In an era where so many people are going online to buy everything from razor blades to environmentally-friendly shoes, Neighborhood Goods is taking an unorthodox approach to retail by bringing D2C brands to the physical world.

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Today, the Dallas-based startup announced it has closed on an $11 million Series A from a bevy of big-name investors. Germany-based Global Founders Capital led the round, which also included participation from existing investors such as Forerunner Ventures, Serena Ventures (professional tennis player Serena Williams’ venture vehicle), NextGen Venture Partners, Allen Exploration, Austin-based accelerator Capital Factory, and others.

Neighborhood Goods raised a seed round of $5.8 million in May of 2018 that was led by Forerunner Ventures and also included participation from Revolution and Serena Ventures. The startup did an expanded seed round in February 2019, that was also led by Global Founders Capital.

With its new financing, Neighborhood Goods has raised a total of $25.6 million since it was incorporated in August of 2017.

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Neighborhood Goods opened its first physical store in Plano (a 14,000 square foot space located just north of Dallas) in November of 2018. Initially, the plan was to launch with 16 brands.

Neighborhood Goods ended up launching with around two dozen. Today, the store features representation from 42 brands (including Fossil, Dollar Shave Club, Draper James, and Rothy’s, among others) with another 16 launching in coming weeks, according to CEO and co-founder Matt Alexander.

“We started this concept as a new type of department store, with the goal of creating a physical space where we could help digitally-native and D2C brands get into physical retail, some of them for the first time,” he told me.

Despite all the hype around online shopping, Alexander argues that customer acquisition costs are going up significantly while “lifetime value” (which Qualtrics explains here as “a measurement of how valuable a customer is to your company with an unlimited time span as opposed to just the first purchase”) is dropping. Such phenomena goes counter to the widespread narrative that physical retail is dying.

“Customers acquired offline have five times more lifetime value than those acquired digitally,” Alexander said. “A lot of these younger brands are now seeing physical retail as a mechanism to do different things and to serve as a compelling marketing and customer acquisition channel.” The concept is appealing to many brands who don’t want to lease their own space, which can be prohibitively expensive.

Earlier this summer, Neighborhood Goods announced plans to open a second location in Chelsea Market in New York by year’s end. And today, as part of the new funding round, it also revealed plans to open a location in the hip South Congress area of Austin, Texas.

“Each store has a different restaurant concept within it and each serves different demographics with different formats,” Alexander said.

The company uses computer vision inside its stores to capture data such as demographics and in-store time (which so far averages 30 to 40 minutes per customer) to give brands behavioral trends on an anonymized basis. Neighborhood currently has about 20 employees working out of its Dallas headquarters and another couple of dozen working out of its Plano store. It plans to set up an office in New York with the new capital.

The Series A will also go toward “a general expansion, digital refresh, helping grow the corporate team in Dallas and beyond, and incorporating new technology to support brand partners,” the company said.

Illustration: Li-Anne Dias