The document discusses the changing retail landscape and the challenges facing pureplay retailers. It finds that pureplay retailers must spend heavily on paid search to drive traffic since they lack brand awareness from physical stores. Pureplay retailers purchase more paid search keywords but pay higher costs per visitor than retailers with physical stores. While some pureplay retailers are growing rapidly in sales, many struggle with profitability due to high customer acquisition costs from their reliance on performance marketing. The document examines how retailers are adapting by adding physical storefronts or through acquisitions.

1. #RIC16
The
Death
Of
Pureplay Retail:
Investigating
the
Top
Trends
and
Tactics
Driving
Industry
Change
Maureen
Mullen,
Co-­‐Founder,
Chief
Strategy
Officer,
L2,
Inc.

2. BENCHMARKING DIGITAL PERFORMANCE
BENCHMARKING
EDUCATION
RESEARCH

3. 1,801

4. #RIC16
4

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THE DEATH OF PUREPLAY
RETAIL
INTRODUCTION

6. 6
November 2015, N=1,006
By Demographic
Channel Where U.S. Internet Users Planned to Shop on Black Friday
ONLINE SHOPPING SURGES
Source: “Holiday Shopping Survey 2015,” conducted by Ipsos, November 6, 2015
YOUNG
Ages 18 -­ 34
AFFLUENT
HHI = $50K+
Online
Only
30%
Online &
In-­Store
26%
In-­Store
Only
22%
Don't Plan
to Shop
21%
Online
Only
24%
Online &
In-­Store
17%In-­Store
Only
18%
Don't
Plan to
Shop
41%

7. 7
2013 – 2015, Retail vs. E-­Commerce vs. Amazon
U.S. Share of Total Retail Sales Growth
WHERE’S THE GROWTH?
14% 15%
24%
28% 27%
23%
59% 58% 53%
2013 2014 2015E
Amazon Sales Growth E-­Commerce Growth Excluding Amazon Retail Sales Growth
Source: Company Data, U.S. Department of Commerce, Macquarie Research, December 2015

8. 8
2015
Share of Online Sales: Top-­50 U.S. E-­Commerce Retailers
NOT THE FULL STORY
Source: Internet Retailer, L2 Analysis
Other
E-­Commerce
Pureplays
8%
Other
Retailers
41%
Amazon
36%10%
Walmart
5%

9. 9
July 2015
Cities in Which Last Mile Services Have Deployed
E-­COMMERCE HUBS…

10. 10
Q4 2014
Based on Retail Square Feet Under Construction
Top Markets for Retail Development
…ARE ALSO RETAIL GROWTH HUBS
Boston
New York
Washington, DC
Miami-­Dade CountyHouston
Dallas
Los Angeles
Chicago
Source: “Doubling Down on the Rebirth of the American Shopping Mall,” CNBC, June 7, 2015
Cities in Which Last Mile Services Have Deployed

11. 11
December 2015
Manhattan: New or Future Mall Locations
HIGH-­END RETAIL IS THRIVING
March 2015
Brookfield Place
Expected 2016
WTC Mall
Expected 2019
Hudson Yards
Sales are up $45 per square foot year-­on-­year at high-­end (A++) malls.*
*Source: Fortune, March 2015

12. 12
U.S., 2015 n E-­Commerce Pureplay Retailer
Fastest Growing E-­Commerce Players Among Top-­500
PUREPLAY GROWING FAST, BUT…
Brand 2015 E-­Commerce Sales 2015 E-­Commerce Sales Growth
1 Leesa Sleep LLC $28,500,000 20257.1%
2 Harry’s Grooming $30,000,000 400.0%
3 Petco Animal Supplies Inc. $319,000,000 283.7%
4 Touch of Modern Inc. $100,000,000 233.3%
5 Saatva Inc. $81,000,000 200.0%
6 Casper Sleep $85,000,000 183.3%
7 FitBit Inc. $75,000,000 150.0%
8 rue21 Inc. $35,000,000 150.0%
9 Shoes.com $222,992,939 149.9%
10 Pharmapacks LLC $69,000,000 119.0%
Source: Internet Retailer

13. 13
PROFITABILITY IS LIMITED
“At this time, the e-­retailer is running about break
even.”
-­Internet Retailer, October 2015
“It is not clear if the company is profitable.”
-­Re/code, May 2015
“…Dollar Shave Club is not yet profitable.”
-­The Wall Street Journal, June 2015
“Honest has dipped in and out of profitability;; it is
not yet consistently profitable.”
-­Re/code, March 2015
Source: Internet Retailer

