The new retail reality
Bricks-and-mortar retail appears to be the loser when it comes to digitalisation. The rise of eCommerce is being blamed for the death of conventional retail. Now, the industry is arming itself with new technology in an attempt to recover from this knock-out blow — yet classic retail does not have a technology problem but is instead suffering from a collapse of its role. How the future of retail may look is demonstrated today by fitness concepts such as CrossFit, start-ups like WeWork, car manufacturers like Mercedes-Benz and, as the Apple keynote speaker in the Steve Jobs Theater made clear, electronics stores.
Bricks-and-mortar retail is like China — any visitor to a city like Guangzhou will realise that modern architecture does not in itself create urbanity. That takes more than concrete and glass facades. Unlike the skyscrapers of Guangzhou, districts like Marais in Paris, Williamsburg in New York or Kreuzberg in Berlin create urbanity not with buildings, the shell, but through culture, the content. The retail industry of the future could learn a thing or two from that approach.
Imagine building a fancy store that nobody goes to.
The alleged digital liberation of retail reads as follows: anyone who makes an elaborate effort to imbue their brand world with emotion, installs enough touch screens, equips sales staff with iPads and uses mobile phones to link online and offline offers will win the race for the future of retail. There is a crucial error in this approach. Let’s take a look at the four main “fundamentals” of retail:
1) Discovery — attracting consumers into the stores
2) Show — presenting and showcasing the products/brand
3) Consult — providing advice on site
4) Transact — creating the opportunity to make a transaction
Every retail fundamental can be portrayed in a digital format. For a long time, Consult (3) was firmly rooted in the offline domain. Until the advent of RoPo (‘Research offline, Purchase online’), at which point this fundamental lost ground.
The new, modern retail concepts are now based on the Show fundamental (2). The reason for this is self-evident — a physical brand experience is hard to recreate digitally. It requires the classic four walls to bring a brand to life in 3D. The best examples here are the stores selling Nespresso, Apple, Burberry and new retail concepts from makes of car like Audi or BMW.
It is not possible to build a successful new retail model on the Show fundamental alone. The effect wears off too quickly, and the third or fourth visit is often no longer as exciting. Good examples are car showroom concepts like the one from Mini or ideas from Samsung’s flagship stores. All have impressive architecture. But this goes back to the China problem: it all looks cool, but there are very few reasons to visit this store, let alone to perceive it as a physical hub for the brand in one’s own environment. The job of providing information can be done better in a digital setting — but it is not enough to turn sales staff into advisers and shift the focus onto product experiences that cannot be demonstrated in a digital format. Innovations in the Show fundamental are spectacular and certainly make for good PR. But their effect fizzles out and they don’t have the power to keep creating reasons to visit.
In other words: screwing smart screens onto dumb stones doesn’t solve an identity crisis.
DISCOVERY: THE BEST LEVER
Digitalisation created eCommerce giants like Amazon, eBay and Zappos, who now exercise such a strong pull on customers that it is hard for the competition to keep up. Above all, they use economies of scale to make their goods cheaper than they are in conventional stationary outlets. The mixture of endless shelf space, digital consulting, customer reviews and free delivery, often next day, creates a suction effect that makes traditional retail seem less relevant. For all those who have an inclination of what they are looking for, shopping runs the risk of degenerating into a mere commodity. Indeed, in many cases that has long since happened.
Retail does not have a technology problem but is instead suffering from a collapse of its role.
eCommerce has made goods faster, cheaper and more easily accessible. The conventional retail industry cannot achieve any kind of differentiation with the fundamentals 2–4. If Show is not enough on its own and there is no chance of winning on scale, price or accessibility, then this will inevitably have a major impact on the role that classic retail will play in the future. The solution to the collapse of the role of bricks-and-mortar retail therefore hinges on the question of how it deals with the Discovery fundamental in the years ahead. Here it can learn from digital concepts.
Innovation has long been a feature of eCommerce in terms of the Discovery fundamental, namely in the way products are sold and marketed. The question of how to show customers something they have not come across before so that they buy something they didn’t intend to buy has already been answered successfully by digital entrepreneurs.
The focus has to be on finding products, not just on buying them.
This eCommerce concept would not exist without social media. Facebook, Instagram, Pinterest and Snapchat are not just traffic drivers in this regard, but core media in their own right, and the essential business building blocks that shops use to maintain a constant interaction with their potential customers. The social element affects the way products are disseminated, at the same time providing purpose and context for the products. This has given rise to brands with enormous digital substance
THE NEW RETAIL REALITY
The native integration of the social element as an essential building block of the Discovery fundamental is what describes the new retail reality. With the difference that for bricks-and-mortar retail, the social bond, the interaction with the target group and the forming of a community of like-minded people are all aimed at enticing them to come to a physical place.
