VC firm Fifth Wall debuts $100M fund to help DTC brands enter stores

Dive Brief:

Fifth Wall, a venture capital firm focused on the real estate sector, announced that it closed its $100 million Retail Fund. The capital will invest in up-and-coming brands and retail concepts to grow physical stores via partnerships with the company's investors.
Investors include the Acadia Realty Trust, Cushman & Wakefield, Macerich and Nuveen Real Estate, per the announcement.
The company also noted that it has invested in emerging brands like Allbirds, Untuckit, Foxtrot and Madison Reed, the latter of which in September announced plans to open 600 stores by 2024.

Dive Insight:

Accounting and consulting firm BDO found that retailers had announced more than 7,000 store closures in the first half of 2019. By December 2019, the number of store closures surpassed 9,000. Research from investment bank B. Riley FBR estimates that the current period of consolidation colloquially known as the "retail apocalypse" could go on for another two years. While some retailers might point to the rise of Amazon as the culprit, stunted wage growth and the rising cost of living could also be stripping away consumers' ability to shop.

Despite the negative headlines, the direct-to-consumer channel remains a relatively bright spot in the industry. Though growth may be slowing for DTCs, it still remains strong compared to traditional business models, even while the scale is notably smaller. In 2018, commercial real estate firm JLL projected that digitally native brands would open 850 stores in five years. But for these brands, the purpose of a store may differ from that of more traditional retailers, and oftentimes they are used as educational tools or places for one-on-one services rather than just a place to close a transaction.

Fifth Wall, in its release, asserted that venture capital investors aren't aware of the challenges of opening physical stores and real estate owners aren't acquainted with the innovation happening in the DTC market. Citing that digitally native brands have opened more than 1,800 physical spaces in the U.S. over the last decade, the company also mentioned that it anticipates more physical store innovation will come from brands outside the traditional retail sector.

"New e-commerce brands know the importance of being wherever their customers want them to be at all times — they simply cannot reach their full potential if they remain solely online," Kevin Campos, partner at Fifth Wall, said in a statement. "However, digitally native brands often aren't familiar with the challenges of retail real estate expansion and we've observed that many traditional VCs lack the experience to be able to meaningfully engage on issues like site selection, store design, merchandising, and staffing."