Retail’s Transformation
Four encouraging trends shine a light at brick and mortar retail
Much has been written in the last few years about the closing of a large number of brick and mortar retail stores in the US. Total store numbers declined in 2017 for the first time since 2009. In 2017, store closing announcements reached a record of 7,000, more than doubling the 3433 store opening announcements. 2018 was also been a tough year for retailers, with more than 5000 store closures announced, a few of which from some of the biggest brands in retail.
Despite all of this, 9 of the top 10 largest US retailers are brick and mortar and physical stores are an important component of consumers’ omni channel purchasing habits.
Most importantly, we are seeing a transformation of the traditional retail presence. We will look at 4 interesting trends underscoring this retail transformation and highlight some of the companies that are leading these trends.
1. Personal Commerce, or Bricks-to-Clicks
Some of the world’s largest retailers are powering their most valuable and expensive resources -people- to sell beyond the store to their circle of influence. If fewer customers come to the physical store, it will be the store (through their employees and brand experts) that will reach potential customers outside the store, thus linking the offline and the online worlds. Employees and product experts have both the customer and the product know how to make personalized and targeted recommendations. Traditional retailers and technology startups are taking steps to open up a new retail channel: personal commerce.
Neiman Marcus’ 4500 sales associates each have a company iPhone on which they are encouraged to interact with customers through an app called Isell and on their personal social media accounts. According to CEO Karen Katz, “customers who are attached to a sales associate spend more. We are trying to bring a more human touch to how our associates act online”.
In 2018, Walmart launched Jetblack — a concierge shopping service that combines e-commerce with a personal shopper experience, designed to bring convenience for shoppers through text messaging. The idea is to simplify the shopping process by helping customers make better shopping decisions that are right for them.
The internet has given us so many things at our fingertips. When I search for a stroller, I get 30,000 results and that’s very time consuming. Refining that list has become more important than ever. Customers suck up so much time reading reviews or deliberating over two products that might be identical or might not. Instead, to have a trust in us to narrow the list down to the best three products is really powerful. — Jenny Fleiss, Cofounder and CEO of Jetblack.
In 2018, Macy's launched a pilot called Style Crew, a “social selling” initiative empowering Macy’s employees to become brand ambassadors by creating and sharing engaging shoppable videos and pictures to their social media networks and compensated with a financial incentive based on sales directly generated by their content. Following a pilot with 20 employees, Macy’s has expanded its Style Crew program to more than 300 people across the United States.
Macy’s Style Crew comprises colleagues who are passionate about servicing the customer, participants who want to create unique, authentic content, and who want to build their social media presence and get rewarded for their impact. — Marc Mastronardi, Macy’s EVP of Business Development
A promising startup called Plazah is among the first to identify the personal commerce opportunity as a new sales channel for brands and retailers to complement and boost their brick and mortar and e-commerce channels. People are constantly recommending products and influencing purchase decisions to their circle of friends and family and Plazah is building an interesting business around this. Plazah enables direct selling for traditional brands and retailers by having consumers receive recommendations from someone they trust (brand ambassador, employees, product experts, influencers, fans) and purchase directly from the brand/retailer. According to Plazah, brands and retailers working with Plazah’s Personal Commerce platform are seeing conversion rates of 10% (Purchases / Product Recommendations) and 70% lower returns compared to average e-commerce.
Roger Casals believes that Personal Commerce is retail’s third wave.
Buying is becoming more complicated and stressful. Consumers have so many options that they never know whether or not the product they are buying is the right one for their individual needs. Brands need a channel for experts to promote their products. Brands need to regain visibility and know how about the customers that buy their products, and a set of tools that help train and manage the new immense and free sales force that individual experts can become. We at Plazah call this Personal Commerce. Personal Commerce addresses all of these issues, disrupting retail for good, without directly competing with brick & mortar or e-commerce. — Roger Casals, Plazah Co-Founder and CEO
Plazah is convinced that personal commerce will be the future of influencer and affiliate marketing because individuals get compensated for actual sales and brands pay for performance. Until now, traditional influencer marketing campaigns have not necessarily been performance based. To post content, influencers can charge around $1000 per 100.000 followers in Instagram, $2000 per 100.000 followers on Youtube, and around $500 for each 1000 views on Snap according to data from Digiday. These payments are regardless of results (i.e. sales), which can only mean that brands are either overspending or influencers are undercharging. Google brought performance-based online marketing where CPM-based campaigns used to rule. Similarly, Plazah’s personal commerce intends to bring a performance-based model to influencer marketing, and the “macro” and “micro” prefixes will depend on the actual level of sales generated instead of the currently more ethereal estimation of their level of influence based on followers.
2. Clicks-to-Bricks: Digital Native expand to Brick and Mortar
According to a JLL report on over 100 online retailers, digital native brands will be opening 850 brick and mortar stores in the next five years. Adore Me (lingerie) has announced the opening of up to 300 stores in 5 years while Casper (sleep products) will open 200 stores in the next three years. Allbirds (environmentally friendly footwear) opened a 4800 square-foot flagship store in New York in 2018 and has plans to open eight more stores in different US cities in the next 12 months.
