Episode #7

Location is Everything Summit: Retail, What’s Changing? Everything

At our 2nd annual Location is Everything Summit, speakers from Kearney and McMillan Doolittle participated in a fascinating roundtable about what’s changing in retail. Turns out, it’s everything. Access the full summit on-demand: https://learn.tangoanalytics.com/location-is-everything-summit-2021
Location is Everything
Location is Everything
Location is Everything Summit: Retail, What's Changing? Everything
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In this Episode

At our 2nd annual Location is Everything Summit, speakers from Kearney and McMillan Doolittle participated in a fascinating roundtable about what’s changing in retail. Turns out, it’s everything.

Access the full summit on-demand:

https://learn.tangoanalytics.com/location-is-everything-summit-2021

  • Transcript

Episode Transcript

Bart Waldeck:  

All right, everyone. We’re at the top of the hour and we’re on with our next session, Retail: What’s Changed? Everything. All right. So let’s get on with the round table. I’m not going to do justice to the fantastic background of my guests for today’s summit so I’m going to turn it over to both Mike and Mara to take you a little bit through their background. Mike, why don’t we start with you?

Michael Brown:           

Thanks, Bart. And welcome everyone. My name is Michael Brown. I’m a partner and the Americas lead for the retail practice for Kearney. And I work with retail CEOs on optimizing the strategies that they have and bringing them to life to drive results faster and at greater levels. And it’s been a pleasure to be part of the conference here with Bart and the Tango team, and looking forward to the conversation this afternoon.

Mara Devitt:    

Hello everyone. I’m Mara Devitt, a senior partner at McMillan Doolittle. Our firm focuses a hundred percent on the retail industry and we help clients grow through strategic planning, new concept development and business performance improvement initiatives. So thanks for having me here today, look forward to the discussion.

Bart:    

Fantastic. And let me go ahead and turn off our presentation here so we can see our faces up close and personal which is what people want. So okay, well as the title implies, we’re really here to talk about kind of macro things that are going on in the retail industry. I thought it made a lot of sense to start with Mike and Mara given their background in kind of the fundamentals of retail, not necessarily focus specifically on retail real estate, but more on the customer and the experience that will then translate into the store and into real estate strategy. So I think that is why it made a lot of sense to have you guys join. So thank you.

Let’s start off and talk about the 800 pound gorilla in the room, which is that changing consumer. I know Mara, you guys have done a lot of research and serving over the last year. There’s been a lot of ebb and flow. I think Pranav even mentioned this in his keynote that we’re kind of this… we initially had everybody doing things around their house, the home economy, the home body economy, how can I improve my house? How can I build a new deck? How can I do these things to enjoy my home more?

Now that vaccinations have started picking up and we’re able to reduce some restrictions in areas, it’s kind of the opposite. What can I do outside of the house? Restaurants are becoming more full, malls, believe it or not. So what has been kind of this ebb and flow of the consumer and where do you see it going?

Mara:  

I’ll start. I would say that the consumers have truly learned some new habits during the pandemic, as you mentioned, really being at home and feathering their nest. And we saw all sorts of just significant increases in sales in those categories that were associated with those stay at home items. Now that things have opened up, we see that shift and all that pent up demand and we see these great explosions in luxury and returns to restaurants, all of those great things.

But what our research has shown is that there are very different segments and these segments behave significantly differently in their response. Some throughout the entire pandemic really did was business as usual, they didn’t change that much. And then on the flip side, we have these very cautious consumers who really sheltered at home and are continuing to do so. So they are moving more slowly back to their previous habits. And we know that some habits are going to stick, some of those new habits that were formed during the pandemic.

Those new ways of shopping are going to remain with segments to varying degrees and that’s what we’re certainly seeing. Where people are shopping also has changed. So because we are now in remote locations, we are certainly tending to shop more close to where we live when we are going out to physical locations and that’s another area that we expect to persist. Some of the research that we’re seeing, it’s saying that up to 50% or more of employed people are going to be doing some of their work from remote locations. So that has a significant impact where people are actually… do shopping and how often they’re going and how much they’re spending at each trip.

Bart:    

To play off that, we’ve noticed that as well. And in the session, we have a little bit later about mobility data. We’re seeing that mobility data backup what you’re saying. Residential as a generator, obviously work or daytime population is a big driver for shopping historically. And now we’ve seen a shift from the workplace as a generator to the residential increasing as a generator, which changes the dynamics of number of visits, frequency, and all those types of things. So interesting. How about you, Mike? What have you seen the kind of arc of the consumer over the last year and a half and where do you think it’s going?

Mike:  

Yeah, the consumer is really excited to be out again getting their doses of retail therapy. We can always sit at home and we can buy things on our computer, but we truly only can shop by going to the store and going to the mall and interacting with the sales associates in the store and seeing the assortments really laid out in front of us in a way that really inspires us to purchase as opposed to looking at one inch by one inch squares on our screens at home.

So we’re seeing the consumer is really out enforce every opportunity that she can get to go out there and shop the way she did before the pandemic. She’s being met with obstacles though, inventory is in short supply throughout the industry as ships are still tied up in ports and products are still stuck in factories overseas. So she’s not getting that full dose. So we believe we’re going to continue to see this really acceleration of retail sales to the extent that the supply chain can support them right through the holiday.

Bart:    

It makes sense. And I think it was mentioned in the keynote and you guys are obviously aware that last Friday, the numbers for June came out for retail, it’s up and it’s kind of a dramatic uptick. Product said, “We had to check it a couple of times like, “Does the NRF have this right?” Because it is a hockey stick 18% over 2019 June of 2019 to June of 2021, 20% over last June.

And that said, the markets yesterday kind of tanked a little bit leaving that maybe we had the peak of the GDP growth in the first quarter and we’ll be slowing down to a degree, fears of inflation, fears of COVID and whatnot. So it is a very interesting time, but I was just really surprised the pent up demand is really quite frankly exploding as you…

Mike:  

The pent up demand and one of the other things we’re seeing there is there’s not a retailer out there that’s not reporting record-breaking full price sales. So 20% alone could just be the fact that we’re not discounting the 25% we did historically to drive consumers into the store. They’re running out there on their own and paying full price for product which has really been a great boom for clients.

Bart:    

Absolutely. Don’t buy a used car right now, I’m just going to say. So omni-channel, buzzword that’s been around for a lot of years, kind of some staggering stats we heard in the keynote that surprised me, quite frankly. Only 4% of the top 500 retailers prior to the pandemic had a buy online pickup curbside type of capability. So us consultants and us software folks have been talking about omni-channel for a while, but it doesn’t seem like prior to the pandemic it really took hold. So Mara, what is omni-channel? Why is it so important right now and what are retailers doing about it?

Mara:  

Well, omni-channel, we’ve been calling it integrated retailing or any channel for retailing or more recently, online merged with offline, which I think really describes it well. It’s having the same experiences as possible in a digital setting as you have in the offline or bricks and mortar setting and merging those together in ways that make sense for each channel to really empower the consumer to shop the way they want to shop.

So shoppers today are being empowered to leverage mobile, e-commerce, social, all of these channels along with bricks and mortar to shop really how they want to. And the retailers that have been great at it, The Home Depot, I think is a great example. They allow you to shop in multiple channels at the same time, right? So if I go to Home Depot now, I can decide what I want, I can search online to make sure they have it at my store.

When I get to the store, I can use their app to actually locate products in the store, find it. I can scan a QR code to get more information about that product and then self checkout, contactless payments using my phone again. So they’ve really empowered me to use both the physical channel and the digital channel the way I like it integrated together. And that’s, I think, how the consumer is viewing omni-channel today and our retailers need to now really understand that and begin to offer those services in a way that makes sense for them and for their consumer.

Before the pandemic, we as retailers felt we had the luxury to actually phase these things in as omni-channel adoption was growing at a pretty a steady rate. But the pandemic, as you just mentioned, accelerated everything. We’ve seen those charts, five weeks of growth in e-commerce or five years of growth in five weeks or 10 years in 10 weeks, whatever it is, it accelerated significantly. And so we had to really quickly respond with some of these omni-channel capabilities like that to respond to that stat that you mentioned that so few were ready when the pandemic hit.

Bart:    

Mike, I know this is an area you’ve been focused on for a number of years. How have you seen it change?