14. 14
2014
P&G: Grooming Category Performance
CHANNEL VS. CATEGORY EFFECTS
Global Blades & Razors
Market Share
Premium Grooming
Market Share
70% 88%
P&G Razor Division Operating Margins = 32%
Sources: The Motley Fool, Forbes

15. 15
The 4XFusion ProGlide
RIPE FOR DISRUPTION
Number of Cartridges 4 4
Blades per Cartridge 5 4
Price $18.47 $6 + Free Shipping

16. 16
Q1 2015 – Q3 2015 Millions of Dollars, 2015
Amazon YoY Sales Growth Amazon Operating Income
AMAZON: POWERED BY AWS
Source: SEC Filings;; “Amazon’s $160 billion business you’ve never heard of,” CNN Money, November 4, 2015
49%
81% 78%
13%
17% 20%
Q1 2015 Q2 2015 Q3 2015
Amazon Web Services Amazon Retail
38%
62%
Q1 2015
Amazon Web Services Amazon Retail
36%
64%
Q2 2015
52%
48%
Q3 2015
$706M
$1,705M
$993M

17. 17
49%
16%
73%
22%
Prime Non-­Prime
Spent $200+ Over the Last 90 Days Shop on Amazon 2+ Times per Month
n=647 Prime Members, 970 Non-­Prime Members
Self-­Reported Spend and Usage of Amazon.com
PRIME DRIVES LOYALTY…
Sources: RBC Capital Markets Proprietary Survey, Macquarie Research

18. 18
Q1 2014 – Q3 2015
Millions of Dollars
Amazon Shipping Expenses
BUT SHIPPING IS UNSUSTAINABLE
$849 $889 $1,048
$1,701 $1,299 $1,399 $1,494
-­$1,829 -­$1,812 -­$2,020
-­$3,049
-­$2,039 -­$2,340 -­$2,720
Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015
Shipping Fee Revenues Shipping Costs
-­$980 -­$923 -­$972 -­$1,348 -­$740 -­$941 -­$1,226
Source: SEC Filings

19. 19
Q1 2013 – Q2 2015
Millions of Dollars
Amazon Quarterly Net Income
VISION TRUMPS PROFITS
$482
$79$92
-­$57
$214
-­$437
-­$126
$108
$239
-­$41
-­$7
$82
Q4 2015Q3 2015Q2 2015Q1 2015Q4 2014Q3 2014Q2 2014Q1 2014Q4 2013Q3 2013Q2 2013Q1 2013
Source: SEC Filings
Amazon did not turn its first profit until Q4 2001 — seven years after its founding — and
has ducked in and out of profitability ever since.

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1997–2015, in USD Billions n Amazon ◼ Walmart
Annual Net Income: Amazon vs. Walmart
IN A CORNER
Source: Quartz.com;; Data from FactSet

21. 21
October 14, 2015
Walmart Stock Price Following Annual Investor Day Earnings Call
…NOT AFFORDED TO ALL RETAILERS
Source: Quartz.com;; Data from FactSet
Walmart lost $20 billion in market value in 20 minutes – the entire market value of
Macy’s – after it forecasted depressed earnings per share until 2019 due to increases in
employee wages and investments in e-­commerce.

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THE DEATH OF PUREPLAY
RETAIL
STUDY OVERVIEW

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L2 Intelligence Report: Death of Pureplay Retail 2016
STUDY OVERVIEW
Contrasts digital and retail KPIs for pureplay, evolved
pureplay and omnichannel retailers to illustrate how
companies can benefit from operating and investing
across channels.
RETURN ON INVESTMENTCONSUMER EXPERIENCE
CUSTOMER ACQUISITION THE LAST MILE

24. 24
BRAND LIST
Online-­only retailers that may
have experimented with a popup
shop, but have not opened
a permanent retail location
Companies that began as
online-­only but have opened
a permanent retail location
in the last five years
Retailers that have effectively
linked their in-­store and online
businesses to leverage their
status as omnichannel retailers

25. 25
August 2015, N=24 Pureplay Retailers, 19 Evolved Pureplay Retailers, 20 Omnichannel Leaders
By Operating Model
Desktop Paid Search Traffic as a Percentage of Overall Search
TRAFFIC MUST BE BOUGHT
Source: Similar Web, August 2015

26. 26
Evolved Pureplay Retailers Pureplay Retailers
October 2015, N=24 Pureplay Retailers, 19 Evolved Pureplay Retailers
Monthly Desktop Paid Search Metrics, By Business Model
PUREPLAYS SPEND MORE
Source: SEMrush 2015;; L2 Intelligence Report: Death of Pureplay Retail, January 2016.

