The future-proofing retail strategies of physical retailers need to be about building on the physical attributes of omnichannel offerings, as well as location-based customer service that focuses on a brand’s sense of place. In this macro-trend report, published in three parts, I explore the thinking around place-making retail strategy: how brand destinations are now increasingly a hybrid mix of new format convergence stores that can create a sense of community as well as rediscovering the art of experience.
Mall developer Eric Kuhn believes that the soul of a city is found in the heroic routine of everyday life; in the markets, playgrounds, neighborhoods and parks. ‘Family is the building block of civic society – across all cultures,’ he says. Wherever his architecture firm, Civic Arts builds its malls, he believes they need to have sense of scale and place that root them firmly in the culture of their city hosts, reconnecting them with the lessons of their past. ‘After nearly a century in which individualism has ruled retail thinking, we are going back to community concepts driven by a bigger society and a world of development where the greater the mix the better,’ he says.
Urban retail: reinventing destination shopping
Retail is being reinvented in London’s West End, with retailers embracing the need to enhance the physical store experience and make it more relevant for consumers, says Steven Medway, managing director trading environment at New West End Company, the retail firm that manages the main shopping thoroughfares Regent Street and Oxford Street. ‘We’re seeing retailers across the board make changes at every level, from tweaks to layouts driven by data insights through to the incredible technological advancements such as RFID, interactive mirrors and live streamed events.’
Click and collect has become the norm for many stores, he says, with a 50% uplift recorded by retailers here over the 2015 Christmas season. ‘What’s more, the arrival of Crossrail in 2018 is precipitating retail change; inward investment is gathering pace and already 2.5 million sq ft of new commercial space is in development to accommodate the additional 60 million visitors expected in the area per annum.
‘As more brands and customers pour into the West End, we expect to see retailers continue to innovate the shopping experience and ensure their flagship stores are differentiated by experiential, disruptive technologies.
Channeling and learning from, the footfall of major shopping destinations is an evolving trend to watch as mobile-driven behaviors of consumers will start to define future retail strategy. For this, the ability of beacon technology to connect with consumers shouldn’t be underestimated After early adopter, the Crown Estate launched its dedicated Regent Street shopping app two years ago, and beacons began to be implemented in more stores across the US and UK, consumers were slow to pick up on the benefits vs the nuisance of multiple, sometimes value-less messages. ‘Consumers don’t have the patience to persevere with this type of technology if they don’t see the benefits straight away,’ says a Bloomberg analyst.
However the personalization opportunities these apps offer to mall or umbrella shopping destinations who can pass on aggregated messages from partner retailers is why beacons are still yet to reach their potential. Simon Property Group is one of the largest mall operators in the US, and has installed 4800 beacons in 192 locations nationwide and sees the beacons as ‘a service for existing retailers in the mall who can integrate their apps and message shoppers directly.’ The onus is on brands to wake up their app potential and deliver a relevant personalized message to the consumer when they are in the right place at the right time, Mikael Thygesen, chief marketing officer of Simon malls told CNBC.
With e-commerce growth still outpacing the growth of brick-and-mortar shopping, malls are looking for ways to engage consumers through more interesting dining options and stores that aren’t found everywhere.
The rise of online and the changing patterns of consumer behavior have impacted UK retail footfall in 2015 Q4, according to Springboard. Out-of- town, which incorporates the three core c’s of retail trading – convenience, choice and customer service, according to the firm – has increased visitor numbers by +2.3%, on top of an increase of +1.3% in Q4 2014.
Consumer expectations for seamless digital to physical store experiences are higher than ever says, Diane Wehrle, insights director at retail market research firm Springboard. ‘Retailers have been doing their best to counter the growth of e-commerce, but consumers’ demands for convenience and the immediacy of online shopping are not being matched by retailers who are slow to catch up due to their large physical store portfolios,’ says Wehrle.
It’s true 85% of retail sales are still in-store, but consumers are increasingly disappointed when they don’t see the same product assortment in-store as they do online; so retailers need to react with inspirational experiential offers, advises Wehrle. ‘We are starting to see more change happening in hybrid retail destinations, where food and beverage locations are being added and store opening hours are being extended into early evening or nighttime.’
Between 5-8pm is a golden footfall opportunity when retailers can attract more families or people who want to combine eating out with shopping, instructs Wehrle. ‘Retailers need to change their habits, open at different times and introduce more social occasions to the retail experience,’ she says. There is increasing recognition among retailers that they have to offer more than just shopping: it’s all about destination attraction and the feel good factor.
Changing consumer shopping behaviours
Westfield’s latest How We Shop Now study reflects how consumers are changing their physical shopping habits, where virtual retail experiences, enhanced assistance and classroom-retail are key trends.