Mike:  

I think Mara is spot on and the things that she called out. And retailers have gone to tremendous lengths to be able to really connect that digital and that store experience to be able to drive convenience for the consumer. I still think though, on the forefront where many retailers have not been able to really push the next level of envelope is connecting what happens in the store to digital.

So when I go online and I shop a store, I leave an audit trail that can continue to be used to market to me. But we’ve not been able to get the consumer to use their digital products in the store and engage with the staff in the store to scan products, to build a shopping list while they’re having that wonderful experience in the store and so that the retailer can pick up all those analytics and be able to market to them when they’re back at home.

So I think we’ve gotten through maybe a first wave of this, but I think there are two to three more generations to come. We all suffered through the pandemic either buying online six or seven different sizes to make sure which one fit to try them on at home and only to have to bring them to the store. And we used to be able to shop the store and use the fitting rooms, but as we emerged from COVID, the fitting rooms were closed.

And we still have to continue to integrate sizing applications, body profiles, information from products and suppliers to really make this a full omni-channel experience that gives the retailers the power to be able to understand how their consumers shop in a store just the way they shop online and round out that complete integrated experience. So much accomplished up till now, but much, much more to go to really make shopping much more convenient for the consumer and more data rich for the retailer.

Mara:  

Just one other thing to add there is now it’s important to… since so many retailers have sort of done quick and dirty, I would say types of omni-channel initiatives just to respond to this accelerated demand for omni-channel capabilities. Now it’s time to really step back and look at those processes and those solutions and make them efficient and so they can actually work at scale. So there’s a lot of work even on that first wave I think that still needs to be done to have it really make sense for both the consumer and the retailer.

Bart:    

I mean, I think you guys hit on the hardest part of this that in talking to retailers, is how do you create continuity in the buyer journey across online and offline, both from a consumer perspective so that they feel that the retailer knows all the steps that are being taken both on and offline. And then within the retail organization, there’s silos between many of those groups, marketing, merchandising, real estate, they’re all separate operations and they’re not necessarily looking at a unified way.

And then to Mike’s point, the technology isn’t quite there or it’s getting there. I know our next session, we’re going to be talking about this exact topic. How do you understand then how do you reach, and reach is a very important part both digitally and offline, those consumers and model them go forward? So we’ll be talking about that at the top of the hour. So omni-channel obviously the forcing function is the pandemic. The real big uptake in delivery and pickup and how that’s kind of thrown a curve ball in all things retail, whether that’s supply chain, operations.

You mentioned it, it’s been a scramble at the store. And as you mentioned, Mara, a lot of people put band-aids on it. They try to figure out a way to solve it. Now they’re looking for longer-term solutions, but that in itself in talking to some of these retailers in preparation for the summit is a huge challenge. If you think of, for example, convenience store, every inch of countertop is accounted for. It’s been optimized for 40 years on a shop-in customer.

Now we have Uber Eats and all these other people showing up for deliveries even at convenience stores, we have… How do you balance that and how do you change the store format to handle that? So what are some of your clients doing about the uptake in delivery and in pickup and how are they solving some of these multifaceted problems?

Mara:  

So it’s really a challenge in so many ways to try to, again, shoe-horn this into the existing footprint with the existing team members. So the first thing we always advise our clients is to really understand the different journeys and what your profit margins are, right? What’s your cost for each of these journeys? And then really understand your consumer and their part in that journey, and then begin to develop store layouts that make sense, revise those processes in store.

You have to make space differently. So really understand what portion of the store from a productivity standpoint is the best place to use if you do have to use that location. But then think about your locations and your portfolio of locations differently. Not every store has to be a pickup point, not every store has to put together e-commerce orders or offer curbside. So when you look at your store as a portfolio, which are the ones that make the most sense to add those capabilities, and which do you want to retain as truly a traditional merchandising center or a traditional shopping experience? So that is another important step.

A final one is really thinking about the customer and incenting them to use the channel that you want them to. I think Chipotle, as an example, has done a great job of this. So Chipotle figured out that their best channel is when a consumer orders online and then they pick up in store, the consumer picks up in store. So how do we incent our consumers to actually take that journey, right? How do we either promote certain items that are only available for online ordering and pickup? Are there certain promotions that we can use to change the behaviors of our consumers to learn new journeys that are win for every line. So just a few thoughts there.