27. 27
October 2015, N=23 Pureplay Retailers*
Number of Paid Keywords vs. Cost Per Site Visitor via Paid Search
AND CAST A WIDER NET
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
0 100,000 200,000 300,000 400,000
Cost Per Website
Visitor via Paid Search
Monthly Keywords Purchased
Source: SEMrush 2015;; L2 Intelligence Report: Death of Pureplay Retail, January 2016. *Note: Excluding The Clymb (no paid keywords)
Top Traffic-­Driving Key Words
“Lingerie”
“Red Dresses”
“Dr Martens”
“Wedding Dresses”
“iPhone 6 Cases”
“Dog Collars”
“Jewelry”
“Bar Stools”
“Shopping”
“Maternity Clothes”
“Lingerie”
“Umbrella”

28. 28
October 2015, N=23 Pureplay Retailers, 19 Evolved Pureplay Retailers
Number of Paid Keywords vs. Cost Per Site Visitor via Paid Search
FURTHER DOWN THE FUNNEL
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
0 100,000 200,000 300,000 400,000
Cost Per Website
Visitor via Paid Search
Monthly Keywords Purchased
Pureplay Retailer Evolved Pureplay Retailer
Source: SEMrush 2015;; L2 Intelligence Report: Death of Pureplay Retail, January 2016.
Top Traffic-­Driving Key
Words
“Custom Dress Shirts”
“Sea Island Cotton”
“Thomas Mason”
“Mattresses”
“Mattress”
“Bed in a Box”
“Dollar Shave Club”
“Razor”
“Blades”
“Ipsy”
“Oribe”
“Monthly Subscription Box”

29. 29
October 2015, N=23 Pureplay Retailers, 19 Evolved Pureplay Retailers, 20 Omnichannel Leaders
Number of Paid Keywords vs. Cost Per Site Visitor via Paid Search
ULTIMATELY, SCALE WINS
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
0 1,000,000 2,000,000 3,000,000
Cost Per Website
Visitor via Paid Search
Monthly Keywords Purchased
Pureplay Retailer Evolved Pureplay Retailer Omnichannel Leader
Source: SEMrush 2015;; L2 Intelligence Report: Death of Pureplay Retail, January 2016.

30. 30
Changes to Organic Search Traffic as Evolved Pureplays Open Stores
STORES CAN DRIVE ORGANIC TRAFFIC
Source: SEMrush 2015
Date of First Popup Date of First Store Opening

31. 31
N=19 Evolved Pureplay Retailers, September 2015
Number of Stores v. Average Monthly Searches for Brand Name
AND INCREASED BRAND AWARENESS
Source: Google Keyword Planner;; L2 Intelligence Report: Death of Pureplay Retail, January 2016

32. 32Source: L2 Intelligence Report: Death of Pureplay Retail, January 2016
October 2015, N=19 Evolved Pureplay Retailers
Years Before First Store v. Stores Opened Per Year
NEW PLAYERS HAVE CAUGHT ON

33. 33
$4,568
$3,000
$2,953
$1,192
$1,061
November 2014
Annual Store Sales Per Square Foot
HIGHLY PRODUCTIVE
Source: “Warby Parker Adds Storefronts to Its Sales Strategy,” Wall Street Journal, November 17, 2014
$981
“We quickly realized that while we were seeing all the benefits we expected from branding and
marketing – the ‘halo’ effect of having a store open – stores could be a meaningful driver of
sales and profitability, which was really unexpected” –Dave Gilbao, Warby Parker Co-­Founder

34. 34
Bonobos: Impact of Opening Guideshops
REDUCED MARKETING COSTS
Source: “After 8 years and $128 million raised, the clock is ticking for men’s retailer Bonobos,” Business Insider, October 6, 2015
Bonobos Guideshop KPIs
• 80% conversion rate
• AOV of $300 (vs. $180 online)
• Higher proportion of new
customer acquisition
Since opening guideshops, Bonobos has cut online marketing spend from over 25%
to under 4% of net sales, while reportedly leading their category in organic site traffic

