Game On: The New Experience of Retail

Fifth Wall Ventures
Oct 24 · 5 min read

Modern gaming is bridging the gap between retail, competition, and community

Photo by Sean Do on Unsplash

Traditional retail is undergoing an industry-wide transformation. More than seven months into 2019, the US retail industry saw 27 percent more store closings than in all of 2018. Estimates suggest closures could reach 12,000 by the end of the year. Some point to the rise of e-commerce as the source of this demise. At Fifth Wall, we disagree, because 85 percent of commerce is still happening offline, and e-commerce retailers are increasingly entering the brick-and-mortar space, with an estimated 850 stores slated to be opened by these companies over the next five years.

As Kevin Campos, a Principal on our Retail & Consumer Investment team suggests, “when you have someone coming into a store…you can tell the brand story in a different way.” E-commerce retailers who are opening physical stores are keeping this in mind, testing new “experiential” retail concepts designed to do away with the bland retail models of old, which have driven the death of retail narrative. Here are a few examples of Fifth Wall Retail Fund portfolio companies engaging customers in novel ways:

  • B8ta, a software-powered retailer designed to make physical retail accessible for all, created brick-and-mortar shops that enable people to discover, try, and buy new tech products.
  • Heyday, an omnichannel skincare company, upended the $17 billion market by opening locations for in-person, customized facial treatments, and leveraging data to drive discovery for at-home skincare products.
  • Cotopaxi, an outdoor products and experiences company, engages its customers by being socially driven, dedicating one percent of its profits to address poverty and support communities. They’ve awarded 42 grants in six focus countries to promote the improvement of the human condition.

As traditional retail continues to embrace the “experiential” model, store operators are also trialing other concepts to attract foot traffic.

Retailers are doing this is by opening stores focused around “competitive socializing” — where people gather to engage in an assortment of activities.

We see one particular subset within competitive socializing concepts as having a high potential for growth — venues centered around the eSports industry.

Building the eSports Venue
Growth in the eSports industry has exploded, and it is now on par with major sporting events in terms of viewership. The global eSports audience has increased from 335 million viewers in 2017 to 454 million 2019, and estimates suggest that by 2022 the eSports audience will grow to about 645 million viewers. Major eSport events such as the DOTA 2 International Finals and the League of Legends World Finals attracted more viewership than both the National Basketball Association and Major League Baseball Finals in 2017.

This growing behemoth of a sports industry offers an opportunity for retail real estate players to derive additional revenue streams by getting involved.

Building out competitive socializing venues such as an eSports lounge where gamers can come together to play online games, or even an “eatertainment” venue where multiple games and experiences live under one roof with a blend of food and drinks, can address a gap for eSports enthusiasts. Currently, publishers and major eSports leagues hold events at arenas, while on the more democratized end, competition lives online through streaming services such as Twitch. There is a lack of middle-tier venues offering a clean, well-lit environment in which sponsors can participate, that is both easy and turnkey for game publishers and teams to activate, and convenient for casual gamers to visit. Opening such concepts will deliver additional value to retail operators.

The eSport audience demographic skews toward millennials and Gen Zers, where 62 percent of US eSport viewers are between the ages of 18 to 34. Research also shows that 61 percent of eSports viewers have an annual income over $50,000.

Combining these two factors, retailers can drive a younger demographic to their spaces, and sell adjacent products to these customers given that the eSports audience tends to have a higher purchasing power.

Another benefit to opening a competitive socializing concept centered around eSports is that one space can appeal to a variety of different customers. Take the “eatertainment” concept for example. During the day and in the early evening, the store may attract families as an entertainment option, and during the later hours, a younger demographic may utilize the space for socializing.

eSports X Retail in Action
Retailers are already taking notice of this phenomenon, as evidenced by the following pilot projects:

  • Nerd Street Gamers, an eSports training and competition facilities developer, partnered with Five Below to build 3,000 square foot facilities for eSports trainings and events connected to select Five Below stores starting in 2020 (Five Below also led Nerd Street Gamer’s latest round).
  • Simon Property Group invested $5 million in Allied eSports, which will create 10,000–15,000 square foot eSports lounges at up to 12 of its malls for competitive, organized video game events.
  • Topgolf will create eSports lounges at six of its outposts, offering events and coaching sessions.
  • GameStop announced a series of eSports partnerships and initiatives at its retail locations.
  • The Rabo Esports Stadium Amsterdam is already booked for 75 days worth of events next year despite the stadium not yet being built.
  • MGM Resorts International turned a former nightclub in its Luxor Hotel & Casino on the Las Vegas Strip into an eSports arena. The $20 million, 30,000 square foot venue includes a 50-foot LED wall. It drew more than 4,000 people for a League of Legends three-day tournament in December.
  • In Arlington, Texas, city officials re-purposed part of a convention center to build a $10 million, 100,000 square foot eSports stadium that opened in 2018. The venue is highly adaptable and can host local and international events with audiences ranging from 250 to 2,500 people.

“eSports is so unique that it would be a good bet to take,” said James Cook, JLL’s Director of Research for Retail. “There’s a good opportunity for growth in an eSports venue in a way that wouldn’t exist by just investing in fashion or fitness chains.”

The next phase of retail is about engaging with customers in novel ways that bring consumers into stores, and connect them with the brand in unexpected ways. Investing in physical concepts focused around eSports is one exciting way to achieve this.

If you are interested in learning more about Fifth Wall’s perspective on eSports and Retail, please email Kevin Campos.

The above is presented for informational purposes only, is not intended to recommend any investment and is not an offer to sell or the solicitation of an offer to purchase an interest in any investment vehicle managed or sponsored by Fifth Wall. This document speaks as of its publication date or as of a specific date(s) as noted, and Fifth Wall undertakes no obligation to update any of the information. The information above has been prepared from original sources and information Fifth Wall believes to be reliable, but Fifth Wall makes no representations or warranties as to its accuracy or completeness. Forward-looking statements may express Fifth Wall’s expectations for future events, but there can be no assurance or guarantee as to specific future industry trends or investment or performance outcomes.

Fifth Wall INSIGHTS

INSIGHTS is the official blog of Fifth Wall Ventures, exploring the Built World’s biggest ideas, emerging trends and the most audacious concepts transforming the ways we live, work, sleep, consume, move, create, connect and play.

Fifth Wall Ventures

Written by

Fifth Wall is the largest venture capital firm focused on technologies for the global real estate industry.

Fifth Wall INSIGHTS

INSIGHTS is the official blog of Fifth Wall Ventures, exploring the Built World’s biggest ideas, emerging trends and the most audacious concepts transforming the ways we live, work, sleep, consume, move, create, connect and play.

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