Popup Pitfalls: What DTC Brands Need to Know

When, why, and how to execute a popup strategy

The tl;dr

1. Popups are a common strategy for both retail newbies (most DTC brands) and experienced retail operators (eg Lululemon)

2. But most retail newbies approach it in a way that results in wasted time and money — for both their team and prospective vendor partners

3. There’s a (somewhat) linear order of operations brands should follow to minimize inefficient execution

4. Be aware of the tradeoffs and hidden costs of a popup model: failed strategies are often a result of executing against unrealistic expectations
   

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When does a popup make sense?

Depending on who you ask and when you ask them, popups are either the most exciting — or the most annoying — thing a brand can do.

Popups come with a really interesting set of pros and cons that vary depending on a few things:

1. Where the brand is in its offline journey: just starting vs established retailer

2. The existing team’s relevant popup experience

3. The relevant offline retail experience of whoever is PMing the project

4. The brand’s financial constraints and hurdle metrics

5. The purpose of the popup itself

The most successful popup strategy I’ve witnessed is Lululemon’s: during the fourth quarter of 2019 alone, Lululemon opened 50 temporary stores. Modern Retail did a great article in 2020 that hit on three different strategic purposes of their popups:

1. Testing markets: test out new markets that Lululemon was considering opening permanent stores on

2. Alleviate traffic pressures: leaning on pop-up stores to help deal with in-store traffic challenges…opening pop-ups in areas where permanent stores are seeing a lot of foot traffic could help Lululemon serve these customers more quickly

3. Liquidation: help Lululemon clear more excess inventory

This is impressive for a few reasons:

1. Lulu generated ~$3b in sales in 2019; they were not a “scrappy startup”

2. 50 openings in one quarter — even if just popups — is a feat in and of itself; especially when you consider that this is in addition to their full price, “real” stores they opened

3. The range of strategic initiatives they were using popups for illustrates a well-oiled machine, where multiple team leaders clearly collaborated and executed across numerous hierarchies of the business

However, most people associate popups with startups. They’re generally smaller investments, shorter time commitments, and give the brand some flexibility in terms of setting the bar low.

In short, while popups are simply not as risky as “real” stores, they’ve also clearly proven themselves to be of significant value to multi-billion dollar retailers that already have hundreds of stores.

So the question isn’t really “when should a brand use popups,” but rather “why should a brand have popups?”

Popups offer brands a unique value prop: short term IRL experiences

There are SO many reasons to open a popup, many of which align with reasons why brands should open stores in general. However, many are also unique to the short term nature of a popup:

Brick and mortar in general:

1. Connect with customers in a different way than existing e-commerce channels

2. Distort product in ways that are different, and advantageous, via offline vs online (eg only merchandising higher value goods in the stores, where they might be buried in product pages online)

3. Liquidate product in a way that preserves the online brand

4. Surgically grow a single geography

5. Diversify customer acquisition engine economic profile (more on that at the bottom of this newsletter)

6. Capture shoppers that don’t shop online

Popups’ short term nature gives them a unique edge in three different ways:

Cost mitigating

1. Testing the channel’s feasibility before committing to a bigger investment / as a means of building a proof of concept for a future fundraise

2. Testing a market before investing in a “real” store

3. Innovation: whether testing a new format, service/technology, or even product

Scarcity / hype

1. Limited lease term and hours

2. Innovation: see above

Other

1. Liquidate product

2. Lower stakes employee training ahead of the “real” store’s opening

All of these use cases can be relevant to companies of all sizes: whether you’re a startup or seasoned retail company, popups have a lot to offer at all stages.

Now for the good stuff…

How to execute a popup

In a past newsletter, I described the foundation of a good retail expansion team: I mentioned that I like this org design because it mirrors the life of a store.

This also mirrors the life of a popup:

1. Retail Strategy & Finance: establishing the rationale, goals, and budget

2. Real Estate & Lease Admin: finding and negotiating the location

3. Store Design & Construction: designing and building the space

4. Store Operations & Leadership: setting up and running the store

Chances are if you’re building a popup, then you don’t have leaders in all — if even ANY — of these areas. Maybe Finance at best, although they likely don’t have Retail Finance experience (more on that here).

In this more common scenario, you can shift your approach to focusing on the questions that those professionals are generally solving for, rather than finding those professionals to hire at this stage:

1. Retail Strategy & Finance: why do we need a popup? what does success mean, and how do we quantify it? how much will this cost, and how much in sales/profit we need to generate for this to be a good financial investment?

2. Real Estate & Lease Admin: where should we open? what are the terms of the lease? what downside protections do we want?

3. Store Design & Construction: what kind of experience do we want to create? what kind of experience can we afford to create given the budget?

4. Store Operations & Leadership: what technologies and ongoing services do we need? what are the team’s SOPs? how do we create an amazing customer experience? how do we create an amazing employee experience?

Unfortunately, most brands start this entire sequencing of questions from the wrong place. It usually looks like this:

1. CEO: We should do a popup.

2. Finance: We don’t have budget for it.

3. CEO: Go find it.

4. Finance: Best I can “find” in the budget is $[something that is inevitably not enough]

5. CEO: Great. Hey, CMO/COO/CCO: make it happen.

6. CMO/COO/CCO: Never done this before, but how hard could it be? Time to find someone who can build the store for me…

At this point, the person who is leading the project (CMO/COO/CCO in this example), typically seeks out Store Design & Construction vendors with nothing but a budget and perhaps a market in mind (usually NYC or their home town).

Before talking about the most efficient approach, let’s first dive into where the above approach can go wrong: