Why retail needs a new image and how to implement it
It’s not news to anybody that brick-and-mortar retail is currently going through hard times, and everybody has also heard that its best days are over due to the rise in online shopping. However, even if it has until now survived without having to fundamentally change its business model: last year’s record e-commerce figures speak plainly. Merchandise sales amounted to 83.3 billion euros — an increase of 14.6 percent compared to the previous year. According to the German E-Commerce and Distance Selling Trade Association (bevh), online sales for 2021 are even forecasted to exceed 100 billion euros. Corona has thus not only triggered a wave of digitization, but also demonstrates the obvious need for a new image in the retail sector.
The physical retail space must be understood less as a place to sell goods and more as a brand touchpoint that has multiple functions.
Economically, we are just entering a new era that requires a fundamental change in thinking. In the future, the physical retail space must be understood less as a place to sell goods and more as a brand touchpoint that has multiple functions: as an inspiring destination for target groups, and as a creator of its own content with digital extension into other channels — from e-commerce to social media. Although the physical store was previously considered to be something like a department that functioned on its own, successful retailers are now gradually replacing this approach with an integrated one: The physical store and digital online retail no longer operate separately from each other, but synergistically work together towards common goals. Nevertheless, they still fulfill different roles. For example, this is what spinning bike manufacturer Peloton does: Its online business thrives due to its community, while the relatively few physical stores merely serve to inspire customers.
Using the physical space more as a brand touchpoint
The drivers of this change will be the long-term effects of the pandemic: The construct in the retail sector up till now was already very fragile with low single-digit profit margins. If the expected customer traffic does not rise to its original level because fewer people are heading out to shop, even after the end of the Corona crisis, things will become tight. A 15–20 percent monthly decline in traffic alone, even with double-digit cost savings, will result in up to two-thirds of all stores no longer being able to operate profitably. If you want to survive as a brand and/or retailer, you have to focus on connectivity and use the physical space more as a brand touchpoint. Those who manage to make themselves more attractive here will thus support their sales online. However, digital channels need to step up their game in order to increase their reach, identify potential leads for in-store campaigns, and enable digital connections in-store as well. Nike is a good examples of this. They always focus on the personalized shopping experience using both online and offline elements. Their latest experiment, “Nike Rise”, is an “adaptive store” that responds to member data and sports moments in the city in real time.
The path to a new understanding of retail
In the vast majority of cases, the new role of physical space will require a radical change in thinking of how space is designed and used. Many older concepts were based on merchandise advertising and product staging. In the future, spaces will function more as places of inspiration, as well as places to meet up, by being ideally adapted and aligned to the interests of the target groups. More emphasis needs to be placed on making people feel good (“convenience”, “inspiration”), want to come back (“loyalty”, “recurring business”), and actually show up at the store (“physical cookie”, “store log-in”) rather than on maximizing what’s in the shopping cart. When it comes to design, three new dimensions are necessary for modern retail stores:
- The modern interior design: In the future, when designing physical spaces, the concepts that will prevail will be those in which hospitality, service or even entertainment are integrated. Spaces that serve purely for product or brand presentation will proportionately decrease. For example, Louis Vuitton in China shows how “retailtainment” works: In brick-and-mortar retail, the company collaborates with local artists and transforms showrooms into art-filled lounges in order to offer consumers inspiration and leisure activities in addition to the heightened shopping experience.
2. Digital connections:
A smooth transition to the digital world is becoming more and more essential. This can be accomplished by introducing beacon technology, near field communication (NFC), or AR technology into the store. In the New York flagship store of the Swiss running brand On, customers can take part in a split-second digital running analysis. Through the use of NFC technology, customers can get more information about the products by simply holding their smartphones up to them. Such digital connections put a face to millions of previously anonymous customers, and the retail space is essentially doubled in size through the addition of a digital retail space. The next possible step is then to move into the marketing of personalized in-store advertising.
3. Introduction of a programmatic experience: This deals with the underlying concept for store activation and how the store can manage to remain attractive throughout the year by employing a structured program and constantly changing themes. Which formats match the brand, the community’s values, and the zeitgeist? Mercedes-Benz, for example, is following this approach with Studio Odeonsplatz: Here, storytelling contextualizes the Mercedes-Benz brand through constantly changing campaigns, creating ever new incentives for visitors. When designing the physical space, it is important to develop individual concepts that make every visit a unique experience.
Physical stores will remain important touchpoints in the future. As the foundation of brand activation, spaces are used as a medium that generates attention, moves people, and creates brand experiences. These aspects will ultimately be the deciding factors for customers as products become more and more interchangeable. However, the opposition between digital and stationary must gradually disappear if the path to a new understanding of retail is to succeed. Modern store approaches offer exclusive content, digital interaction options and “Instagrammable” experiences in order to constantly create new visit incentives for consumers. The perfect retail experience is phygital, where the best of the physical and digital worlds are combined.
About Mathias Ullrich
Mathias Ullrich is Managing Director at LIGANOVA, innovation leader in the field of brand & retail experiences in the phygital area. Over the past ten years, as an industrial engineer, Mathias Ullrich has advised clients from the brand retail sector on positioning, growth and digital transformation. At LIGANOVA, he heads the Experience Solutions division where, at the intersection of people, brands and products, he designs retail locations and experience areas for premium global brands from the luxury, sporting goods, automotive, fashion and retail sectors.
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