WeWork goes to WeMRKT
Coworking conglomerate WeWork expands into retail. But why?
On a sunny afternoon in late June, the common area of the WeWork offices at 205 Hudson Street in New York City bustled with activity. World Cup soccer played on the oversized television screen, jewelry designer Emma Rose showcased her wares on a table, and a buffet-style meal was served to WeWork's clientele. And tucked into one end of the airy space was the newly-launched WeMRKT, which opened for business on June 25 as a rebranded and expanded version of WeWork's Honesty Market. The original Honesty Market, so named because it used the honesty system to accept payments for goods, has now expanded to include WeWork branded apparel, office supplies, fresh flowers and food.
Ten of the brands at WeMRKT are sourced from WeWork's members, including juice from Misfit Juicery, phone chargers from Puku, and food from Splendid Spoon. According to Julie Rice, WeWork's Chief Brand Officer and the former co-founder and co-CEO of SoulCycle, competition for shelf space was fierce.
She said about 100 people showed up for the initial pitch night, held in early April 2018, and 20 WeWork members were selected to present their products to a panel of judges comprised of Ms. Rice; Nicolas Jammet, CEO of Sweetgreen; Katia Beauchamp, CEO of BirchBox; and Sean Kelly, CEO of SnackNation, which will eventually distribute all of the WeMRKT product.
The criteria for selection was creativity, innovation, capability and scalability, impact, and product. Out of those pitches, 10 were selected for initial distribution in the WeMRKT spaces.
Rice said WeWork plans to do four official pitch nights a year, with judges and product changing quarterly. But the whole process is still being figured out. "If there are products that were massive hits, I think they will become part of the core collection," said Rice. "And then the ones that people didn't necessarily find to be an essential part of their day will move out and new products will move in."
"The consumer here is close to my own experience."
CEO, Splendid Spoon
The focus, she said, will be on providing what WeWork thinks its community wants in the marketplace. Rice already has a few ideas about how that will look. "What we've seen is that people want healthier product," she said, echoing the company's recent announcement that it would ban meat from its offices. "And they want more essentials. They don't necessarily want to come in and out all day to go and find a phone charger or a notebook or office supplies." Rice said having WeMRKT kiosks nearby would make everyone more productive, because no one would have to leave the building during the workday.
During its first week of business, WeMRKT made several of its hand-picked entrepreneurs available for interviews. One business owner — Nicole Senteno, CEO of soup and smoothie company Splendid Spoon — told Retail Dive she had been using WeWork spaces since 2016, and she found the idea of having her product in front of that community appealing. "The consumer here is close to my own experience," she said.
Misfit Juicery founder Philip Wong, who moved his company into WeWork's spaces in April 2017, echoed that sentiment. While his juices are already available in approximately 150 retail locations across the U.S., he said WeMRKT offers more than just a new distribution channel. "From a business perspective, it gives us the opportunity to get to know our customers in a more intimate setting," he said.
"WeWork has 100,000 members, and we can get good feedback from engaging with these entrepreneurs directly."
Co-founder, Puku LLC
Feedback is an important aspect of the arrangement, according to Meck Khalfan, co-founder of consumer electronics company Puku LLC, whose company has been working out of WeWork spaces since 2013. Puku's phone chargers have been distributed to 5,000 Starbucks stores nationwide since November 2017 (the company also donates a portion of its proceeds to build wells in Liberia), so distribution is not the reason for his involvement with WeMRKT.
Khalfan said it's the community aspect of WeMRKT that most appeals to him. "WeWork has 100,000 members, and we can get good feedback from engaging with these entrepreneurs directly," he said. "You could pay more money to use a higher-end space with a smaller community. But I want to be more like Apple, which engages with a lot of people. WeWork isn't pretentious. It's very inclusive."
Who is the target market?
Yet in some ways, it's that lack of specificity that makes WeWork's strategy so difficult to decipher. WeMRKT is just the company's latest step to appeal to its members. WeWork also has apartments, called WeLive; a gym, called Rise by We; an early-education school called WeGrow; and a slew of new acquisitions, including marketing company Conductor; coding school Flatiron; recently embattled online organizing platform Meetup; and even a large stake in a Wavegarden, which makes wavepools.
