Store Design

Redefining Flagship Retail

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Flagship retail stores have historically been the beacon of a brand—an iconic entity with grandiose energy. But as we continue to rethink retail in today’s ever-changing and quickly evolving environment, it presents the opportunity to reevaluate the flagship experience and our approach to store design.

If you think about the essence of a flagship store, it has meant something larger-than-life, experiential, immersive, or even exclusive. Often, we relate this to store sizes like Krispy Kreme in Times Square, Hermès in Paris, Nike in New York, or the glass cube at Apple Fifth Avenue. When you strip away the square footage, it really implies a “special experience,” either with an exclusive, localized product (The Big Apple Doughnut), personalized service, or unique offerings associated with geography. So, if we can let go of this perception of flagship relating primarily to size and connect it more to the unique experience – then we get to the heart of what flagship retail means.


From High Streets to Side Streets

Retail succeeds when it responds to consumer needs, and today’s consumers want to stay closer to home when they shop. They want to be catered to and want anything but homogeny. Gone are the days of being inside any mall in America and finding the same set of stores. Consumers want something that reflects the energy of their neighborhood.

“Consumers want and crave variety, diversity, and choice. You can maintain a national footprint and effectively leverage regional and localized design. Bringing these strategies to scale can be a differentiator for retailers who want to thrive, not just survive.”
– Carrie Barclay, President, ASG

The importance of diverging from homogenized retail is one of the key factors in retail design success today. Consumers have gained a new appreciation of home since the start of the pandemic. Similarly, when retailers begin to understand their own unique importance in the local community, they then become part of the social fabric of the community.


Embracing the Flagship Experience at Scale

Now is the time to refocus the meaning of flagship retail to symbolize a unique and localized experience for the consumer. In other words, we believe that the flagship experience shouldn’t be limited to just the launch of a design as it appears in Times Square, but it can also be a thoughtful, customized, and unique design in every neighborhood.

Your brick-and-mortar locations are not just transactional. They are valuable opportunities to connect with your customers and showcase your brand, values, and commitment. Every store design is an opportunity to provide local customers with an integrated, immersive, and unique experience with your brand.

Eager for more insights about the retail experience? Check out how some retailers are Minding the Retail Gap between pandemic and high performance.

Minding the Retail Gap

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We have been talking about redefining retail for a long time, but some retailers are falling behind. In fact, the retail gap between outperformers and the rest of retail is becoming wider, according to McKinsey, and “those that wish to keep up need to speed up.” The report offers great insight into the state of the post-pandemic retail industry, including the fact that pure grocery retailers were not ready and were outpaced by Walmart, Costco, and others. What did these top 25 retailers do that we need to understand and emulate?


Cater to Consumer Needs

Some retail categories struggled, especially those selling business apparel and cosmetics, as more people worked from home and barely bothered to get dressed, let alone put on a suit. Regardless of type, retailers that achieved the most success were those that had some infrastructure already in place before the pandemic hit and were capable of shifting to meet changes in consumer demand. 

Home improvement, as a category, was dominant. But some retailers seemed prescient in their pre-pandemic strategies and had infrastructure in place that let them quickly shift to meet changing consumer needs as the pandemic wreaked havoc. Walmart, for example, had already launched their curbside pickup service and had a sophisticated ecommerce platform in place. Costco had already established both ecommerce services and two-day deliver for food in many areas. McKinsey identified 25 forward-thinking companies that accounted for 90% of retail gains. What set these retailers apart? They were able to quickly shift more of their services online without having to build the infrastructure in order to do so. 


Deliver Value

The consumer perspective was forever shifted due to the pandemic, and the retailers that thrived were those that could offer consumers value. Value, of course, means different things to different consumers, but the three shifts I’ve observed are: cost, sustainability, and social. Consumers were laid off and losing income. Consequently, they wanted to know they were getting the biggest bang for each buck. At the same time, consumers began to evaluate purpose and meaning on a more existential level, and there was a seismic shift toward sustainability. And of course, in the midst of the pandemic, we had social justice issues playing out before our eyes that caused a measurable consumer shift in choosing retailers whose values aligned with their own


Leverage Technology to Meet Consumers Where They Are

One of the most interesting statistics to come from the McKinsey report had to do with grocery retailers. As an industry, grocery lost one percent of their revenues, which is obscene given the fact that grocers were one of the essential industries that never had to close. During the pandemic, many people began cooking at home more and even embraced cooking as a way to pass the time. So how did grocers not explode during the pandemic?

