Retail Renaissance: New Models for a New Era
By Jez Frampton, Global CEO, Interbrand
For years, the predicament facing retailers has been analogous to the proverbial frog being brought to a slow boil, only to realize—too late—that the heat has risen to a lethal level. Digital seems to be slaying the high street, the main street, and all manner of brick-and-mortar stores. However, a broader historical view might show us, not an end, but a transition—one that is full of promise for those brands that heed the evolutionary call.
At a time when online businesses are disrupting traditional retail models by providing customers with personalized content, crowdsourced advice, 24/7 shopping, good service, and near-immediate delivery, traditional retailers are struggling to stay relevant and deliver value beyond price. In particular, as e-commerce alternatives continue to dilute their “category killer” equity, big-box retailers must alter or expand the role they play in customers’ lives. Customers now wish to dictate the rules of engagement, which is why the most successful retailers are becoming more consumer-centric than ever before, and incorporating those insights into the company’s everyday operations.
However, great turbulence always does beget innovation! For every corporate retail failure, there is a new brand success story making headlines. Though some have argued that the retail store will become obsolete as all commerce eventually shifts online, don’t bank on customers abandoning the ‘sense-based’ pleasures of the in-store, human experience. More likely, we will continue to see the emergence of innovative new business models that will redefine retail brands and shopping:
1. Are You Experienced?
Customers love a great in-store experience as much as they love great products. Though e-commerce and mobile have forever changed the retail market, the store can still fulfill a key role as experiential epicenter. The key idea for retailers is not which experience (in-store or online) matters more to consumers, but how to use both effectively to drive loyalty and sales. The online and offline experience are two sides of the same coin: Both must immerse customers in the brand and both must satisfy ever-escalating consumer demand for authenticity, choice, convenience, value, and seamless service.
Because shopping is as much a leisure experience as it is a practical one—and because some items (like clothes) are harder to shop for online—brick-and-mortar stores will endure. They will, however, function in a new and different capacity and become increasingly integrated with online channels. So how are brands future-proofing their businesses from an experience standpoint?
Some, such as Topshop, are focusing on a few ‘flagship’ stores as experiential hubs and investing more in creating rich online shopping experiences. A page out of the luxury brands playbook!
Others, like Louis Vuitton, are ramping up innovation with intriguing partnerships. In 2012, the brand collaborated with Japanese artist Yayoi Kusama, to create a collection of garments and an art gallery-like takeover of Selfridges department store in London. Hailed as the brand’s “smartest artistic coup to date,” it was followed up by Selfridges’ “No Noise” installation in January, a radical retail experience that removed logos from items and invited shoppers into a “stress-free,” distraction-free (and yes, noise-free) space in which to challenge their perceptions of what it means to shop.
Conversely, online retail brands are expanding into physical stores and pop-ups arranged as showrooms to drive online sales and build awareness. As digitally savvy tech brands strive to evolve into lifestyle brands, we’re seeing Samsung and Microsoft jostling to compete with Apple, which turned gadget browsing into an upscale experience—and recently trademarked its retail layout. Big or small, retailers must listen to customers’ needs for better ways to purchase products, unique in-store experiences, easy ways to discover new products, and more opportunities to learn, interact, touch, share, and play.
2. Wish Fulfillment
While online shopping offers lower prices and endless selection, the experience isn’t always satisfying and doesn’t always offer the best value. Often, it gets down to fulfillment of immediate needs—and orders. In fact, the number-one reason why many online shoppers abandon purchases is the delivery charge! And even if they do complete the sale, it doesn’t always stick. For every order purchased online, two items are sent back. By figuring out what’s causing dissatisfaction, retailers have a huge opportunity to fix the problem and improve the transaction experience.
This is one reason Amazon is testing Amazon Locker, a service that gives consumers control over how and when purchases are picked up. With trials now taking place in three cities (Seattle, London, and New York City), the service allows consumers to ship a package to a nearby locker location, sometimes in an existing store. Amazon offers a similar service in Japan, where it delivers to local convenience stores and allows consumers to specify a time of day for delivery or pick. A number of retailers including Walmart are testing Shutl, a UK startup that enables multichannel retailers to offer same-day shipping, often in under an hour. Watch out, Amazon!