Mike:  

And Bart, the COVID pandemic really sent shock waves through the grocery sector when we talk about retail. As consumers, we’re no longer dining out and they were looking for new solutions to be able to… their meals at home. So whether that was restaurant meals or partial meals, that they would supplement or the Uber Eats and all the delivery services really taking away from their traditional business. And we’ve seen through the pandemic that this has really changed consumer behaviors.

Much more proportion of meals are being eaten at home, but not cooked at home, which is really having its impacts on the grocery industry. And food service and retail is probably an opportunity that grocers need to start looking at and how do they compete with these offerings and the consumer demand? So we see an industry here that has tremendous opportunity to up their game in digital ordering, or the offerings that they have for consumer to meet these changing demographic and how now they’ve decided to spend their dollars on food much more prepared, much more in the house, but brought in already prepared.

So we see a shift really for grocery retailers to have to start dedicate a lot more space to innovative solutions for the consumer to either cook prepared, heat, or eat ready really prepared for them. So new demographic and more challenges there for the grocery retailers to really face. And when we talk about the footprint of the store, even start to consider, how do you start to use the center of the store? I think the pandemic taught us that we don’t need 12 scented versions of Clorox bleach. In a pinch, any Clorox bleach will do.

So how do we drive more productivity around the center of the store? We’ve been looking at some models out of China and specifically Alibaba’s Freshippo, which is really more of a fresh fruit market supplemented with an e-commerce pick operation on multiple levels from in the store, close to the store, or from the further away distribution center to start to really innovate on how they serve the consumer and how they use their location space to its greatest competitive advantage.

Bart:    

That’s interesting. And I think both of you have touched on this concept of profitability. So the margin in a low margin retail business is bad enough for traditional in-store shopping and we look at delivery and pickup and those have different margin dynamics. We mentioned before the focus is, and Mara you called this out, it’s kind of where there seems to be an opportunity for the best of both worlds where you don’t have to deal with the cost of the last mile and the potential customer dissatisfaction with a partner doing it. You’re driving traffic to the store, there’s a lot of ancillary purchases that are made when you’re in store viewing different things. So how do you see, outside of Mara you mentioned encouraging how Chipotle encourages, how do you see that margin challenge being solved?

Mara:  

So I do see it’s by really looking at the store format and figuring out how can we leverage that space more effectively and also provide tools for our team to more efficiently be able to actually service those orders, whether it’s returns, which unfortunately have skyrocketed as well. So we really need to be adding technology to manage that returns process quite well, making sure we turn that, especially when we have that customer trip coming back to make a return, that we’re optimizing that experience, really looking at those returns as well as the curbside pickup and the in-store pickup as opportunities for additional sales and additional revenue.

So I think there is going to be this next wave that Mike was referring to on omni-channel also around ways of servicing the customer differently, new types of tools and techniques that we can use in the store as well as changes to how we lay out the store that are going to significantly reduce cost and improve efficiency as well as improve the experience and have an opportunity to actually generate some revenue.

Mike:  

We’ve been studying this quite a bit and working with clients to think about what’s the store model of the future. If we look at the evolution of the retail store, and especially when we look at mall stores and others, it was all about build as little stockroom space as you can and put all the merchandise out on the selling floor. But as more and more a product moves to having to be picked from the store for BOPIS or for shipping to a consumer, it becomes very costly.

We handle it twice putting it on the floor and then pulling it off, back off the floor to pack it up. So looking at store footprint optimization and transformation, I think is a next wave where we have to start to think about mini warehouses within stores that efficiently support a customer pick business for shipping or BOPIS, but also re-fulfilling a store sales floor that is lightly merchandised in a creative way to engage the consumer.

These types of efficiencies will be critical going forward, as well technologies to support inventory accuracy, as well as allocating the right products to the right store on both different demand profiles that for the in-store customer and that for the online customer. So I think innovation across understanding that shape of demand on a location by location basis in managing inventory accuracy, managing ease of picking either from the backroom or for the selling floor will drive some new thinking going forward.

