The new retail reality — Part 2
In “The new retail reality” we described why — alongside the four retail fundamentals of 1) discovery, 2) show, 3) consult and 4) transact — there needs to be a new, fifth fundamental 5) engage, which takes the consequences of e-commercification into account by creating new spaces for interacting with customers. From New York to Seoul, concepts are emerging that create these spaces in all kinds of ways and show how promising, effective and exciting the future of retail can be when a different role model is introduced.
The endless shelf area of the internet, 24/7 availability of goods, same-day delivery, customer ratings and permanent feedback loops have, along with economies of scale, a pull effect that strips retail of its relevance. The new retail reality describes the necessary paradigm shift from pure selling in a community to becoming an active part of the community. It is not about linking stores with the web, but about developing a connection with the community of which the store or the brand would like to be part. From store management to community management. Of course this does not apply to all brands — a chemist’s chain will always be dependent on its location.
We showed how this perspective has manifested itself in new fitness concepts such as CrossFit or new dealer concepts like Mercedes me. What unites these concepts is their focus on engagement (retail fundamental #5). Engagement is the new indicator in retail and engagement is also the alchemy for forging a serious connection with your target group. But engagement means quality and as a matter of principle that is not the same as sales.
Perhaps “revenue per available square metre (RevPASM)” is no longer a retail KPI that is fit for the future. At least no longer the be-all and end-all.
In contrast to the Silicon Valley economy, in which product (at least for now) comes above sales, fairly quickly each store or brand has to ask itself the question of where the money is actually earned. If engagement is the more important goal in retail, perhaps the question can be answered by sales being apportioned and distinguished more clearly in future: on the web this is done in the long tail, in retail in the short tail. The basic collection can be found on the endless shelf area on the web, so that fast-moving, hyped goods in short supply end up in stationary trade and draw people in (supreme syndrome).
The influence engagement already has today can be seen at H&M — or rather the influence a lack of engagement has. What carries more weight in the business evaluation: H&M’s weaker profit or the notion that the brand has lost its connection with its target group and so not kept up with the times?
If we look at the other end of the spectrum and take the digital-by-design retailer, what concepts would a YOOX or Farfetch have for stationary trade? How would these retailers involve their target group, what kind of events would they offer, how would they promote their goods? What kind of jobs would they create? How would they include their websites, and in particular how would they handle their customer profiles?
Nike, adidas, Champion and Lululemon show how to create engagement in stationary trade. But more than any of them Gentle Monster from Seoul shows how spectacular this can be.
What experiences can you create in a branded store that you are unable to have online (and not in a department store either)? Nike has answered these questions with its new flagship store in Soho featuring an indoor/in-store basketball court and football pitch where its products can be tried out. There are also treadmills with cameras that show how you run so that an analysis of your running behaviour leads to better recommendations being made for certain running shoes.
adidas has opened a similar store in New York where a replica of the environment in which products are used has been created at the PoS. On its own this is visually impressive and creates the right references, but it is not yet the core of what the new retail reality is all about. This becomes clearer when Nike and adidas make use of these places to meet their target group, for example at events like City Runs, themed evenings with influencers, or sports consultations with athletes and even doctors. A good example is Lululemon, which is doing exactly that with HubSeventeen, turning commerce into a place of meeting in the sense of its brand mission — in the case of Lululemon to practise meditation or yoga.
The almost forgotten sports brand Champion is also back again with a new store concept that aims to form a natural bond with its target group. Not for nothing has the first store been opened in Los Angeles, which is increasingly developing into a cultural centre in the United States. The new Champion store is therefore also to be a centre of collaboration with local artists and serves as a cultural space in which like-minded people come together.
So far, so predictable (sports brand creates sports environment in store). More extreme examples of the new retail reality can be found in South Korea. In the country of K-pop, shopping is somehow more spectacular as well and the birth of new brands can be observed here whose shelf space is quite naturally digital while stationary shelf spaces are used to stage their brands. The most impressive example of this is “Gentle Monster”.
This sunglasses label was established in Seoul in 2011, now has 41 of its own stores and LVMH recently invested over 50 million US dollars in it. Each of the stores combines concept with commerce, and creates an experiential environment that makes use of all physical states to bring about these experiences. From kinetic installations, via lighting concepts and floors made from bark mulch to visual metaphors such as a quick wash centre — each store follows its own theme that can be experienced by means of installations and provides the collection with its own narrative.
The Singapore store, for example, pays homage to Nietzsche’s Thus Spoke Zarathustra! Gentle Monster follows poetic concepts that certainly appeal to a fairly special and more educated clientele who, in addition to finding the installations beautiful, can also intellectually classify them[C1] . Founder Kim explains: “I wanted the products to look as if they were being exhibited”. For example on the first floor of this three-storey flagship store in Seoul’s Hongdae district there is the Quantum Project, a rotating installation rebuilt every 25 days.
The latest installation, “Daydream Oasis”, was a pool made from egg cartons with silver fabric serving as water and waves and was operated by a wind machine. Before that there was “The Eaters”, featuring mechanical heads atop bowls of colourful noodles. At Gentle Monster, the brand is the lever, stories and references are the most important brand vehicle, and retail is simply the dominant platform for telling these brand stories. Being on an equal footing intellectually with its target group and not taking them for fools is also somehow web thinking. The brand is one of the fastest-growing labels in Asia. With its poetic installations Gentle Monster has implemented the viral sensation elements of the web as a store concept. The logic is the same as on the web: it has to be so good and unique that people want to share it.
What are we learning from these new representatives for the playbook of the new retail reality?
New chapters are basically being added to the playbook every day. There are certainly brands and store concepts that are getting to grips with the change more easily, and not every brand or trading concept has sufficient narrative surface to get the hang of the paradigm shift from store management to community management. It is about trends and these state first and foremost that retail’s opportunities are to be found in the new retail fundamental of “engage”.
Engagement means that in the long run turnover per square metre cannot be the only (or only true) key indicator. The change from store management to community management demands definitions of what engagement means for the respective brand and the concepts with which it can be achieved. An aid to logic is not to think or believe in omnichannels, that all goods have to be available similarly everywhere, but to carefully orchestrate how the goods mix in stationary trade and on the web is built up. This differentiation means that a new role model for retail is being created almost automatically that, as can be seen at Gentle Monster, can be used quite creatively.
child is a strategy consultancy in Frankfurt that solves key digitisation issues in corporations through radical simplification.
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Originally published in German at medium.com on May 3, 2018.