US core retail sales rose 0.9% in March after a downwardly revised 0.8% decline in February, a sign that economic growth may be strengthening despite a slow start to the year1. Sales at clothing stores were up 2 percent, while furniture stores jumped 1.7%. Nonstore retailers rose 1.2% for the second consecutive month2. The only decline among 13 categories was registered by sporting goods, hobby, musical instrument, and book stores3.
Meanwhile, a strange thing is happening in the retail landscape. As legacy retailers continue closing scores of stores, digitally native direct-to-consumer brands that had, until now, only ever had a life and identity online, are launching brand-new physical locations. According to Coresight Research, 2018 saw upward of 5,500 stores shuttering down permanently (see Figure 1).
At the same time, 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 get stronger over the next few years. The "click-to-brick" wave, as it is being 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 (see 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 over-stored and have stores in the wrong places. It is also true that physical locations currently owned by digital natives still only figure in the hundreds. However, the strategy behind the act 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.
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 the 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 deadweight. 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:
- 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 newer 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 their core user group. Nordstrom Local, the retailer's new "concept store", does not stock inventory at all. Instead, customers come to 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.
- 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 them 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 your knowledge and analytics team can help unlock insights that are not otherwise easily available.
- 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 picked up.
- Evolve store profitability metrics
Same-store sales, sales per square foot, and four-wall profitability have always defined 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 a new definition 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 percent 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 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 you can't afford to make in this competitive landscape.
1 Seasonally adjusted February 2019 and January 2019 retail sales exclude motor vehicles, gas, food services, and drinking places