Why This Online Clothing Company Started Sharing Its Profits With Brick-and-Mortar Stores To calm the nerves of traditional shops and department stores (and grow their customer base), Ledbury made a drastic offering.

When the online-only men's apparel brand Ledbury launched in 2009, it was like many online-only brands: It offered high-­quality products at a competitive price, because it cut out the retail middleman. But then something unexpected happened. "People were walking into department stores and menswear stores asking for Ledbury shirts," says Paul Trible, co-founder and CEO of Ledbury. And some brick-and-mortar retailers wanted to carry the brand.

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Trible hadn't anticipated this business interest but eventually decided it was an opportunity to reach new customers. So in 2016, Ledbury rolled out to 20 stores -- what Trible calls "early adopters." It went well, and he began looking for more retail partners. And that's when he hit the online-storefront divide.

Any online, direct-to-­consumer brand is likely to have experienced the divide at some point. Brick-and-mortars see the brand as competition. They often don't want to carry a brand in their store if that brand is also undercutting them by selling directly online. "More than once, I had retailers say to me, "Why would I pay you to steal my customers?' " Trible says.

He thought about how to earn their trust. Then he came up with an offer: Physical retailers could get a cut of his online sales. "It blew people's minds," Trible says. And soon, he'd bridged the divide.

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"We thought, What if we draw a geographic circle around retailers and say, "Any purchase made online within this territory, you'll get a financial credit that can go toward purchasing more Ledbury inventory'?" he says. He and his team hammered out the details and launched the program this February. Today his product is in 150 storefronts. If a purchase is made within 10 miles of any of those stores, the retailer will be credited with up to 10 percent of the purchase.

There are, of course, stipulations. Retailers, for example, get a cut of digital purchases only if they're in a category carried in-store. (If someone buys a sweater online but the retailer carries only dress shirts, there's no credit.) When there are two or more retailers in a single territory, they split the credit. And most important, retailers must be in good standing with Ledbury to take part in the program. "They need to be current or not more than 10 days late on payment," Trible says, laughing. "Chasing payments is hard to do, so this also incentivizes them to be on time."

So far, the program hasn't yielded retailers a ton of money -- about $50 a month, on average. But this has turned out to be beneficial: The small sum serves as proof that the retailer isn't losing large amounts of sales to digital shoppers. "Our data shows that Ledbury would be getting the vast majority of those online sales anyway," Trible says. "When retailers receive that balance sheet at the end of every month, they know we're not hurting their business."

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The payoff for Ledbury has been significant, though. The program helped expand its brick-and-mortar footprint, which now accounts for 30 percent of the business. And even more important, it's given it access to an industry of merchants with decades of experience and wisdom. "Being in wholesale, you have to be sharper on margins, more disciplined on logistics," Trible says. "Because of the operational requirements of the wholesale world, we've become a much better -- and more profitable -- direct business."