How Retail Stores Need to Change and Adapt in 2021 and Beyond
08/02/2021 by The Red Tree
The idea that the pandemic has accelerated pre-existing trends is talked about so much that it’s become a cliché. But it’s become a cliché because it’s true and for retailers with physical stores, that has meaningful implications. So many more people are now comfortable shopping online for things they swore they’d never buy electronically and that changes what physical stores need to be. I raised the issue with a number of retail experts and the most important takeaway is: no one knows for sure how stores will adapt. The changes are broader and more complicated than any generalized answer can be and it may mean that this time period is more pivotal for retail than any other until now. In many ways, the world of traditional retail is on fire and there is a wide range of views on how that will play out.
Herb Kleinberger, a retired partner of PwC who now teaches retail at The Wharton School, gave the pithiest overview. “Retailers will close many of their stores so they have fewer and those that remain will be more experiential,” he said. Justin Delaney, the CEO of Buff City Soap which has over 60 stores, says their stores all create a customer experience and that experience is directly related to the products. “We’re a bakery for home care products. [In our stores,] soap cures on racks and someone’s whipping body butter. We’re a mix of customization and artisanal production.”
Is the flagship finished?
Deborah Weinswig, the CEO and Founder of Coresight Research, who spends a lot of time in China, looks at the Chinese market to see what the future might look like in the U.S. She said the future of flagship stores is, “one of the most important questions right now….what we see in other parts of the world that are ahead of us… is a big move away from flagships because the rent is too high.” Fashion designer Cynthia Rowley told me, “those big, lavish, flagship stores are not relevant anymore. [Retailers need] small, little stores that are…like billboards in highly trafficked [areas], finite, geocharacteristic of the brand.” Her phrase “geocharacteristic” is so interesting because it refers to how brands should present in each of the different locations they’re in. Other experts agree that specific locations will determine the kind of stores that open. Melissa Gonzalez, CEO of The Lionesque Group, agrees. “The ways you show up in…different places are not equal. Sometimes it’s a flagship, sometimes it’s a service hub. Stores will be more purposeful,” she said.
Robin Lewis, CEO of The Robin Report, has a little more hope for flagships but he agrees that there will be fewer. “You might have a few flagship stores in urban areas where they can perform well but they will…transform into destinations for entertainment and experience and shows and events as an attraction to get [consumers] to come in.” Sucharita Kodali, Retail Industry Analyst at Forrester FORR +1.9%, put the problem simply. She said, “how do you use the store in a way that makes people want to buy from you and think about you when they’re not in the store?” Flagships have been an answer to that question in the past but their future is now more questionable because of the cost.
With retail real estate values dropping rapidly, I asked Rowley what she would do if she could get a flagship-sized store for the price of a much smaller specialty store. She said that stores would then, “become more collaborative so it’s an experience like sharing [the store] with a fitness studio or a restaurant.” She cited her own successful collaboration with a new local restaurant in her Montauk, NY fashion store.
Gonzalez of The Lionesque Group points out that we are already seeing collaborations between retailers to get better use out of big stores. She points to Sephora going into Kohl’s stores and Ulta going into Target TGT +0.1%. Both benefit by driving more traffic without the full expense of a store and getting better utilization out of a big store space. Lewis of The Robin Report takes it further. He believes Amazon AMZN +0.6% should acquire Kohl’s or Target in order to put the two brands together and facilitate greater reach for Amazon and Kohl’s/Target.
One thing every expert I spoke to agrees on is that retail store labor costs will go up. Part of that is increasing wage rates but that’s only part of the story. In order to service consumers who know they don’t have to come to stores anymore, it’s going to take more skilled personnel than it did pre-pandemic. Weinswig of Coresight says, “[the] store associate [job] is increasing in importance and it’s turning into a career and not just a job for pocket change.” She also points out that the role of the store manager will be redefined. In the past, it was all about sales per square foot. But in the future, managers and associates will need to reduce returns by making sure customers’ questions are answered and giving customers a more localized and memorable experience, however that translates for every individual store.
When a store’s function is to stimulate mobile/online sales, new ways of measuring and rewarding success will need to be created. The metrics that retailers have used for decades to determine which stores to keep and which to close are going to change dramatically. Gonzalez of The Lionesque Group thinks that future metrics are less about sales per square foot and more about experience per square foot.
If stores are going to be successful in the future whatever their format, they are going to need new technology to make them more efficient for retailers and effective for consumers. While the technology affecting supply chain, especially including returns, is critical for a store to be financially successful, the biggest change consumers will see according to the experts I spoke with is personalization. Lewis of The Robin Report says it will make it much more likely for retailers to deliver the services that only small stores in small towns could deliver until now, knowing each customer by name, understanding their tastes and making suggestions that are appropriate just for them.
What the future looks like
It used to be true that every store fulfilled the same fundamental purpose: the stuff was there and if you wanted to buy, you had to go. But with so much having shifted online and being accelerated by the pandemic, stores have to be different and unique to attract consumers. The formulaic store is what consumers don’t want, they need surprise and discovery to get motivated. If a store has what others have, there’s no reason for consumers to come in. That makes retailing harder and more complicated than ever and calls for more creativity which inevitably brings more risk to the business. 2021 is calling on retailers to develop and build new skills to plan stores that give consumers what they can’t get anywhere else.
Richard Kestenbaum is co-founder and partner at Triangle Capital LLC which specialises in mergers, acquisitions and capital-raising for consumer-related businesses.
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