35. 35
$0
$10
$20
$30
$40
$50
$60
$70
$0
$20
$40
$60
$80
$100
$120
$140
$160
1/1/02 1/1/04 1/1/06 1/1/08 1/1/10 1/1/12 1/1/14
ModCloth Funding Birchbox Funding ModCloth Sales Birchbox Sales
Millions of Dollars
Annual Sales and Venture Capital Funding
HOW TO HIT 100 MILLION
Capital Funding
Annual Sales
Birchbox achieved $100 million in annual sales much more quickly
with much less funding than pureplay ModCloth
Source: Crunchbase;; Internet Retailer;; “Exclusive: Birchbox banks $60 million,” Fortune, April 21, 2014
10 Years until $100M Revenue
$63.74M in VC Funding
4 Years until $100M Revenue
$11.9M in VC Funding

36. 36
$0
$10
$20
$30
$40
$50
$60
$70
$80
$0
$20
$40
$60
$80
$100
$120
$140
$160
1/1/02 1/1/04 1/1/06 1/1/08 1/1/10 1/1/12 1/1/14
ModCloth Funding Birchbox Funding ModCloth Sales Birchbox Sales
Millions of Dollars
Annual Sales and Venture Capital Funding
WHAT WAS THE DIFFERENCE?
Capital Funding
Annual Sales
From August 2013 to July 2014, Birchbox opened a popup shop,
announced funding for a new store, and opened a flagship
Opens popup
Announces $60M funding
for permanent store
Opens Flagship
Source: Crunchbase;; Internet Retailer;; “Exclusive: Birchbox banks $60 million,” Fortune, April 21, 2014

37. 37
ModCloth: Brick-­and-­Mortar Initiatives
MODCLOTH TURNS TO BRICKS
Hires former Chief Strategy
Officer at Urban Outfitters
Opens its first pop-­up shop
in two years in LA
Launches a “Fit Shop” in
San Francisco
“…as we look to 2016, we can start to think about
when and where to launch our first permanent fit shop.”
— Matthew Kaness, CEO & Board Director
January 2015 April 2015 June 2015

38. 38
October 2015, N=6 Pureplay Retailers, 7 Evolved Pureplay Retailers
Average Threshold for Free Shipping
PRESSURE
*Excluding retailers without free shipping threshold.
Source: L2 Intelligence Report: Death of Pureplay Retail, January 2016.

39. 39
October 2015, N=23 Pureplay Retailers, 19 Evolved Pureplay Retailers
Percent of Retailers
Expedited Delivery Options Offered, By Business Model
PUREPLAYS PRIORITIZE SPEED
87% of pureplay retailers offer expedited shipping options,
compared with just two thirds of evolved pureplays.
Source: L2 Intelligence Report: Death of Pureplay Retail, January 2016.
Pureplay Retailer Evolved Pureplay Retailer

40. 40
Shipping Subscription Programs
REASONABLE EXPECTATIONS?
Retailer
Revenues $89 billion $486 billion $440 million
Shipping
Program $99 / year $50 / year $50 / year

41. 41
October 2015, N=19 Evolved Pureplay Retailers, 20 Omnichannel Leaders
% of Retailers
Buy Online, Return In-­Store, By Business Model
INVENTORY CAPABILITIES STILL LAG
Source: L2 Intelligence Report: Death of Pureplay Retail, January 2016.

42. 42
Net Sales Given OmnichannelCapabilities
THE POTENTIAL?
Source: ICSC, October 2014

43. 43
Macy’s Ship from Store Locations vs. Amazon’s U.S. FC’s
SHIP-­FROM-­STORE IS WINNING
§ n 2012 n 2013 n 2014 n 2015 Macy’s SFS Locations n Amazon Distribution Centers
292 SFS Locations
500 SFS Locations
775 SFS Locations
886 SFS Locations
68 FC’s
Source: “Macy’s battle for the ‘last mile’ leads to Amazon,” NYPost.com, July 2015;; “Amazon Global Fulfillment Center Network,” MWPVL, October 2015