The social element changes the role of the bricks-and-mortar shop: from retail or store management to community management.
In the new retail reality, the purpose of technology is not just to showcase products or make them accessible. Instead, technology is used to make contact with people and create resonance in the physical store. The new retail reality is therefore introducing a paradigm shift: moving from the pure act of selling to a community to becoming an active part of that community. It is therefore not about having screens that link to the web, but about connecting the store with the community it finds itself in.
Community is essential in the new retail reality. Community needs a platform. A platform is when the products become more than just the hardware or software. When they are not just important for the company and its customers, but for other people too. When companies work with you and want to build on your products.
A platform is the ultimate extension of the sense and purpose of the company.
In other words, brands without a strong sense of identity will find it hard to become a platform, so they will not be able to build up a community and ultimately they will not be one of the winners in the new retail reality. They will simply have their business foundations stolen away from underneath them by the web.
This development is currently in its infancy. In future it will probably be the case that you will either have a strong brand, with enough sense and purpose to create a physical platform and also create a social footprint in the high street. Or you will have a good property and live entirely from footfall. In any other situation, an online shop will always be the better choice for consumers. There are some examples today where you can see the trend towards the new retail reality happening already.
THE NEW RETAIL REALITY, EXAMPLE ONE: CROSSFIT
This is particularly evident in the fitness sector. In the old retail world, a fitness studio was a room full of equipment. You went there, got changed and began training in relative isolation, using the equipment provided. The internet brought an existential risk: YouTube tutorials. Athletes and fitness fans from all over the world filmed themselves working out and posted the videos online for others to consume. Effective training was suddenly available in the home. The YouTubers became even more professional and developed their own workouts specifically aimed for use at home — always involving feedback with their own social audience. Subscriber numbers rose because many people asked themselves why they should train in isolation in a room full of equipment when the job of achieving a more beautiful body or feeling better could now be done successfully at home. And it all seemed somehow more personal too.
Workout videos on YouTube were only part of the movement.
Two particular innovative concepts institutionalised the “socialisation” of fitness and scaled it up for a mass market: Freeletics and CrossFit.
Both found their own ways to the new retail reality. In the case of Freeletics, the retail space is the public space, as the concept thrives on enabling individuals, who, due to the total exhaustion and extremity of the workouts, are looking for the encouragement and measurability of like-minded people within a group. They organise themselves via Facebook groups and meet in public places — but if Freeletics were to rent spaces tomorrow and make them available to its users, that would just be a compelling and logical move. A similar route was taken by Cross-Fit. Here, however, retail was an essential concept element. The halls are like warehouses and fit perfectly with the raw appeal of the fitness concept. The same rule still applies: if everyone is training for themselves, the hall doesn’t work. It requires the common goal, a shared effort on social media platforms, the competition as common opponents. These are the ingredients required to build up a value community, in order to bring it to a physical place. In the case of CrossFit, it becomes a whole attitude to life. Get as fit as you possibly can in your life. No modest task but a huge mission, which you try to achieve within the community.
THE NEW RETAIL REALITY TWO: WEWORK
As well as fitness concepts, the new retail reality is also apparent in an industry that you would not have expected — real estate and offices. Digitalisation frees up a whole host of employees by liberating them from working in an office. A laptop with internet access is enough for many professional groups. Nothing new there. What is interesting is the progress that has been made by office spaces in the meantime. Ignoring the corporate trend that puts balloons and slides into offices, digitalisation has also given rise to co-working spaces. The liberated workforce needed a place where it could come together.
In the ensuing developments, the old and new attitudes are clear to see. The old retail attitude followed the old logic: independent workers want to go somewhere and rent a work station for a specific period of time. The answer was rentable workspaces or rooms, mainly in old factory halls, enriched by goodies included in the price such as free internet, coffee or cleaning. The main lever, however, was clearly the opportunity to rent a limited place risk-free, taking us back to the transaction-oriented pattern.
The innovative attitude of the new retail reality in the office sector is moving in a different direction with the American co-working start-up WeWork. An extract from the WeWork story:
“When we started WeWork in 2010, we wanted to build more than beautiful, shared office spaces. We wanted to build a community. A place you join as an individual, ‘me’, but where you become part of a greater ‘we’. A place where we are redefining success measured by personal fulfilment, not just the bottom line. Community is our catalyst.”
WeWork did not just offer work stations in a hall shared with other people. It used community and social bonding as the key element of the business idea. WeWork calls this “Space as a service”. The members are not just temporary guests in an anonymous office community — at WeWork the community itself is the asset. It is the main reason for becoming a member of WeWork.