3. The Retailer x Consumer Collaboration
"Big or small, retailers must listen to customers’ needs for better ways to purchase products, unique in-store experiences, easy ways to discover new products, and more opportunities to learn, interact, touch, share, and play."
With so many choices available, consumer preferences are becoming more refined and specific. From bespoke suits to customized laptops, consumers are being invited as “guest designers” to personalize their purchases, express their flair, and shift the model from passive consumption to active co-creation—or more specifically, “co-created by me.” Case in point: The NIKEiD platform, which lets the buyer customize and design Nike products in-store or online. Touchscreens in Nike stores invite people to design their one-of-a-kind kicks, either consulting with an on-site designer or expressing their inner designer.
Retailers are also using social media to collaborate with consumers, gauging trends and preferences in order to decide which designs to stock. A brand can post designs on Pinterest or Facebook and order, manufacture, or stock according to the number of “likes,” as Japan’s ever-innovative Uniqlo is already doing. Crowd-funding is another key aspect of co-creating value. While some startups are looking for an injection of funds to keep their brand alive, a number of well-established companies are looking to the wisdom of the crowd to get feedback on design concepts, only going to production once critical thresholds are reached.
4. Pop-ups Are Popping Up
Products come and go—and, these days, so do stores, literally. From instant gallery-like shopping spaces to food trucks, stores on wheels, and roaming kiosks, the temporary pop-up store offers an element of surprise that lends itself to social media. They typically build buzz with word of mouth, pique the curiosity of crowds, offer a fresh, new experience, and then disappear or morph into something entirely new. At a time when all is in flux, including the retail model itself, it’s no surprise this spontaneous, low-risk, and low-cost solution is taking off.
With low rents, minimal staff, and limited-time availability (perfect if your offer is seasonally driven), pop-ups often lead to bigger profit margins and provide a great testing ground for new products, services, and retail concepts. Many pop-up restaurants, such as Pitt Cue Co and Meat Liquor in London, have done so well that the success of their pop-up ventures allowed these businesses to then open “fail proof” permanent venues. Even famous restaurants have gone the pop-up route. The Michelin-starred Noma restaurant in Copenhagen, for instance, did business as a pop-up while its premises were renovated.
Retailers like Sephora and Uniqlo have also used the pop-up model successfully. Making commuting a little more fashionable, Uniqlo has used pop-ups to sell clothes to commuters in convenient train station locations. Sephora, always looking for new ways to dazzle, has developed an aesthetically unique, eco-friendly pop-up that gives shoppers in high-traffic urban areas the opportunity to get makeovers and advice from Sephora staffers, pick up favorite products, check out on the spot through mobile POS units, and share the experience through social media. New York’s Warby Parker made its name as a disruptive e-tailer of eyeglasses with pop-up stores, and just opened its first permanent store, in Manhattan's Soho area, with more on the horizon.
5. Think Local, Act Local
For many companies, international sourcing may provide the mass volume a retailer needs but, increasingly, “local” is adding a point of differentiation that meets consumers’ environmental and ethical demands for products sourced closer to home. With horsemeat scandals rocking Europe and food quality scares in the US as well, the trend has only accelerated.
For grocers and a growing number of restaurants, local sourcing has become an established sales strategy. By satisfying consumer preferences for fresher, safer food and intentions to support local producers, selling local helps foster closer relationships with customers—particularly useful for big retailers that have been accused of pushing out smaller homegrown retailers.
The benefits, of course, are not limited to brands that stock and deal with food. International brands such as Natura, which capitalizes on local sourcing in Brazil for natural ingredients-based cosmetics, shows that is possible to achieve a balance between social development and economic success. By helping to develop and maintain local communities and preserve environmental heritages, brands not only find innovative sourcing solutions but also build a unique marketing story.
6. That’s Entertainment
Rakuten Ichiba, one of the Japan’s leading ecommerce sites, sums up the essence of the entertainment model with their slogan: "Shopping is Entertainment." Malls around the world have long embraced shopping as a theatrical experience, putting on seasonal holiday spectacles and incorporating arcades, movie theaters, novelty stores, food courts, and restaurants into their layouts to encourage people to linger, play, and spend.