At eight years old, though, WeWork is no longer a startup company, and its seemingly erratic collection of businesses and branding avenues has raised eyebrows among industry analysts. In that light, WeMRKT is either another odd venture or another potentially exciting opportunity.
But who are these disparate ventures meant to attract? Greg Portell, lead partner in the consumer and retail practice of A.T. Kearney, a global strategy and management consulting firm, said it's all about millennials and Gen Z. Coworking companies are nothing new — Regus and Servcorp have been in the space for decades — but the millennial workforce is practically defined by its desire to reinvent existing business models.
"If I'm just renting space, I'll get out as soon as my lease is done. But if I'm renting service and support, it's harder to leave that environment. It's hard to pull out of that kind of ecosystem."
Lead partner, A.T. Kearney
"I think WeWork is redefining the coworking space," said Portell. "Regus offices have been around forever, but they don’t appeal to millennial and Gen Z workers. WeWork has targeted that younger demographic. But if that's their target audience, they need to be able to adapt and adjust. WeWork started off as hip and cool compared to Regus, and they're already not hip and not cool. Now, if I'm just renting space, I'll get out as soon as my lease is done. But if I'm renting service and support, it's harder to leave that environment. It's hard to pull out of that kind of ecosystem."
And therein lies part of the puzzle. If WeMRKT is able to offer community in real and tangible ways, then it's not just an office space but a lifestyle. WeWork is moving towards a model closer to the Equinox brand, said Ben Smithee, CEO of The Smithee Group, a consumer consultancy specializing in millennial marketing. "Equinox is about a lifestyle and not just fitness. WeWork is trying to make work fun. So instead of just a coworking space, they're making it branded and fun and themed."
Smithee said the perks, which include free on-tap kombucha and beer, help define the company's upbeat personality. Yet even now, some of those amenities are shifting as the company grows up and starts to focus on taking its mature brand to the next level. "How many more coworking spaces can they offer to their customer? What's the five-year plan? In that light, I think WeMRKT is a smart play."
That means that even if this costs the company money, it may be worth the risk. "It's important to separate business risk from brand risk," said Portell. "To see a company like WeWork try something different is exciting. So whether WeMRKT works from a business standpoint is irrelevant. From a brand perspective, it's a much bigger deal for them. If this goes badly, WeMRKT and WeWork will pay for that."
Money and risk
Certainly, WeWork, which was valued at $20B in 2017, is not averse to paying for things. Their recent shopping spree to buy up companies is an indication of that. But they’re also beginning to feel some of the financial pressure that comes from growing — perhaps a bit too quickly. Its April 2018 financials revealed that the company is on the hook for $18 billion in leased office space, and despite raising $700 million in bonds, that's a lot of debt for a company that still has not figured out how to turn a profit. WeMRKT may be a step toward finding that balance.
"One major reason behind WeWork venturing into retail is that it has a still-unproven, loss-making business model," wrote Deborah Weinswig, founder and CEO, Coresight Research, a global retail think tank, in an email to Retail Dive. "It needs to grow its scale and prove its ability to make money, and diversification into non-workspace projects could help support this."
"You tell people that losing money is all right if you gain market share, but if you're not making your core business — which is coworking — work, you won't make retail work."
Yet longtime coworking expert Marcus Moufarrige, COO of Servcorp — a coworking and serviced office space that also offers virtual office products and IT services — is skeptical. Originally founded in Australia in 1978, Servcorp currently has over 150 locations in 24 countries. That's given Moufarrige, who’s been with the company 26 years, some perspective.
"Real estate is a difficult business," said Moufarrige. "I'm not sure why WeWork is doing [WeMRKT]," said Moufarrige. "They lost almost billion dollars last year. And you tell people that losing money is all right if you gain market share, but if you're not making your core business — which is coworking — work, you won't make retail work."
