Online stores are moving into the real world

October 10, 2012: 6:52 AM ET

Jewelry site BaubleBar's THE BAR is the latest in a trend of e-tailers setting up shop in traditional retail spaces.

FORTUNE -- Fashion site BaubleBar has spent two years building an avid group of fans who turn to the site to sift through a fast-changing array of hip jewelry sold at reasonable prices. On October 17, the company will invite customers to try on that jewelry in person -- at THE BAR, a 500 square-foot showroom that will open in the back of the company's Manhattan corporate headquarters.

Consider it a modern twist on an old trend: since the birth of the web, traditional brick-and-mortar retailers have been creating digital storefronts. Web sales of apparel and accessories, in particular, are growing far faster than any other e-commerce product category and are expected to reach $40.9 billion in 2012 according to eMarketer. But until recently, digital retailers rarely took to the streets. (When's the last time you drove down to your local Amazon (AMZN) to pick up a skirt?)

Now that's changing as a new crop of entrepreneurs are developing digital brands that migrate to physical locations. They know that the online opportunity may be big, but it is still dwarfed by more traditional shopping experiences; 80% of transactions still occur offline after all.

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Thus trendy glasses-maker Warby Parker recently opened a SoHo showroom, and the company has retrofitted a school bus to be a pop-up store-on-the-go that will travel to nine cities over the next six months. It has also launched showrooms within existing retail spaces in nine US cities including Los Angeles, Chicago, and Philadelphia.

Another example: Last fall Bonobos, an Internet fashion brand that peddles trendy pants to affluent men, opened a storefront it called "Guideshop" in the company's Chelsea headquarters. In April, the company took a $16.4 million investment led by Nordstrom's (JWN) (along with Accel Partners and Lightspeed Venture Partners) and struck a deal with the retailer to sell its clothes in more than 69 physical stores. A year later, Bonobos has "Guideshop" boutiques in Boston and Palo Alto and a Chicago store will open October 15.

It's a strategy that makes sense, says Forrester (FORR) analyst Sucharita Mulpuru, because real estate is relatively cheap right now and online retailers have drastically reduced the price of inventory. (Many still mail the inventory online after customers have reviewed the products in the store.) "They're small bets," Mulpuru adds. "If it ends up being successful they can extend it to other places as well."

That's the model BaubleBar hopes to follow. Founders Daniella Yacobovsky and Amy Jain, both 30, developed the idea for the jewelry company, which sells necklaces, earrings and bracelets for an average between $20 and $120, a few years ago when they were classmates in their second year of Harvard Business School. They noticed most shoppers had no brand affiliation with jewelers the way they might with clothing, say, or shoes. Thus department stores competed on margins, not volume: they bought from many smaller designers without care-taking relationships and then marked the jewelry way up.

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After meeting with hundreds of designers, Yacobovsky and Jain turned to the Internet to cut out the middlemen, bringing prices down for consumers while at the same time paying designers more. They launched officially in January 2011 after issuing BaubleBar invitations to friends, and have grown mostly by word-of-mouth. With $5.6 million in funding, the company, which adds roughly 100 new products to the site every week, is also able to move very fast -- a classic Internet advantage -- and to localize products.

Yacobovsky and Jain now hope that speed together with their expert product picks will pay off in physical stores. Beyond THE BAR, they plan to launch more boutiques across the country catering specifically to local tastes. If a fashion blogger in Atlanta is talking up spikes, for example, they can stock an Atlanta store with spiked jewelry within weeks. They can merchandise a store in Atlanta very quickly.

More e-tailers may follow suit. Even Amazon is rumored to be considering a brick-and-mortar store, giving a whole new life to the term "multichannel."

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About This Author
Jessi Hempel
Jessi Hempel
Senior Writer, Fortune

Jessi Hempel is a New York-based technology writer for Fortune. She has written extensively about digital media, online advertising and social networking. Before joining Fortune in July 2007, Hempel worked at BusinessWeek and most recently served as their innovation department editor. Hempel is a graduate of Brown University and received a Masters in Journalism from The University of California at Berkeley.

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