Bart:    

And that it reminds me of when we were talking in advance of the summit kind of plays into the concept of do retailers need to assess real estate differently and the channels differently and not focus so much on the specific channel margins, but the blended margin across the board? And that will necessarily start changing maybe some of the kind of economics of site selection and store strategy.

Mike:  

There’s no doubt when you start to think about what’s the role of the store. The role of the store went from being a point of commerce, and in some cases, marketing when we talk about flagships and other types of stores. Today, it’s a point of commerce, it’s a point of distribution, it’s a point of marketing like the billboard, it’s a point of customer acquisition because we know the cost of customer acquisition online is incredibly expensive.

So as we start to think about what’s the role of the store in this broader ecosystem, we have to look at new metrics to understand whether it’s servicing the purpose or not. So how do we start to value the sales of a customer who makes their first purchase in a store over the lifetime of that customer versus one that had never come into a store? And what are the dynamics that we start to think about that investment in real estate and what it fuels for the broader enterprise as opposed to just the single location analytics and metrics to drive it on either profitability or ROIC based on site performance?

Bart:    

Mara, how do you see the role of the store evolving?

Mara:  

Very similarly to what Mike just outlined, it’s very clear that there are very different roles for a store and in some cases they’re not a traditional store at all. They can be the brand beacon, which is really about raising brand awareness, acquiring new customers to the brand. And really those are measured really with marketing metrics because they truly become part of your marketing portfolio.

Then we have traditional merchandising centers, right? Which are more what we think of as true stores today. We have other stores that may have a role of being a center for expertise to really learn about how to use the product, to sample as an example. And then again, with completely different metrics because there’s a different service model in those locations as well.

And then finally, these stores that are optimized for delivery or picking orders or dark stores are truly back to the example that Mike used about Hema in China that is really optimized for order pick and delivery. So understanding that, understanding the role and the specific value each of those stores and the portfolio need to deliver and putting those metrics around it are really how we need to evaluate the stores and evaluate what experience we need to put in each of those locations to engage with our consumers.

Bart:    

So the million dollar question, are stores more or less important, and do you see the number of stores increasing or decreasing? We’ve been over-stored for so long, right? Where do you see that going?

Mara:  

Well, I think that’s a really interesting question. I think companies where we can look to are digital first companies like Amazon that clearly think stores are important, right? They are investing in their Amazon Fresh stores in the grocery channel. They are investing in their four store locations that you often see in Mueller Street locations. Amazon Go convenience stores, other ways. So we realize consumers need that physical location for both convenience and experience.

So I think those shows that stores are here to stay and are important part of any retailer’s portfolio. On the flip side, you have even small companies like an example is Sprain Ridge, which is a digital native company found that their customers actually wanted stores. They do framing of art or personal effects as an example. And they found that their customers were much more comfortable having a one-on-one interaction to design that final product rather than just sending those prized pieces off through the mail. So again, depending on what your positioning is as a company, who your target customer is and how they want to be served, that’s really going to dictate the importance of the store and what different types of stores, physical locations you actually need to operate.

Bart:    

Mike, are you long or short on stores?

Mike:  

I’m long on stores. I think I wrote a white paper a couple of years back called On Solid Ground, the future of retail is in brick and mortar, and we still believe that today. Whether it’s more or less, that’s the interesting question because that’s a pretty complex algorithm. I think we know that the US compared to the rest of the world is extremely over-stored. Last looked at it was in the… let’s just say now with all the closures, it’s somewhere around 20 square feet of retail space per capita, right?

And the rest of the world, Europe is about seven, Asia’s at about five. Our closest neighbors in Canada I think are around 12. So we’ve had way too much retail space. And we’re going to see some still downsizing of that space. We’re going to see large chains in specialty retail or so downsizing the number of stores they have and probably right-sizing to our portfolio depending on who they are between 250 and 600 stores. So that’ll drive less stores.

But one of the things that we see that I think drives more stores on the other side is one of the biggest impacts to traditional retailers or legacy retailers created out of the online incubator players, is the tremendous fragmentation of consumer spend. We have so many more retail opportunities to shop online by very specialty niche companies that are serving unique demographics. And to reach scale, they will all need stores, whether that’s 150, 200 of them or 50 of them.