According to The Wall Street Journal, offering documents for a recent WeWork acquisition bid showed the company's loss was $933 million last year.
Brand building versus making a profit
If WeWork is a model of vision and branding over profit, then everything is moving according to plan. And from the looks of it, that's exactly what's happening with its current move toward experiential retail well-suited to WeWork's ethos. "We're looking for opportunities to create community," said Rice. "And WeMRKT is much more of a destination [than the former Honesty Market iterations]. It's sort of a little mini excursion. We also picture it as a place where member interactions can take place."
In essence, it feels like WeWork has reinvented a rather old-fashioned idea for the coworking generation. "It's the water cooler," said Rice. "It really is like the water cooler. I think also it's a great opportunity for our community managers that work in the buildings to learn more about the members and what they're making and to tell member X that member Y created those [snacks] and this is a good reason to buy and eat them. And so I think it really also becomes a destination to create community."
"Retail seems to be the next logical step to expand out from Adam Neumann’s original 'We' generation concept."
Founder and CEO, Coresight Research
So in some ways, WeMRKT makes sense. "Retail seems to be the next logical step to expand out from Adam Neumann’s original 'We' generation concept," wrote Weinswig. "The WeWork concept for shared office space places a bet on the idea that putting entrepreneurs in the proximity of each other will create the chemistry of community between tenants, making WeWork buildings a more stimulating place to work," Weinswig said.
That's not to say there aren't some potential pitfalls ahead. "Running a retail arm is really hard," said Portell. "It's not just about slapping up a few shelves and showing product. To be a merchant in a highly competitive space is challenging. But setting up a pop-up store here and there isn't a business."
To scale this new concept, Portell said, requires curating thousands of items from the community of WeWork members, positioning the retail storefronts and implementing the concept not only in physical locations but online too, based on its stated intentions. And all in a brand-authentic way.
"This is a major corporation setting up a store. This is a brand. The risk of failure is big," Portell said.
To the internet and beyond: What's next at WeWork?
It's still too early to know whether the venture will succeed or not. But WeWork is certainly planning to go big. The company plans to convert Honesty Markets into WeMRKT in over 200 buildings in the U.S. by the end of 2018, and internationally by the end of 2019. "Moving forward, and starting in January 2019, all new buildings that we build will have the new WeMRKTs in them," said Rice. And that's not all. "We are definitely going to add an e-commerce portion to our WeMRKTs," she added. "That should be launching in September ."
As WeMRKT scales, so will the challenges. "As currently imagined, WeMRKT is a drop in the ocean, compared to what they’re doing in office and living spaces," wrote Weinswig. "With the oversupply of retail, many retailers are searching for ways for consumers to see them as personalized, intimate, specialized and highly curated. WeMRKT’s highly edited selections could therefore appeal to the way consumers want to shop today. The challenge is that while their focus is on products made by WeWork tenants, scalability is limited."
"Traditional retail is changing, and as brick and mortar locations are dissipating, realistically right now we have 300 buildings that members can distribute to, and we're really a physical, global company."
Chief brand officer, WeWork
So what's the next step? Will WeWork take advantage of its Hudson Bay partnership to begin a large-scale coretailing effort? Is WeMRKT the first step in WeWork's larger retail strategy? Rice was tight-lipped about the future while remaining enthusiastic about the current direction. "This is actually a fantastic experiment for us, to see how our creators have their products live side-by-side, and sort of what the collective efforts look like together," she said.
In regards to the bigger question of coretailing, Rice said, "You can never say never. I mean, it could be a wild success and that would be great for us."
For the time being, WeWork is going to try and stay focused. Sort of. "At this point, we don't have plans yet for anything beyond the WeMRKT," said Rice. "However, we definitely think about how we can support our members and our members' businesses. And the truth is that as traditional retail is changing, and as brick and mortar locations are dissipating, realistically right now we have 300 buildings that members can distribute to, and we're really a physical, global company. And so for us to think about the ways that we can bring our members' products into the world is actually really very interesting, when we think of ourselves as a physical distribution channel."