Simon Venture Group – J. Skyler Fernandes – Retail Startups

Last week I spoke with J. Skyler (Sky) Fernandes, Managing Director of Simon Venture Group.  Simon Venture Group is the venture capital arm of Simon, an S&P 100 company and the largest commercial real estate company in the world, with a large focus on retail.   We spoke about disruptive trends in the retail industry, Simon Venture Group’s investment strategy, and the ways that startups can work with them.

According to Sky, the future of retail is in the convergence between in-store retail and e-commerce. He gave several examples of trends demonstrating the growth of omni-channel retailing, and the startups and established companies that are leading those trends.

1) On-Demand Delivery (Deliv)


Simon Venture Group has invested in a startup called Deliv which facilitates same day and on-demand delivery of products from local retailers to your home.  With Deliv, you can either go to a store to make a purchase or purchase online, and then Deliv brings it to your house the same day or when you want it. Sky calls this trend “on-demand delivery”.  You get to specify exactly when and where the item is delivered, rather than being subject to UPS or FedEx’s delivery schedule.

One of the things that got Sky excited about Deliv is that they are integrating with the back-end of some very large retailers – Macy’s, Foot Locker, and Bloomingdales, among others.  Uber, Google, eBay, and Amazon are also working on similar on-demand delivery services, but are more front end platforms, not directly integrated into a retailer’s fulfillment system. Consumers may never even know they are using Deliv, they just click “same day delivery” on Macy’s website and it happens.

2) People will make purchases online, and then pick them up in a store

A new topic being brought up is “show rooming”, where consumers walk into a store, but make the purchase online. Interestingly enough the opposite of this, which is called “reverse showrooming”, is actually more common. Looking at consumer behavior about 1/3 of consumers “show room”, but 2/3rds of consumers “reverse show room”, by going online to discover and research an item, and then go to a physical store to purchase it and/or pick it up.

Amazon recently announced that they are opening their first retail store in New York later this year, just down the block from the flagship Macy’s store. Wal-Mart, Home Depot and Macy’s already offer this service and it’s proven to be popular.

Sky noted that shopping malls, such as the ones operated by Simon, make great fulfillment centers for online shopping, where products can either be shipped from local stores (rather than warehouses) or offer in-store pickup.

Sky also brought up how there is an interesting attribution dilemma happening within the growth of omni-channel retailing. If a purchase is made in a store, but using an ipad, or if you purchase from your home and the item is fulfilled from a local retailer, is it an online sale or an in-store sale? From the retailer’s perspective it’s just a sale, all part of the same pie. It’s clear that when tracking the growth of ecommerce vs. physical retail, the line is blurring.

3) Previously online-only brands will establish physical stores to increase revenues per customer (Bonobos)


For successful brands, physical stores generate much more revenue in total and per customer than e-commerce does. “Ecommerce is big, but it represents only 10% of retail revenue. 90% is in-store revenue”, Sky says. “[For most brands], e-commerce is actually a much harder business model compared to a physical store.  Retailers know that you’re going to spend 2-3x more money in a physical store – there are impulse buys, you can see more things, try things on. Online is typically hyper-targeted purchasing – you usually have 1-2 items and the basket size is much smaller. Also physical stores benefit greatly from often lower cost of traffic and higher conversion rates. Being a destination ecommerce site is expensive for marketing and the conversion rates are much lower.”

Sky cited many successful online brands such as Bonobos, Birchbox, Rent the Runway, Warby Parker, and BaubleBar which have all opened or announced physical retail spaces to increase their revenue.

4) In-store retail staff will gain access to data and insights previously only used online (Augmate)


E-commerce websites have access to troves of data about each user and their buying habits.  They’re able to use this data to make helpful suggestions such as “customers who liked this item also bought this other item” or “we don’t have that item in your size, but we do have it in a different color in your size”.

This data and the resulting highly individualized, revenue-enhancing product suggestions were traditionally not accessible to in-store retail staff.  But startups like Augmate (another Simon Venture Group portfolio company) are beginning to change that.  Augmate is a platform for building business apps for wearable devices, such as digital eyewear. Using Augmate, sales associates can look up product info, inventory levels, and make product recommendations through an augmented reality device like Google Glass.

With Augmate, staff at a Nike or Foot Locker store can tell immediately whether the store has a particular size or style of shoe, without having to send someone to the back to check.  Staff at Home Depot can quickly look up and tell customers where in the store they can find a particular item, for example.

5) Physical stores will generate more customer data and insights of their own (Nomi)


Online, data is generated by tracking our clicks, taps, email opens, and other browsing behavior.  E-commerce sites like Amazon and eBay generate mountains of data on how we arrive at their site, how long we spend there, what we click on, and whether we purchase.  They can then analyze this data to determine how to better design their site and our experience to maximize sales.

But traditionally, physical retailers have not been able to generate data about what people do inside stores.  Now that is changing.  With companies like Nomi and RetailNext, physical stores can track things like how many people are coming into a store, what part of the store do they spend time in, how many people convert to making a purchase, and more – all the same data that’s generated by online behavior. This data is generated by using cameras, wi-fi, beacons, point-of-sale data, and other sources.

Sky is a particular fan of Nomi.  Nomi is different because it marries data analytics with specific retail marketing tools.  So with Nomi, stores are not just able to gather data, they’re also able to conduct and track marketing campaigns based on the data.  For example, stores can answer questions like “If I change the window display, do more people come into my store” or “If I do Facebook advertising, do we actually attract more customers” – and then launch a marketing campaign accordingly.

Simon Venture Group


Simon Venture Group launched in April 2014 and already has 7 portfolio companies, most of which you can see on their site, including one recent exit with the sale of Shopkick for $200M.  Their investment focus is in the retail technology space, broadly defined, and make investments between $250K to $5M.  Retail tech includes both in-store retail technology and e-commerce.

Some of the broader vertical focuses include payment tech, loyalty and coupons, logistics and delivery, HR/recruiting, real estate, parking, energy, security, food & beverage, entertainment and digital media, and customer service.

Sky said, “Malls are like mini cities, with all the services, opportunities and challenges that cities have.  Simon Venture Group is therefore “investing in the future of a city” – nearly everything a city has is also important to Simon. Malls are more than business centers, they are also community centers.”

Sky Fernandes is Managing Director of the Simon Venture Group and was a panelist in our recent online investor challenge on New York State cleantech startups.  The best way to reach him is via his LinkedIn or Simon Venture Group’s website.

Sky is also the author of The Best Startup Pitch Deck and How to Present to Angels and VC’s which has over 150,000 views and downloads.

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