I think we’re going to see a lot more brands start to show up in physical stores so the consumers can engage with the brand in that real environment and they can reduce that cost of acquisition of consumers and everything else that goes through the advantages of having a lot of stores. So we could be a… I think we’re going to have less, but I think we’re going to have greater variety, greater experience, and more thoughtful positioning of where they’re located and what happens in those stores.

Bart:    

Yeah, that’s a great point. And it makes me think of kind of the big push in D2C, right? So direct to consumer and how some of those concepts get to a point of growth where they need brick and mortar to grow. I know Casper one of our clients type of story. How do you see Nike, for example, pulling away from retailers and going more D2C and some of these other major brands that see profitability lights in the future and having a much more intimate direct consumer experience? How do you see that playing out to the retail industry and into stores and brick and mortar?

Mike:  

It’s going to be more and more locations for people to have to go to be opened up, right? Nike’s been on the move of really controlling their brand and where it’s merchandised and how it’s been merchandised for several years now and making that transition. It didn’t reduce the number of stores. They’re going direct to consumer, but they’re doing it still through store experiences and variations on those themes that engage the consumer with their brand.

They’re doing it differently digitally with all of their customer and performance support apps and so on that really drive that connection to the consumer. So it’s a great strategy but it’s also going to take a large footprint to be able to do that. If they start to move away from all these wholesale sales, it’s a lot more frontline representation they’ll have to have of their own products in their own stores that will require investment and put more of the risk of how those goods are sold and distributed in their own hands.

Bart:    

And you need the brand equity to pull it off which is a challenge.

Mara:  

But they’re a great example of a company that’s really invested in that entire journey and how do they lack that customer into the brand at all points? Right? When I’m actually out using the product, right? They’re connecting to their app. So I can track how my performance and really understand their customer and how to engage with them to maximize that metric of customer lifetime value. And they’re really thinking of it holistically across all of their channels that they’re offering.

And it is just a great, I think, company to study that D2C transition that they have done that all brands should be taking a look at and seeing what they can learn from that, and the important role of stores in that and they still have wholesale partners that are very important to that customer engagement as well. So I don’t think they’ll totally go away in other channels, it’s an important channel that they are clearly managing differently.

Bart:    

And I think you talk about this Mike as well, kind of the Instagram moment, how can we continue to create that link between the customer and the brand online. Instagram is great. I think you had one of your clients does something along those lines, and that helps really have the brand experience out there and personalize it.

Mike:  

I think the example I cited was the tuxedo rental retail, The Black Tux that was only doing its business online and then started to move to different store format. So they do consumer measurements in the David’s Bridal stores, but they have several of their own flagship stores where it’s not only about the groomsmen and maybe the bride coming in with them and renting that tux and be done with it but they create that Instagrammable moment with the setting and the environment that pictures can be taken.

You can see the engagement that the groomsmen are having with each other and it’s something that creates a lasting memory. And that’s the experiences that retail can bring. The more and more we can create those spaces where people can truly shop the experience and have those moments that today are the Instagramable moments. But 30, 40 years ago, they were the department stores that had the restaurants and the large food businesses in the basement of the store and the coffee shops and they did Santa Claus in the stores and all those other things that really drove us out to the store because we wanted to be there, it was the place to be.

And I think that’s where retail needs to really, really continue to go. The retail theater that Marvin Traub, the former CEO of Bloomingdale’s wrote in his book, Like No Other Store and talked about the theater that they were able to bring to the store that made people come flocking on the weekends. And I think the more and more retailers can create that experience in the store and instead of having the consumer come to the mall every weekend to see what they want to buy, just come once for something big, bold, and fantastic and take home the shopping list that you’ll shop for the next four weeks or the next two months because you came and experienced.

Another great brand that had done this and created that theater was Cabela’s sporting goods where people would drive two and a half hours and spend four hours at the store for a Saturday because of all the options that went on there between the displays and the fish ponds and the cafeteria that served game foods, right? So I think the more experiential we can make the stores in conjunction with our mall and property partners make that really an immersive experience that’s worth going to for the day, the more we’ll continue to really profit from the consumer both in the e-commerce and the offline business.

Bart:    

And you make me think of Marshall Fields when I was growing up. Mara, I know customer experience in store as a passion of yours, what have you been doing in this area?