44. 44
June 2013 – December 2013
Amazon.com and BestBuy.com Average Parcel Delivery Speeds
Store Warehousing vs. Centralized Fulfillment Centers
THE IMPACT OF SHIP-­FROM-­STORE
BestBuy.com Amazon.com
Source: StellaService

45. 45
◼ American Eagle Outfitters ◼Abercrombie&Fitch
December 10, 2010–December 9, 2015
5-­Year Stock Returns
THE OMNICHANNEL LONG GAME
Source: Google Finance, American Eagle Filings
No longer separates
E-­commerce reporting
Hires CDO;;
Opens Tech Center in SF
Introduces Ship from Store
in 255 locations
Opens State of Art FC
Reduces
promotions

46. 46
◼ American Eagle Outfitters ◼Abercrombie&Fitch
December 10, 2010–December 9, 2015
5-­Year Stock Returns
THE OMNICHANNEL LONG GAME
Source: Google Finance, American Eagle Filings
Announces E-­commerce Growth
(including online orders in store)
grew just 2% year on year

47. 47
CONNECTIVE TISSUE
Reserve Items In-­
Store Only via App
Personalized “My
AEO” Offers Inbox
AERewards Card
Links to Passbook
Push Notifications
for Timely Offers
Halfway through 2015, American Eagle returned to
positive sales growth (+11%)
Source: L2 Inc.

48. 48
October 2015, N=19 Evolved Pureplay Retailers, 20 Omnichannel Leaders
% of Retailers
In-­Store Event & Appointment Promotion, By Business Model
NEXT-­GEN SERVICE
Source: L2 Intelligence Report: Death of Pureplay Retail, January 2016.
Omnichannel Leaders Evolved Pureplay Retailers

49. 49
Indochino: Online Appointment Booking for Bespoke Suits
BESPOKE APPOINTMENT SERVICES
“Anytime we open a store in a city,
we see awareness and sales in
that city grow four times
compared to what it was
previously, as online-­only.”
— Drew Green
Indochino CEO

50. 50
Rent the Runway:In-­Store Fit Consultations
INCREASED CONSUMER CONFIDENCE
“A lot of the in-­store customers are
members on our site who
haven’t transacted yet. They’re
intrigued but they haven’t gotten
over the hump of being concerned
over fit or getting the item on time.”
— Jennifer Hyman
RTR Co-Founder & CEO
Source: “Bonobos, Rent the runway Navigate Clicks-­to-­Bricks Evolution,” Apparel, November 1, 2014

51. 51
Trunk Club: New Retail Concept
UNIQUE SELLING ENVIRONMENTS
Trunk Club “Clubhouses”
• Bars and coffee areas
• On-­site tailoring, personal stylists, and courier
delivery
• Chicago clubhouse includes 5,000 square-­foot
roof deck
• Trunk Club Custom exclusively available in-­
store

52. 52
Casper: Novel Mattress Showrooms
DIFFERENTIATION VIA RETAIL
Casper Showrooms
• Apartment-­style showrooms where customers
can nap
• DC “Snooze Bar” features waffles & coffee by
day and cocktails at night
• Casper Nap Tours visited seven cities in 2015
NYC Showroom
Los Angeles Showroom
DC Popup
Snooze Bar
Casper Nap
Tour in NYC

53. 53
Percentage of Non-­Entry Level Team Hired from Select Retail Organization
Top Companies Represented in Evolved Retailer Management Teams
DRAFTING RETAIL DREAM TEAMS
Douglas Simpson
VP of Retail
Previously VP of Operations,
Juicy Couture
Andrew Lande-­Shannon
Design Director, Offline Retail
Previously VP of Stores,
Joe Fresh
Philippe Pinatel
President and COO
Previously SVP and GM,
Sephora Canada
Benjamin Fay
VP of Retail Development and Customer
Experience
Previously EVP of Store Design, JCPenney
Birchbox Senior Retail Hires

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THE DEATH OF PUREPLAY
RETAIL
CONCLUSIONS

55. 55
CONCLUSIONS
E-­COMMERCE CONSOLIDATION: WINNER TAKES ALL
SIREN SONG OF PUREPLAY RETAIL
THE MYTH OF ORGANIC REACH ONLINE
VC SUBSIDIES: WHEN DOES THE MUSIC END?
TWO FOR ONE: ONLINE TRAFFIC + OFFLINE PROFITS

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THE DEATH OF PUREPLAY
RETAIL
Maureen Mullen, L2 Inc.

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