The news is out: retailers are closing stores by the hundreds. Last year, they shuttered upward of 5,800 stores, while the number of closures for 2019 has already eclipsed that mark and is predicted to go as high as 12,000, according to Coresight Research (Figure 1). This may seem like a straightforward phenomenon that heralds the death of a critical retail channel, but that would be a hasty judgment.
Today’s demanding and opinionated consumer has all but eliminated retail’s unidirectional path to purchase. This means that stores are now just one cog in the retail infrastructure—but a still mightily important one. A critical proof point for this is that digitally native direct-to-consumer brands that had, until now, only ever had a life and identity online are launching brand-new physical locations.
One estimate late last year set the number of brick-and-mortar stores owned by digital natives at 600, with supplemental predictions promising that the trend would continue to strengthen over the next few years. The “click-to-brick” wave, as it is called, is sweeping up not just well-established digital brands, such as Warby Parker, Casper, and even Amazon, but also relatively newer entrants, like Brandless, that are trying the concept on for size through temporary popup stores. Casper only opened its first physical outlet, stocked with its popular mattresses and also pillows and bed linen, in early 2018 but already has plans to expand to 200 physical locations within the next three years (Figure 2).
So, if the recipe for legacy retailers is to close stores, why is the opposite true for digital natives? Simply put, it is because the much-discussed retail apocalypse is a retail revolution instead.
It’s true that many legacy retailers are overstored and have stores in the wrong locations. It is also true that physical locations currently owned by digital natives still only figure in the hundreds. However, the strategy behind the trend is worth paying attention to, and some established retailers already are. Forward-thinking retailers are relocating, resizing, or opening new stores that feature reinvented concepts, such as interactive dressing rooms, Instagrammable moments and other experiential aspects, dedicated spaces for events, services like on-the-spot alterations, etc. According to Coresight, almost 3,500 store openings have been announced this year.
And this is because the store is not dead; it simply must be reimagined as the hub of a customer-centric model. There will always be an appetite for physical and social experiences that only a store location can offer. What all but a few legacy retailers seem to be missing is that this reinvention of the store is a competitive advantage, not a dead weight. And it must be a core component of any transformation plan.
The good news is that legacy retailers can learn a few things from their digitally native competitors on what a customer-centric hub looks like. Here are some key lessons:
1. Make the trip worthwhile. If it’s just as easy, or easier, to buy a product online, retailers need to provide a compelling reason for the customer to visit a store location. Many digital natives are taking the long-held idea that nothing beats the touch-and-feel experience that a physical location provides to new limits.
For instance, Casper lets customers schedule undisturbed naps on its mattresses in tiny in-store bedrooms. Athleisure brand Outdoor Voices organizes sessions with nutritionists and exercise classes, creating engaging experiences that perfectly overlap with the interests of its core user group. Nordstrom Local, the retailer’s new concept store, does not stock inventory at all. Instead, customers pick up or return orders placed online and get wardrobe consultations from specialists for the retailer’s subscription box service, Trunk Club, among several services on offer.
2. Don’t overcomplicate data. Digital natives seek out, understand, and use customer feedback for strategic decision making, and there are indeed many data points available from store visits. Beyond transactional, traffic, and market data, direct product feedback and customer sentiment can be gathered by store associates.
Retailers must invest in training store staff to improve the customer experience and empower these employees to send feedback up the corporate hierarchy in an organized way to influence product, marketing, and store operations strategy. Thinking of store staff as part of a retailer’s knowledge and analytics team can help unlock insights that are not otherwise easily available.
3. Make checkout simpler. Another aspect that digital natives are getting right in their stores is asking customers engaging questions at the point of sale and offering quick, uncomplicated mobile checkouts. A January 2019 survey found that for more than four in five internet users, a quick and easy checkout was the most valued aspect of the in-store shopping experience. Beauty brand Glossier has upturned the traditional register by having store associates meet the customer wherever she is browsing in the store, complete the checkout process on an iPad, and announce the customer’s name when her packed item is ready to be
4. Evolve store profitability metrics. Same-store sales, sales per square foot, and four-wall profitability have always been used to measure retail success. However, as purchase channels blend into each other and retailers think of the store as a tool to build stronger customer relationships, success metrics need to be redefined as well. The launch of a new physical location also often results in digital channels lighting up. One survey found that just one new store opening led to an average 37% increase in web traffic in the quarter following the store's arrival.
This means that retailers need a more channel-agnostic view of profitability and should evaluate overall brand value rather than just store value. That said, retailers always need to stay conscious of what is working and what isn’t and be prepared to make changes accordingly.
A common thread running through these strategies is that as customers blur channel boundaries, retailers must do the same. Thinking of the store as a cost and logistical liability is a mistake a retailer can’t afford to make in this competitive landscape.