Mara:  

Well, it’s really interesting because this is the area that we’re watching most closely. So many retailers invested so much in experience leading up to the pandemic, right? And now we see consumers blocking back but there is a change. And I think how we deliver experience, that extreme experience that Mike was talking about that really makes you want to come and stay and spend your time, how is that going to change? And we’re seeing a couple of early trends on that.

One is really changing from crowds to customization we call it. So being thoughtful about when we have that big crowd, how do we actually deliver a customized experience? How do we make… as an example, provide in store appointments so individuals that may be a little less crowd happy, or crowd positive can still engage with us in a compelling way? So that’s one area and really understanding that a certain segment does want to have that customized, personalized experience.

Similarly, from just lingering and hanging out to really offering learning experiences, educational experiences, other value adds within the experience to educate on new products, new services, and then have them try them out. Another area is really thinking about the transition from offering just commodity. So putting our products just out there in our large spaces especially, to really thinking about curation, how do we bring the best, highly curated experiences? And these don’t have to be in large locations, but it’s a different definition of experience.

So Nordstrom Local is I think a really good example of this, where it’s been a small footprint in an urban setting, a store that’s really focused on providing individual personalized experiences with curated product where you can actually pick up your items an efficient way, try them on, get styling advice, have other services. So definitely seeing that as an experiential trend. And then the final one is really thinking about those in-store experiences and making them transition to experiences that the consumer can have anywhere beyond the store.

Sephora is doing a great job of this of really bringing many of the experiences they would have in store to the digital platform. So as an example, trying on makeup virtually, getting beauty tips and advice, things that support that in store experience and augment that in store experience, but are also accessible offline. So those are really four kind of key trends that we’re seeing in the experience area.

Bart:    

Yeah, so this all screams change the store format. How do we, whether it’s being able to handle delivery, pickup or the experience in the store, what type of store format changes need to happen? I know you guys have mentioned several. Where do you see store formats going? And it’s not something you snap your finger and it happens overnight, right? You’ve got to roll it out to a lot of different stores. How it’s actually implemented at individual store level is highly dependent on that site itself, that real estate, that footprint. I got yelled at for using the word prototype with a couple of retailers this week because it’s really a fallacy. So with store format, where’s it going?

Mike:  

I think what most retailers have to be doing in a bigger, bolder way is thinking not about format, but thinking about formats, and formats that would run the gamut from pop-up to flagship, right? How do I create the experiences for what I need and what do I need where I need it? And how do I have the ability to bring it to the consumer where she may be on any given time, point in time? Well, how do I have a footprint that is versatile across seasons to meet demands and as it changes? So I think that’s where we really have to start thinking about the businesses.

Format is multifaceted and it is not always permanent. In many cases, it will. It will have permanency to it. It’ll be small, it’ll be medium, it’ll be flagship, it’ll be tiered. And those experiences will be different across those boxes. But I think we also have to think about the innovation in terms of how do we maybe be somewhere for a period of time and then not be there. I was talking to a mall operator once and challenged them to say, “You need to create some free space for online incubated brands to be able to come for a month and try their hand at what physical retail would be for them. And you need to give them the space for free.”

They said, “I can’t give them the space for free, that’s my business model.” But I challenged them and said, “But if Beyonce called you and said, “I just want to sing in your mall on Saturday and draw some people,” you’d welcome her to do it for free.” And I think that’s really the opportunity that there is for everyone in the physical retail space is, how do we collaborate together to continue to bring the consumers to our properties on a regular basis or on special occasions?

Mara:  

The only thing I would add there is I do think that we need to start with consumers first when we’re re-imagining where we want our stores and what formats will best be suitable and when we’re thinking about the future. So really understanding who our target customer is and how they do want to shop and engage. And once you have that research again, think multi-format, think testing. You don’t think prototype because I kind of agree that it’s better to test multiple things, multiple ideas and we often… that helps us evolve some of the formats we already have most effectively. So big fan of testing and agility and being open to changing and to do that. We need great metrics to understand are we achieving what we’re expecting and having the courage to pull the plug and change direction rapidly.

Michael:          

And there’s an opportunity to also just really rethink the whole technology experience, driving consumers to leverage their own technology when engaging in these stores and be able to make this experience as seamless as it would be as if were shopping at home. I posted a picture on LinkedIn several weeks ago when I was out at one of the malls and in a specialty apparel store, there was a line of 30 people to the door from the cash wrap to the door waiting to pay.