WeWork does not monetarise available spaces but rather sells access to and interaction with a group of like-minded people. It is an organiser and enabler and creates the community lock-in effect through shared getaways, dinners, presentations and knowledge management. This is all organised through a platform that binds the group together, and with whose help WeWork does upselling of other services, such as ordering food, cleaning the office or providing massages etc. WeWork is becoming a platform of the modern workforce. Not through transaction but through transcendence.
EXAMPLE THREE OF THE NEW RETAIL REALITY: MERCEDES-BENZ
The full extent of the collapse of the role of bricks-and-mortar retail is plain to see in the automotive sector. Formerly places you went to get advice, now the internet has taken over the job of providing information. Car dealerships are becoming mere warehouses on the outskirts that you only visit to take a test drive to confirm your choice. They have no element of the new retail reality but are instead interchangeable, egoistic places that you have to drive a fair way to access. Their whole reason for being has been stolen by the digital era — especially since online car sales will be the norm in a few years, for example through Amazon.
Mercedes-Benz is already thinking in terms of the new retail reality. At Mercedes-Benz, it seems, screens and city centre locations are just hygiene factors, a kind of digital must-have.
They have grasped that infrastructure in the 21st century cannot be based on the connection of screens, but the connection of people. With Mercedes-Me, they have built a social filter into a new retail concept, in which encounters with people and permanent feedback loops are the main focus. The obligatory coffee corner in the store and recurring events are early metaphors for this endeavour.
The transformation of the automotive industry from sellers of hardware to suppliers of mobility changes the remit of the brand and therefore means that the conventional retail sector has to find a new role. The car showroom is also changing from a place for transactions to a place of transcendence. In a transformed mobility context, the question is whether a brand is strong enough and brings enough with it to be able to develop a new role concept. The new retail reality is also built on the question of what a brand can offer in addition to the hardware — what it stands for, what goal it is striving towards and, above all, how high the identification potential with the brand mission is. Mercedes-Benz, unlike volume manufacturers, who can only score through accessibility, uses exclusivity as a tool to form a community and then builds an ecosystem of services around that community. Mercedes-Me stores are Mercedes-Benz’ hubs for a future attitude to mobility, comfort and exclusivity.
They imagine that Mercedes-Me stores could act as ride-sharing hubs, starting points for tours, places for like-minded people to meet or venues for exclusive events and services.
Social media will need to play a key role here, like a form of networking with local influencers and event organisers that goes far beyond test drive events. If the interaction between people and the brand in the digital field keeps leading naturally to a face-to-face meeting in a Mercedes-Me store, Mercedes-Benz will have done its job well. A car showroom is not somewhere that people want to visit. But a concept in the sense of the new retail reality can take over this task. With Mercedes-Me, Mercedes-Benz seems to have realised that the transformation of mobility has to go hand in hand with finding a new role for the car showroom.
BEST EXAMPLE OF THE NEW RETAIL REALITY: APPLE
Apple Chief of Retail, Angela Ahrendts once chose the following words to describe Apple’s retail strategy: “We are not just evolving our store design, but its purpose and greater role in the community as we educate and entertain visitors and serve our network of local entrepreneurs.” That was on the occasion of the opening of the new Apple Store in San Francisco. With the final keynote speech on the stage of the Steve Jobs Theater, she showed how seriously she takes this strategy. Stores are no longer perceived as places to conduct transactions; instead, at Apple, they are town squares, or meeting places.
The new stores are ready and waiting with many functions that are aimed at reflecting the hub concept. The “Avenue”, for example, which offers seasonal exhibitions of new art and artists. Apple experts in the creative arts offer help and advice. Apple organises events, and hosts various activities such as Game Nights or Developer Forums. With the recently introduced town square approach it can be assumed that Apple will be investing even more to build up the social footprint with a store in every city.
THE NEW RETAIL REALITY ADDS A NEW RETAIL FUNDAMENTAL: ENGAGEMENT
The rise of social media was not just about connecting people with each other. Technology today is the building block of completely different connections, linking stores to the people in their catchment area. The expression “location-based services” is enjoying a renaissance and is perhaps now even coming to have its own specific meaning. For brands like Mercedes-Benz, WeWork or CrossFit, the new retail is the connection of the products, the social element and the internet. We believe that the new retail reality will now add a fifth element to the existing four retail fundamentals — Engagement. In other words, the ability to inspire people and to move them to do something. In future, for example, to visit a store.
1) Discovery — attracting consumers into the stores
2) Show — presenting and showcasing the products/brand
3) Consult — providing advice on site
4) Transact — creating the opportunity to make a transaction
5) Engage — managing the community
child is a strategy consultancy in Frankfurt that solves key digitisation issues in corporations through radical simplification.
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