Let's Get Experiential

How experiential retail will keep stores relevant

Sep 08, 2021

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Swapping Bricks for Clicks

We've talked a lot about the rise of DTC brands, and with good reason - digitally-native brands have become ubiquitous, reflecting the growing presence of technology in our lives. This has already had deep implications for traditional retail in terms of declining footfall, which the pandemic has further crystallised as consumers have been forced to adopt technology (and e-commerce) – removing the friction that once existed, especially amongst older consumers. With as many as 12,000 stores closed in the US in 2020, the pandemic has resulted in retailers questioning their physical store footprint.

This gives rise to the question – is brick & mortar retail dead?

It's a valid question. The rise of marketplaces, most notably Amazon, together with a plethora of DTC brands, has made online shopping virtually frictionless. As a result, the 'need' to visit physical stores for most goods has almost entirely diminished (barring speciality stores) as consumers attach greater value to the convenience of shopping online. Traffic to high street stores and shopping malls will continue to decline and, ultimately, the traditional retail model will become increasingly difficult to make work. Most retailers have already embraced digital channels.

However, whilst digitally native brands can enter markets without the need for expensive real estate leases or to secure retail distribution, they must now contend with soaring customer acquisition costs arising from a sea of competition from near-homogenous brands. A pure-play 'dot com' strategy is now no longer enough - best practice necessitates an omnichannel strategy, including listing on relevant marketplaces and building a presence in traditional retail. Even highly differentiated brands are taking action. For example, Function of Beauty, a customised shampoo and skincare brand, has inked a retail partnership with Target. Meanwhile, Peloton's showrooms enable consumers to experience the connected equipment firsthand.

1️⃣ The Rise of Experiential Retail

The need for retail diverges from the traditional sense of 'stores', and instead reflects a shift to 'experiential retail'. Borrowing from the 'experience economy' playbook, brands are designing retail formats and concepts that naturally fit into a consumers lifestyle and are often immersive and sharable. Unfortunately, pre-pandemic, most brands joined the experiential retail bandwagon the wrong way, by installing uninspiring additions to their retail stores – coffee counters are the oft-cited example. However, there are now several formats that exhibit the power of this experiential channel that fit into one of three main groupings:

Concepts geared around a 'real' experience: these formats typically include an actual activity that generates a 'pull' factor for consumers visiting IRL stores. Lululemon has long hosted in-store community events such as Yoga classes, but its Chicago 20,000 square feet store features workout studios that enable consumers to try products before buying. By 2023, as many as 10% of Lululemon's stores could follow this experiential model. Elsewhere Supreme has a skate bowl included in its Brooklyn store, which can be used on an invitation-only basis - adding to Supreme’s exclusive feel as consumers queue to visit the store and post on social media.

Supreme’s Skate Bowl in Brooklyn, NY | Source: The Economist

Included in this bucket are also brands who have designed retail formats explicitly around creating moments ripe for posting on social media - borrowing from experiential concepts like Color Factory or the Musuem of Ice Cream. Glossier, for instance, has designed its LA boutique with social media in mind, from the pink porcelain sinks for testing products to a semi-secret selfie room.

Concepts where consumers design / customise their product: whilst several DTC brands now feature customisation heavily, the concept is novel enough to build retail formats around. An early example of this model was Build-a-Bear, but it has been followed by the likes of Function of Beauty's listing in Target.

Showrooms: these differ from stores and instead tend to be inventory-light (or have no inventory whatsoever) and instead act as a place for consumers to 'try' the brand. For instance, Canada Goose's snow room enables consumers to experience their warm jackets in the actual environment they were built for.

The success of these formats is evident. Whilst an early example of a digitally native brand, Warby Parker now has 145 retail stores. As documented in their S-1 (IPO) filing, the vibrant appeal of their storefronts and distinctive in-store experience is seen as a conduit to new customers and driving repeat purchases.

These formats enable brands to foster a sense of connection with the consumer that bridges the IRL-URL divide. In today's world, time is the new commodity, and successful formats provide an experience that pulls the consumer away from the online shopping convenience factor.

2️⃣ Experiential Retail Channels

Whilst experiential retail is likely to gain in popularity in the years to come, it's worth understanding the channels by which brands can create an experiential lens to their products. The immediate opportunity is creating experiential format stores year-round but this comes with the associated lease costs of renting a piece of strategic real estate. Many of the aforementioned brands have done this – creating stores that act as a beacon for their brand, especially as they can utilise in-store tech to measure offline shopping habits, such as Cosmose, which tracks customers’ locations to within two metres.

However, other opportunities exist. For example, flexibility in real estate has been made possible by the likes of Storefront or Appear Here, enabling brands to employ a pop-up strategy by hosting an experience for several weeks or months. Larger brands have adopted experiential retail through activations in the field, such as intimate experiences where consumers can learn and experience brands from experts. Whilst this channel has inherently been difficult to scale, platforms such as Experience This* or AnyRoad have built platforms with the logistical infrastructure to expand the reach of these campaigns.

Brands can also build complementary partnerships to showcase their brand to target consumers in the right environment. For instance, Le Labo has partnered with Barry's and SoulCycle to supply their skincare and bodycare products within the changing room, allowing consumers to try their products at an opportune time - straight after showering.

3️⃣ Beyond Experiential

Whilst experiential concepts are very much the focus of retail brands today, the shift will be gradual, not automatic. Stores will continue to operate as stores - consumers may opt into convenience shopping online, but intentional shopping will continue to skew in-store. Yet, on the whole, brands are likely to pay greater attention to their store footprint, looking to a disciplined approach of positioning their portfolios around strategic locations that are naturally a magnet for footfall.

For instance, take Easton Town Center (US), which attracts more than 30m visitors a year. As Web Smith reports, it is less a shopping mall and more a self-contained town with living, dining, grocery, hotels and an ease of mobility. These centres are built on the premise that customers need a reason to go to such shopping centres beyond shopping itself as traditional retail itself will not be the main driver of footfall. It is these destinations that are prime strategic opportunities for brands to build their retail presence.

Final Thoughts

Is retail dead? In short, no. Changes to the retail landscape will not happen overnight, but brands will likely start to re-evaluate how they use physical retail. The 'role' of retail will diverge from the traditional model as brands adopt a more experiential lens to build connections with consumers and bridge the divide between IRL and URL.

For this reason, metrics of traditional consumer brands such as sales per square foot or like-for-like performance of stores over a given time period no longer carry the same relevance. Instead, brands must consider experiential retail as a marketing expense as part of their customer acquisition costs and must be cognisant of the impact of creating experiences. Every audience has an audience – and creating experiences that are shared on social media, or can be done sociably with friends, will build brand affinity, which will pay dividends over the long term.