Whereas more seamlessly, I think we can accommodate that and innovate about how we let the consumers transact and be able to make it easier, not only for them, but for us reducing the cost of omni-channel business and then being able to, again, afford those new things that we have to pay for and the way the consumer shops today such as shipping and returns.

Bart:    

Makes sense. And change is hard, right? And a lot of retailers have experienced that in the pandemic where operations get thrown into a mess, quite frankly, with all the pickup and the delivery. They’re having difficulty getting the right labor, they’re having difficulty getting labor period and then the right type of training because there’s a change in what a retail associate needs to do now if we do believe that delivery pickup’s going to continue to evolve.

There’s logistical changes. So what are some of the things you’re seeing in this initial wave by a forced function on store format because of the consumer behavior changes and how are retailers dealing with that? Let alone, I think jumping to the future like you guys are talking about, there’s some practical realities we’re dealing with where we are today.

Mike:  

Well, we talked a little bit about the changes in how we run operations in the store. We’re making it friendly for the staff to be able to pick orders and easily get them to the consumer. I think access to the store, where do we… can we really perfect by online or curbside pickup that consumers can pick it up easily there? As opposed today, curbside pickup really means somewhere out in the parking lot in space number six, we’ll bring it out to your car, but it takes some time. And if it’s raining, it takes even longer.

So it just… how do we really start to redesign the store, whether it’s the extreme of drive ups like all of the quick serve restaurants have, or some other variation of that that continues to make this new way of shopping easy for the consumer than pulling into the parking lot, calling someone hoping they answer the phone and bring your products out to the car. So I think those types of things around the perimeter and access of the store will be critical, which also may just change retailers’ perspectives of where their stores need to be located.

Can I provide that type of experience in an enclosed mall, or do I need to be outdoors somewhere? Or how then does the enclosed mall support me in engaging my consumer that way and meeting their demands in a cost-effective way? I had bought something online, then had to pick it up at a mall for my wife. And by the time I parked at in the parking lot, figured out where the store was in the mall because there’s no directories in the mall anymore and I had to run one way and run the other way to find it, it wasn’t an easy curbside pickup. It was quite complicated. So I think we have to really think about how do we enable these new things that we offer to the customer in a way that’s truly convenient.

Mara:  

And just to add that consumers during the pandemic have been really forgiving. They put up with a lot, like you’ve just described, these really inefficient pickup services. Well, that’s changing now because they are experiencing 15 minute delivery at home from convenient services like gopost, right? And are changing how we think of convenience. So it really is important for retailers to realize that we do need to focus on process excellence for our consumers, and that will be more profitable for us as companies to ensure that we are really being as efficient as possible in some of these basic, what are becoming basic in the consumers’ eyes experience elements.

So really thinking about how do we remove friction from the shopping experience and offer where we can extreme convenience versus where do we want to add friction and become more engaging and really add those experiential elements to that customer journey. And so we’ve got as usual retail’s such a challenge and it’s only becoming more so in terms of an area to be very exciting.

Bart:    

Yes. All right. We’re coming up towards the end here. I wonder if we could just wrap up with a couple words or wisdom, parting thoughts for retailers out there given the current climate where their heads need to be, where should they be focusing? I know we’ve touched on a lot of things to do, but you can’t boil the ocean right away. So what’s your advice?

Mike:  

I think we left a lot of it on the table here Mara, but I would have to say one more thing. It’s really about integration. Look at the integrated network of stores and digital businesses and develop the right solution by market, by prototype, by option for the consumer. And don’t continue the evolution as we’ve seen it as just being additive, additive, additive, not integrated but connected. So really rethink the network from square one as to how the consumers are shopping today and don’t worry about what’s out there today and knock down some walls.

Mara:  

Right. And I would just end by really keeping your eye on the ball, right? So who’s your target customer and what are you doing to be that differentiated source of value for them? Really keeping reminding your teams about what’s important and letting that lead and that listening to that customer and letting that help you prioritize which of these many things you’re going to tackle, especially as we’re still dealing with this very complex and changing pandemic environment.

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