‘Consumers don’t want a remote online shopping experience,’ says Myf Ryan, chief marketing officer for Westfield UK. They want to step away from their screens for a super sensory or educational experience that drives them to seek out something special, she says.
Consumers want much richer retail experiences where they can learn new skills, especially in cities. London has the biggest appetite for this – over a third (35%) want to learn a new lifestyle choice or skill at their favourite store, according to the report that was conducted in the UK and US. The most popular lesson topics are: health & wellness, cooking and social clubs.
‘Enhanced assistance is the point of difference where technology in-store can aid rather than replace the retail experience. That’s the ownable area for physical retailers. As technology evolves it defines how and where we shop. This shapes what a shopping journey should be – and that’s more sensory as a whole experience.
Shoppers are looking to retailers to provide an overloading of the senses with extraordinary sensory experiences. All five senses were deemed to enhance the shopper experience, according to the survey. Vision and touch came out top, but just under a third of shoppers also identified smell and hearing. Taste was also important to more than a fifth of shoppers (28%). The largest share of UK shoppers said that touch and feel, and trial of the products, was a main benefit of physical stores (73%).
Millennials vote with their feet
Echoing these trends for physical shopping activities a recent GFK survey indicates millennials in particular are shifting back to visiting stores over shopping online due to concerns over security and a preference for tactile purchasing. 40% of digital natives have serious concerns about delivery costs, 37% worry about the security of their personal details and 40% again, prefer to experience products before they make a purchase.
Mobile drives omnichannel
It is crucial for retailers to have a mobile-first strategy when it comes to attracting customers into stores. Black Friday and the Thanksgiving holiday is now seen as the biggest annual retail event to track consumers through their mobile devices, when according to the Wall Street Journal, it is estimated that more than half of Black Friday shopping came from mobile devices. And this figure is growing every year. According to research firm Comscore, mobile devices drove nearly $13bn in holiday sales in the US in 2015, up 59% from the previous year.
The big trend from this year’s NRF retail show in New York was the shift from tracking devices to tracking consumers, according to retail technology website CIO. Personalisation is key, retailers realise and while beacons have helped some way along the path to personalisation, wifi and the act of individuals logging onto to store networks is better. Beacons are in a holding pattern and as long as consumers are willing, they will be driven in-store, when with the right tools, retailers can go a step further to analyse customer shopping habits across in-store, mobile and online, combined.
Department stores and urban malls swap roles
Department stores and urban malls are having a renaissance, especially in New York, as consumers seek a diverse mix and inspirational, destination-led retail experience.
Manhattan is about to see a boom in department store openings, including not one but two new stores from Saks Fifth Avenue (full price and outlet), one or possibly two Nordstrom concepts in midtown, and a Neiman Marcus at Brookfield Place in the lower west side. The latter are both set to open their first Manhattan stores in 2017 and 2018 respectively.
The handful of new luxury department stores are focused around mid or lower Manhattan and will reinvigorate the southern and western parts of the city, alongside the massive boost that the lower west side will receive from the Hudson Yards development, set to open in 2017. Described by developers, Related Companies as a ‘perfect blend of commercial, residential and retail’, Hudson Yards will be important for the creation of a whole new neighborhood between 34th and 30th streets and 10th and 11th avenues, where crucially one million sq ft of retail space will be built, as well as four commercial towers, residential space and a public square.
Malls are increasingly the place to launch retail concepts. Testing the local demographic in terms of appetite for a certain new product or service, is in itself a reason visit a mall for early adopting consumers keen for new experiences, education and just being in the know.
Macy’s in New York is looking to reach an older youth demographic through its new basement floor, One Below, that’s more of a store within a store than a department. Targeting 13-22 year olds, it features products from a range of lifestyle categories, from fashion to tech, beauty and food. There is an emphasis on customisation through installations such as a Levi’s laser-etching embroidery station, a Fossil watch-building stall and a Benefit Brow Bar. Macy’s plans on using One Below to test concepts on the fickle millennial mindset.
Chute Gerdeman’s CEO Brian Shafley cites Macy’s as starting to focus on community more. ‘It has struggled with bringing in new customers, so now it is thinking: we have to go where the customers are.’ He likes Macy’s new micro-store concepts that have launched as more neighbourhood specific stores, with a smaller footprint. ‘Here we have a more specialised assortment, that really focuses on omnichannel and the store as a connected hub. Macy’s is communicating with its customer pre-store and while in-store through social commerce’. He adds, the One Below concept in New York is very community driven and increases dwell time for a younger demographic with carefully considered millennial-targeted brands where interaction with the customer is key. Macy’s has invested in Blue Mercury, for a dedicated ‘aspirational luxury’ beauty area. When it comes to community driven retail, brands have to have clarity to target the right demographic, he says.