The clicks to bricks retailing trend has been taking place for a number of years. Here are some of the physical location openings since 2012:
- 2012: Bonobos, LXR & Co, Essentia, Reformation
- 2013: Warby Parker, Peloton, Sugarfina, e.l.f. cosmetics
- 2014: Duluth Trading Company, Outdoor Voices, Zappos
- 2015: UNTUCKit, BaubleBar, Indochino, Fabletics, Amazon Books, Chubbles
- 2016: Parachute, M.Gemi, Glossier, AYR
- 2017: The RealReal, Mm.Lafleur, Quay Australia, ELOQUII, Away, Goop, Allbirds, Everyone, Amazon Go
- 2018: Casper, The Arrivals, Rothy’s, Floyd, MeUndies
Almost 75% of clicks-to-bricks retailers are apparel and accessory brands like Bonobos, UNTUCKit and BaubleBar. Half of all clicks-to-bricks retailers have high price points, like MM.LaFleur and Peloton, and 32% are midpriced retailers like ModCloth and Chubbies.
15% of clicks-to-bricks physical stores operate on a showroom model with no inventory. These stores only carry samples that customers can try out, but any purchase is shipped from a warehouse to the customer’s house. 69% of these showroom stores are apparel and accessory retailers such as Bonobos (which Walmart acquired for $310 million in 2017), Indochino, M.Gemi (shoe retailer) and Universal Standard (plus-sized apparel). The remaining 31% of showrooms are furniture, home furnishings and housewares companies like Casper.
3. Stores as Showcases or Fulfillment Centers
One of the hottest trends in retail is not to sell anything. Whether being repositioned as mere showcases or as fulfillment centers of online orders, stores are fighting retail disruption by “liberating their stores from the tyranny of inventory”, as Roger Casals puts it.
b8ta is reinventing brick and mortar retail with a model they call “Retail as a Service”. The company operates 12 standalone locations, 70 store-within-a-store locations inside of Lowe’s and 1 popup concept at Macy’s called The Market @ Macy’s. Macy’s bought a stake in b8ta in 2018. b8ta does not earn money selling products. They are paid by the companies whose products are on display. B8ta showcases a limited number of trendy gadgets that consumers can touch and try out. Products are displayed in a museum-like environment that is conducive to exploration and discovery of new products. Customers who want to buy, do so online.
A large number of retailers such as Zara, Brooks Brothers, Kohl’s, The Home Depot and Sam’s Club are integrating their stores in their supply chain, using them as fulfillment centers for e-commerce purchases and returns. 40% of Best Buy’s online orders today are picked up at one of its 1000 US stores. Walmart offers store pickup in nearly all of its 4700 stores in the US and recently added grocery pickup to more than 2000 stores. By the end of 2019, Walmart estimates that it will be able to reach 70% of the US population for grocery pickup. By the 2017 Target was already fulfilling 70% of its online orders from stores, with most ready for shipping within 24 hours.
With less inventory held as stores, we can dedicate more room for digital fulfillment — John Mulligan, COO Target
The buy online and pickup in store is an area where retailers with a broad physical presence have an edge over Amazon, who can only offer grocery pickup in the 22 cities where Whole Foods is present.
4. Experiential Stores to Build Emotional Connections
Set up your next company meeting at the closest Capital One bank; watch Monday Night Football while enjoying your favorite local beers at grocery store Albertsons; play pickup basketball in a full-size basketball court at a Nike store. Many stores and retail spaces are no longer selling their products the traditional way. They are providing experiences and building up communities whereby consumers gradually become emotionally attached to the brand and its products. These new retail spaces provide value added services that don’t necessarily have a connection with the brand’s core product, but it allows consumers to spend more of their leisure time under the brand’s environment. It’s investing in a deeper customer relationship that might end up in a more committed and loyal customer down the line.
Stores of cycling brand Rapha, referred to as ‘clubhouses’, seem more like a gathering space for cycling enthusiasts than a store that sells cycling products. Rapha has been so successful in building a strong community of likeminded fans that the company has been described as the new Harley Davidson.
Capital One has launched its new version of bank: Capital One Cafés. No need to be a customer to benefit from free wifi, no-fee ATMs, power outlets, Peet’s Coffee (50% discount for Capital One cardholders), free meeting and events rooms. And of course, if you happen to have any banking need, Ambassadors (otherwise known as tellers) can help you open an account and Money Coaches, who are also certified life coaches, can help in connecting your finances to your goals and dreams.
Luxury goods companies are also jumping in on the experiential bandwagon. Hermès has opened “Carré Clubs” in various cities around the world. In these hip and private clubhouses guests get to interact with nine artistic elements behind the Hermes silk products and also watch artists and designers at work.
Grocery giant Albertsons, the US 10th largest retailer, opened a bar in the summer of 2018 at its Boise flagship location with seating for 200 customers and serving 36 beers on tap.
As we’ve seen, it’s exciting times for retail. A new breed of companies and innovations are disrupting the retail that we’ve known for the last two decades, adding new sales channels, new shopping experiences, and new business models that will change the way we buy and sell.
