Hudson Yards may be the moment of truth for how online brands compete in the real world

  • One million square feet of retail space and restaurants opens Friday at Hudson Yards in New York.
  • One area is devoted to brands like Rhone, b8ta, Stance and M.Gemi, that were born on the internet.
  • It will be a true test to see if these companies merit a permanent place at the mall.
An aerial view of the 18-million-square-foot Hudson Yards development in New York.
Source: Related Cos.
An aerial view of the 18-million-square-foot Hudson Yards development in New York.

Brands born on the internet will have a home at Manhattan's new mega mall.

At Hudson Yards, an 18-million-square-foot real estate development on the New York's West Side, 1 million square feet will be devoted to retailers like Lululemon, Sephora, Louis Vuitton and Fendi. It will also include a space dedicated to brands that started online and are now starting to open storefronts, like shoemaker M.Gemi and sock retailer Stance.

In many ways, this will be the first time a shopping center has been built from ground up with online brands top of mind, giving them permanent and not just pop-up space. It will be a test to see if these brands have enough clout to generate buzz outside of their websites, lure shoppers and keep their landlords happy. On what Hudson Yard is calling the "Floor of Discovery" on the second level of the building, visitors will find all of these digitally savvy brands in one place, neighboring one another.

"The opportunity to construct a new retail development today does allow for the developer to logically lay out spaces for present times," which includes these online brands, said Mark Kaplan, principal and chief operating officer at Ripco Real Estate, a New York-area brokerage firm. He views Hudson Yards as a "new-age mall," where shoppers who have been seeing some of these up-and-coming retailers on their Instagram feeds can test products before buying them. "The internet can be a cheaper way to grow a business from 0 to 15 miles per hour, but you need a bricks-and-mortar strategy to supercharge it," he said.

The born-on-the-internet brands — including men's athletic apparel company Rhone and a concept called "The Drug Store" with drinks by trendy beverage brand Dirty Lemon — opening up shop this week at Hudson Yards look at it as an opportunity to test the waters before they decide if they want to grow further. Men's underwear brand Mack Weldon, for example, will be opening its first bricks-and-mortar store ever.

"We think about this as a long-term deal," said Mack Weldon founder and CEO Brian Berger. In opening this first store, Mack Weldon "wants to build a sound case to do a handful more" locations, he said.

A bonus: "The statistic is in the markets where you have physical retail, the [e-commerce] business in that market increases by about 30 percent," Berger said.

Swimwear brand Heidi Klein is opening its first store in the U.S., at Hudson Yards.
Source: Related Cos.
Swimwear brand Heidi Klein is opening its first store in the U.S., at Hudson Yards.

Opening at Hudson Yards is also a chance for these young brands to acquire customers at a cheaper price than online, as ad placement on channels like Facebook and Google seems to be getting more and more expensive for some.

"The cost of online [customer] acquisition has gone up so substantially," particularly within the past 12 to 18 months, said Nate Checketts, the co-founder and CEO of Rhone. Rhone will have its third store ever, in opening up at Hudson Yards on Friday. And Checketts said the project's real estate developers — Related Companies and Oxford Properties Group — "showed greater flexibility in terms of leases" to his brand and other up-and-coming ones, to make it more appealing and less of a risk for them to open there.

"This is a chance for us to push into physical retail a little bit more and invest in it as a channel," Checketts said.

As hundreds of legacy retail stores — like those of Gap and Victoria's Secret — go dark across the U.S., online brands like mattress maker Casper will open at least 850 stores altogether by 2023, with more than 40 percent choosing New York first, commercial real estate services firm Jones Lang LaSalle found in a recent study.

Looking to capitalize on this growth opportunity, other real estate developers have been trying to lure online brands to their malls and shopping centers in different ways.

The third biggest mall owner in the U.S., Macerich, is incubating a business known as BrandBox that it's rolling out in some of its locations, including Tysons Corner Center in Virginia. There, e-commerce brands like make-up creator Winky Lux and furniture maker Interior Define share a common space but are able to set up pint-sized, individual shops for their goods for the duration of a few months, before another group of retailers moves in.

A business known as Fourpost is doing something similar at the Mall of America in Minnesota. And then there's Neighborhood Goods, often referred to as the "department store of the future," which is opening up stand-alone locations that house digitally native brands — like men's wellness company Hims and sneaker marketplace Stadium Goods — and is soon coming to New York. A concept called HiO, headed by a former top real estate exec at Gap, is testing a space for online brands in a shopping center in Brooklyn.

"When you lower the barriers to entry ... our concept resonates so much with what these new brands want," Fourpost founder Mark Ghermezian said.

Back at Hudson Yards, Webber Hudson, an executive vice president with Related Urban, a division within Related, said he's been thinking about courting these online retailers to the glitzy new center on Manhattan's West Side for at least the past two years.

"If you are really going to be a curator ... you are taking on a role as a merchant ... you've got to make a stance," he said. "We took a stance. We went out and identified a number of these digitally minded brands and wanted to be in business with them in a way that they have stakes in the ground."

"We will be right on a lot of them," he said. "We will be wrong on a few of them."

Here's a complete list of the digitally native brands opening up on the "Floor of Discovery" at Hudson Yards:

AG Jeans by Adriano Goldschmied

b8ta

BATCH

Dirty Lemon

FRANKIE CoLAB

Heidi Klein

L'Oreal (a new concept store)

Lovepop

M.Gemi

Mack Weldon

Madewell

Milk & Honey

MUJI

Rhone

Stance