Headline after headline we read of retail’s demise, stories of store closures, huge layoffs and overall armageddon.
(As first seen on LinkedIn written by Melissa Gonzalez)
The stats in isolation are nothing to ignore, but what we are failing to focus on is that today’s problem equals tomorrow’s opportunity for the retail industry. An opportunity to rethink the physical store format and the commercial real estate leasing structure.
We know retail isn’t dying because people haven’t stopped being consumers. However, what people spend their money on, how they spend time and expectations of experiences have and are evolving faster than the retail industry, and therein lies the opportunity for change and a rethink of retail space. The current retail model is antiquated and the traditional formula of just relying on steady in-store sales growth needs an infusion of a new standard. Just as the office environment has seen a major disruption due to shifts in demand with game changing formats from companies like WeWork and Galvanize, retail and commercial leasing is at a restructuring paradigm.
Opportunities to incubate and repurpose underutilized space in more efficient and innovative ways drives growth opportunities to traditional infrastructures like big box retail and retail space as a point of distribution. As a point of reference, my firm has been working with brands to reimagine physical environments and produce pop-up stores since 2009, and in 2016 one in four of our pop-up clients expanded into permanent retail locations due to in-store success. These store “tests” were successful because they took an approach to re-operationalize how to connect to the consumer by embracing the understanding that their is no such thing as “channels” to customers. An acceptance that customers today expect access, convenience, and seamless experiences.
Some of the fast growing e-commerce brands shifting to brick-and-mortar have been proving they get it. So how do we get them to join forces with the traditional retailers and commercial real estate brokers that can bring space opportunities and physical distributional channels to the equation? For starters, we stop thinking of physical space as just distribution channels and instead think of physical environments as touch points, touch points to connect with customers in an immersive way, a way that builds relationships and trust between brands and consumers.
While we understand we are in a post channel era, retail still needs to adapt what kind of experience is delivered at each of their touch points. What makes someone shop online? Convenience and Access. What makes someone shop via mobile? Likely convenience + opportune timing and spontaneity. What drives in-store traffic? The opportunity to learn, touch and feel, have a short escape to discover something new and be entertained.
Sometimes the best way to learn how to innovate an industry is to look at others and see what’s working and what can become applicable to the one you are trying to re-work. The office space model re-think is a great example to take inspiration from on the leasing side of the retail equation. And on the experience side I turn to the evolution of how the food court has morphed into a coveted culture of food halls – well branded, anchored by celebrity chefs and a center of discovery for visitors. Design and curation are approached with the mindset of captivating passersby, igniting the senses, increasing dwell times and creating a loyal following.
The combination of the two models can prove to be a refreshed approach to the current retail infrastructure as they both hit upon what placemaking is all about – open and integrated spaces that foster community building.
Retailing in a Connected Store Environment
Now take the immersive in-store experience and layer in technology to reimagine physical retail as smart spaces instead. Environments integrated with plug and play spaces supported by AI, RFID and NFC technology that provide optimal mobility and positions brands to engage with customers new ways. Physical experiences that cultivate large and engaging focus groups where brands can connect on a human-to-human level to learn and to educate. By investing in technology systems that power machine learning take the online and offline experience and enable retailers to blur the lines as to what’s possible from channel to channel. It sets up retailers to collect infinite amounts of real time data on interactions, reason through that data, contextualize and segment it and find actionable ways to improve customer personalization and conversational interactions.
New benchmarks have been established by customers but brands and retailers are lagging in adopting the change. To ultimately reshape traditional retail thinking, there needs to be a recalibration of how ROI is measured. There needs to be a reinvention of how retailers manage metrics and understand their implications across their entire ecosystem, not each channel in its own silo. Here we can also lean on industries like furniture or automotive that are no strangers to concept store models. Additionally if we take into account that smart stores, aka shoppable showrooms or guide shops, require a smaller footprint as inventory is stored offsite we can also see opportunity for stores to drive higher return per square foot of retail investment.
While analyzing four wall profit “money made on premise” matters, the important math equation today is micro-conversion in-store (email capture, data collection or social media post) + micro-conversion online + micro-conversion via mobile = overall lift in brand awareness, traffic, better merchandise assortment and manufacturing planning and sales. However, a restructuring of business models and ROI benchmarks can’t be driven by retailers alone. If retailers and landlords can see the value in investing together to create a new infrastructure that positions commercial leasing success than the opportunity arises. Investing differently upfront for a more modular, plug and play environment that drives engagement, longer dwell times and ultimately higher conversions can drive ROI and reignite an industry in the midst of a major paradigm shift.