Burberry and Ralph Lauren excel at such “merchantainment.” Meticulously managed and curated, they are redefining how luxury brands operate in the digital and social space. Ralph Lauren’s spectacular fashion shows projected on the outside of retail flagships in New York and London enthrall and engage, as do Burberry’s digital experiments such as the brand’s Tweetwalk events, which turn Twitter into an extension of the catwalk to give the world a front-row seat and enable real-time purchases during fashion shows using social marketing. Upper class but by no means aloof, they exemplify digital-forward luxury brands by mixing and mingling on the social and mobile web to inspire and engage.
7. Find Your Genius
Apple’s Genius Bar concept is more than just a technical support service—it is a steward and outpost of the Apple brand. Staffed by approachable Apple geeks who are both technically adept and passionate about the brand’s products and philosophy, the Genius Bar enhances the customer experience with a human touch and the ability to transform disgruntled customers into satisfied ones.
It’s not just technology that could use a touch of genius at the point of sale. Cosmetics retailers, for instance, offer a range of products and choices that can easily overwhelm, especially as formulations and methods of application grow even more sophisticated. That’s why Sephora has consultants on hand to give advice and makeovers, and stores like Tesco and Walgreens are increasingly adding beauty consultants. In categories that have a high dissatisfaction rate, especially when prices are high, customer confidence can be shaky and results may disappoint, a reassuring expert can be a vehicle to reinforce and enhance customer relationships and, by extension, the brand.
"Whether it’s finding the perfect pair of jeans or a new living room sofa, the inability to try products out firsthand before committing to buy is one of the biggest hurdles to purchasing online—and one of the greatest competitive advantages brick-and-mortar stores still enjoy."
8. Try Before You Buy
Whether it’s finding the perfect pair of jeans or a new living room sofa, the inability to try products out firsthand before committing to buy is one of the biggest hurdles to purchasing online—and one of the greatest competitive advantages brick-and-mortar stores still enjoy. But increasingly, companies are getting around that by offering a try-before-you-buy option for online goods.
New York-based eyewear startup Warby Parker, for instance, offers a home try-on feature that allows customers to check out glasses before buying, with no shipping charge. Monthly subscription services such as Birchbox that deliver samples are inspiring other startups (there’s even a BarkBox for dog treats). One startup, YBuy, has built a monthly subscription service for gadgets and appliances, giving users up to 30 days to try out a product. If they commit to buy, the subscription fee is deducted from the purchase price. If they don’t, they just send it back. Either way, shipping is free.
Hotels are the ultimate try-before-you-buy in one category: mattresses and bedding. Hotel brands like Westin, the W, and Four Seasons are now selling their luxury hotel bedding so that consumers can, in the words of Westin’s website, “replicate [a] one-of-a-kind sleep experience in your own home and wake up each morning refreshed in both body and mind.” Indeed, many stores and restaurants are expanding the definition of what’s for sale, from chairs and cutlery to artwork and ingredients—if you like it and want it, chances are you can buy it.
While e-commerce, pop-up stores, and virtual shopping continue to challenge conventional ideas of what a retail store is and could be, even web giants like Amazon and eBay are recognizing the importance of a real-world physical presence–even if that presence is solely for delivering merchandise faster or in a more convenient way.
After all, what is retail? It is fundamentally about the relationship that the buyer develops with the seller. A successful retail business, in the long term, is not a relationship between people and things or people and virtual spaces; it is a relationship based on trust between people who sell and people who buy. Shopping isn’t just a practical means to keep fed and clothed; it is symbolic, aspirational, inspirational, social and—dare we say—fun. To create an immersive shopping experience that engages people requires a talent for originality, a spirit of inventiveness and sensitivity to human needs and desires. In the end, it is the experience that counts—even if the experience that people expect is always changing. Therein lies the challenge, and the opportunity.
For those brands that have the courage and imagination to reinvent themselves, to start new conversations, innovate with new models, embrace technology, surprise and delight, and inspire us all to participate in the cultural experience we call shopping—a retail renaissance awaits.