantly, it introduces them to a new acquisition channel that they might not have thought about even doing, if they didn't have all the services that we put together in BrandBox. That's the background of the journey that we've been on.
Is it safe to call these centers mall properties in the general sense, or is shopping center more appropriate terminology?
We use shopping center just because malls we think of as a closed store environment, which we have. Then we have a lot of outdoor shopping centers.
There's so much written about the challenges of physical retail real estate. Does this platform aim to bring to life a new way of thinking about retail in general, and not just for up-and-coming brands?
It's funny, brands like DKNY, who are heritage brands that have traditionally been resold more in wholesale, or sold through department stores, they reached out and said, “Wow. We're thinking about doing more direct-to-consumer, first‑party brand stores. This is a great way for us to test the market before we actually commit.”
I also think for the shopping center space, I don't believe there will be as many brands who are going to want 10, 20 thousand square feet. There's going to be more brands that, maybe, don't know how much space they want or want 3,000, 2,000, 1,500.
For us, in our industry, this is a new way of construction. If that's the case, when we look at our properties, why not develop a system that we can move based on demand and need? That's been the innovation that we've seen.
The other thing we found, when we were studying the building process, is there are no two cities or counties alike. Some are easy. It's so disheartening as a new brand when you go, you get your store. You find your space. You do your designs. You do your staffing. Then you learn that some cities or counties could take up to six months to permit a space. What's nice about the system is we permit it once to use many times. We take the friction out of the process.
I love technology. I've always been in it. This is less about technology and more about making the physical world and process more efficient with a tech approach. We're looking at the architecture. We're looking at the legal agreement. We're looking at the capabilities and different ways you can design it. We're looking at the legalities, the permitting. We're just making it simple. We're doing the heavy lifting on behalf of the brand instead of leaving it to the brand to deal with themselves.
From a practical endpoint, let's say a brand like Peloton wants to come into a space. Can it be up and running within three weeks?
Within three weeks instead of six months, yeah. No more than three weeks, depending on how complex they want to make it. It's very quick.
How much of the building out of the space do you take on versus the retailer?
We emulate it very much like these popular website building sites, like Wix. They come in. What we do is we present them with themes, themes around different categories of inspiration, whether it's a minimalist, whether it's a bright brand.
We have all these fun names we've come up with, various themes. If you look under the hood of the themes, they're not only a vision doc, but they're also different ways you can configure the physical box along with the fixtures.
You have some guidance on how to start to configure these different experiences based on your brand. In some cases, the brands had nothing. They had no documented brand ID, or brand tenets, or anything. We just basically took assets from their website and then translated them into a physical experience. We can do it within days sometimes, no more than weeks.
As part of that, do you guys find that you can figure out what works, what doesn't work and continue to refine those themes?
Exactly. We have these fixture walls. You can literally snap in walls. You can snap in garment hooks. Then we have a signage system where you can create pretty authentic‑looking store signs from a 3D printer quickly. We're just streamlining that process that's existed for over 50 years that we've been in business.
As part of this, you're offering a suite of services that comes alongside the space, which requires having X amount of inventory. Are you guys ever thinking of bringing in fulfillment services as well?
Yeah. That's both the digital and the physical side. What we want to set up was a platform to be able to do that where the two could fit. On the digital side, pretty quickly, I could consume the APIs of a service that we want to offer, that the brand tenant can get access to on brandbox.com.
We built a whole digital platform to be able to do that, then it's complemented by the physical architecture. We have all the fiber, all of the room and the ability to reconfigure based on the services that we want to add to it.
The first suite of services are pretty basic. There's things like security, security tag, security video, retail analytics where you can measure traffic that walks by, traffic that walks in, where they congregate around merchandising mix, and then correlate that with your POS data. On top of that, we can look at your e‑commerce POS to start to measure lift by ZIP code and proximity of the store.
What we envisioned now is, what if you want to try same day delivery? We want to add that on. We're not doing any of these services directly, we're partnering with companies that do it. We just want to be the connective tissue between digital, physical and service so we can do this for them really, really quickly.
We envision this ecosystem of service is growing from quite a bit from where we started. We're set to do it now.
Could you describe the six brands that you're launching?
They all have an interesting objective, which was to me, the bull's eye to what we wanted to test. We had this hypothesis. We wanted brands and use cases to test it. They're all paying. It's not free. They really see the value and they're paying customers.
If you look at Nectar Mattresses, here's a company that's not really even that old. They're amazing online marketers that know their supply chain really well, and they give their customers great value. They've grown huge. I can't publicly say their numbers, but they're incredibly impressive. They've never opened a store.
They look at their CRM and they went, “Wow. We have a lot of customers in the D.C. area. We think there's a lot more to get. Let's go open a store.” Not only use it as a service to our existing customers, acquire new ones, but also learn retail. They were a really interesting use case.
Then there's Naadam, who's a cashmere apparel fashion brand. They have started to open stores. They didn't think of opening this market at first. Matt was looking at his customer acquisition cost and growth of his online social channels. When I explained to him that, you can measure the number of people that walk by, just like you can measure the number of impressions, and you can correlate that with your POS data and measure your e‑commerce list. He wanted to make sure the market was big enough, which it was in the D.C. area. Just for those capabilities, that was something that brought them.
Then you have DKNY. Between all of them, they were just perfect for what we wanted to get out and what they wanted to get out of this platform.
It sounds like there is a very interesting fluidness between the online and offline for retailers to navigate in triangulating sales.
We think as a landlord or a real‑estate landlord, we're going to play a different role. It's less about a shopping center store and more about, how do we fit in their supply chain? We got to offer them services that help them measure that. We think these younger brands get it. They're faster to adopt it and use it for everything that it can do.
Macerich's BrandBox solution is just one new way that digitally native and direct-to-consumer brands are optimizing their expansion into physical retail. For more examples of similar inspiring retailers, see PSFK's reports and newsletters.