9 Steps to Leasing Retail Space

Direct-to-consumer (DTC) brands have experienced significant growth in recent years, thanks to their innovative marketing strategies and strong online presence. However, as these brands mature, many are considering expanding into brick-and-mortar retail spaces to further enhance their customer experience and reach a wider audience. This article provides a comprehensive guide for DTC brands looking to lease retail space and successfully transition from an online-only business model to a physical store presence.

1. Determine Your Budget and Location Requirements

Before embarking on the search for a retail space, it’s crucial for DTC brands to establish a clear budget and identify their location requirements. Factors such as foot traffic, demographics, accessibility, and proximity to complementary businesses should be considered when selecting the ideal location. Additionally, brands should take into account the costs associated with leasing, including base rent, percentage rent, and common area maintenance charges.

Once the budget and location requirements have been established, DTC brands can begin their search for a retail space. One option is to work with a commercial real estate broker who can help identify available properties that meet the brand's criteria. Another option is to conduct research on their own using online resources such as LoopNet, Colliers or Pacific Retail. It's important for brands to visit potential locations in person to get a feel for the neighborhood and to assess the condition of the space. With careful planning and consideration, DTC brands can find the perfect retail space to showcase their products and engage with customers.

2. Conduct Thorough Market Research

Understanding the local market conditions and competition is essential for DTC brands looking to lease retail space. This research will help brands identify potential opportunities and challenges in the area, as well as inform their negotiation strategy when discussing lease terms with landlords.. In addition to researching the local market conditions and competition, DTC brands should also consider their target audience and how the location and design of the retail space will appeal to them.

For example, if the brand's target audience is predominantly young people, they may want to lease a space in a trendy neighborhood with a modern and vibrant interior design. On the other hand, if the target audience is families with young children, a location with ample parking and easy accessibility may be more important. By understanding both the market conditions and their target audience, DTC brands can make informed decisions about where to lease retail space and how to design it to meet the needs and preferences of their customers.

3. Assemble a Professional Team

Leasing a retail space can be a complex process, and it’s essential for DTC brands to work with experienced professionals who can provide guidance and support throughout the journey. This team may include a commercial real estate broker, a lawyer specializing in commercial leases, and a financial advisor to help assess the potential return on investment. The real estate broker will be responsible for identifying suitable properties, negotiating lease terms, and helping the brand navigate through the legal and regulatory requirements.

The lawyer will review the lease agreement, ensuring that it protects the interests of the brand and provides flexibility for future growth. The financial advisor will assess the financial viability of the lease agreement and provide guidance on budgeting and financing options. By assembling a professional team, DTC brands can ensure that they have the expertise and support needed to make informed decisions and successfully transition into brick-and-mortar retail spaces.

4. Understand Commercial Lease Terminology and Types

There are multiple types of commercial lease agreements, including full-service leases, net leases, and percentage leases. It’s important for DTC brands to familiarize themselves with the terminology and options available to ensure they select the most suitable lease structure for their business needs. For instance, a full-service lease typically includes all expenses such as utilities, maintenance, and janitorial services in the rent price. This can be an attractive option for small businesses that want to simplify their budgeting process.

On the other hand, net leases require tenants to pay for some or all of these expenses separately, which can result in lower rent costs. Percentage leases are often used in retail settings and require tenants to pay a base rent plus a percentage of their sales revenue. These leases can be advantageous for businesses with high sales volumes, but they also come with the risk of higher costs during slow periods.

5. Negotiate Lease Terms

Once a suitable retail space has been identified, DTC brands should work closely with their professional team to negotiate favorable lease terms. This may include negotiating rent rates, lease duration, renewal options, and tenant improvement allowances. It’s essential for brands to be well-prepared and flexible during negotiations to secure the best possible deal.

6. Plan for Store Design and Fixturing

As DTC brands transition to brick-and-mortar stores, they need to consider scalable store design and fixturing options that can grow with their business. This includes creating a visually appealing and functional store layout, selecting appropriate fixtures and displays, and ensuring the space aligns with the brand’s identity and values. Once a retail space has been leased, it's crucial for DTC brands to design a store experience that aligns with their brand identity and resonates with their target audience. This includes everything from the store layout and visual merchandising to the customer service and overall atmosphere.

Brands should aim to create an engaging and memorable store experience that not only attracts customers but also encourages them to stay and make purchases. This may involve incorporating interactive displays, offering personalized recommendations, or creating a unique ambiance through lighting and music. By designing a store experience that reflects the brand's values and appeals to their target audience, DTC brands can differentiate themselves from their competitors and build a loyal customer base.

7. Obtain Necessary Permits and Licenses

Before opening a physical store, DTC brands must ensure they have obtained all necessary permits and licenses required by local authorities. This may include building permits, zoning approvals, and business licenses. It’s important for brands to research and understand the specific requirements in their local area to avoid any delays or complications in the store opening process. They may need to work with their professional team and local authorities to obtain the necessary permits and licenses, and ensure they are compliant with all relevant regulations.

Failure to obtain the proper permits and licenses can result in fines or even closure of the store, so it’s essential for DTC brands to take this step seriously. Additionally, brands should consider any additional costs associated with obtaining these permits and licenses when budgeting for their brick-and-mortar store. By properly preparing and completing all necessary legal requirements, DTC brands can ensure a smooth and successful transition into physical retail spaces.

8. Develop an Omnichannel Marketing Strategy

To maximize the potential of their brick-and-mortar presence, DTC brands should develop an omnichannel marketing strategy that integrates their online and offline efforts. This may involve leveraging social media, email marketing, and in-store events to drive foot traffic and create a seamless customer experience across all touchpoints. One important aspect of an effective omnichannel strategy is leveraging customer data to create targeted and relevant marketing campaigns. By collecting data on customer behavior and preferences, DTC brands can tailor their marketing efforts to each individual customer, delivering personalized content that resonates with their interests and needs.

Another key element of an omnichannel strategy is creating a seamless and integrated customer journey. This means ensuring that each touchpoint, from online browsing to in-store purchases, is connected and consistent, with a focus on providing a frictionless experience that makes it easy for customers to engage with the brand. Ultimately, by developing a comprehensive omnichannel marketing strategy, DTC brands can differentiate themselves from competitors and build strong, long-lasting relationships with their customers. Through thoughtful and strategic planning, these brands can create a compelling and engaging customer experience that drives loyalty and growth over time.

9. Monitor Performance and Adapt as Needed

As DTC brands establish their brick-and-mortar presence, it’s crucial to continually monitor performance and adapt strategies as needed. This may involve adjusting store layouts, inventory levels, or marketing efforts based on customer feedback and sales data.. In addition, it's important for DTC brands to maintain a consistent brand identity across all channels, both online and offline. This can be achieved through thoughtful visual merchandising, training employees to embody the brand voice, and creating a seamless omnichannel experience for customers. Another key consideration is the use of technology in-store, such as mobile point-of-sale systems and virtual reality experiences, to enhance the customer experience and streamline operations.

Transitioning from a DTC business model to a brick-and-mortar retail space can be a challenging yet rewarding process for brands looking to expand their reach and enhance their customer experience. By following the steps outlined in this guide, DTC brands can successfully navigate the leasing process and establish a thriving physical store presence.