According to McKinsey:

The shift from in-store shopping to grocery delivery – combined with consumers’ increased price-consciousness, substantially higher store-operating costs due to COVID-19 protocols, and investments to support online fulfillment – created significant pressure on margins. Uncertain longer-term growth prospects, due to meal-delivery companies eating into grocers’ revenues and platform players using food as a source of consumer engagement rather than profit, have also likely played a role in the sector’s mediocre performance.

In other words, because grocers were slow to recognize the need to invest in technology before the pandemic, they were caught facing costly infrastructure investments during the pandemic – all while other retailers were able to use food as an experience.


How to Close the Gap

Whether you’re a grocer or any other retailer who does not want to be left behind in the new retail, closing the gap will require a number of changes in strategy, not the least of which is flexibility.


Be clear in your definition of what and who you are.

Are your operational, organizational, and communication strategies aligned with your mission? Do you know what your brand stands for? Do your consumers? 


Technology

The retail environment is not done changing. And if you’re not keenly aware of the power technology plays to keep you in the game, it’s time for a very rapid education – and a significant financial investment. Everywhere your brand lives – social media, ecommerce, brick and mortar – needs to be treated as one, integrated unit. Believe me, your consumers don’t see these as separate entities.


Consumer-Centric Focus

Walmart and Amazon will not stop investing in technology and infrastructure and they will continue their attempts to peel away consumers by focusing on convenience and price. But consumers are starving for personal touches; so, find where you can make consumers feel good and be there. We know consumers will pay more for experience. Deliver it.


Re-evaluate Everything

From location strategy to brand partnerships, from the retail space you need to the neighborhoods in which you locate your stores, now is the time to re-evaluate everything. If you are struggling, get tough with your business. Where do you cut? Where do you invest? What kind of mission do you have? How are you engaging with consumers and cultivating consumer loyalty? What can you change to better meet your consumers where they need you to be?

As McKinsey suggests, “Those that act boldly to stage a strong exit from this economic crisis can maintain their edge for a decade or more.”

What are you doing to be bold?

The Golden Opportunity for Retail

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Over the last 10-12 years, DTC brands became a force to be reckoned with, as more customers turned to the convenience and cost-effectiveness of try-before-you-buy and automated subscription models. Traditional retailers and brands that were already shifting their retail strategies to compete with digitally native DTCs ramped it up during the pandemic. And consumers, seeking comfort in a time of uncertainty, sought out familiarity with the brands they already knew and loved. 


Consumer Trust in Traditional Retailers and Brands Increased During the Past Year

According to a Scalefast report, consumers ranked digitally native DTC brands as the most reliable category of retailers prior to 2020; 15 months later, traditional retailers and brands have taken a lesson from the DTC playbook, and 41% of consumers now consider traditional retailers most reliable. In fact, digitally native DTC brands are losing favor with consumers because of their inability to deliver on the consumer expectation of fast deliveries and a seamless experience.


Where Digitally Native DTC Went Wrong

Digitally native DTC brands were singularly focused on acquiring customers. As disruptors to the market, the focus was on peeling customers away from traditional retail and brands. They spent all their VC funding on ads to attract new consumers. And it worked. But along the way, the digitally native DTC market became saturated. To be heard and seen in a way that would attract a new customer required more and more money pouring into digital advertising, which drove up the cost of ads and visibility.

This was summed up nicely in an article about the fall of the DTC on Marker at the beginning of the pandemic: 

The investors bankrolling these companies are discovering one thing in common — that most of their money is going to expensive and ever-rising customer acquisition costs (CAC) via Google, Facebook, and Instagram. As one DTC investor has put it starkly before: ‘CAC is the new rent.’ And even after these startups get on the treadmill of paying digital rent, they are then finding themselves also paying actual rent. After all, the most effective billboard is an outdoor L.A. luxury mall or an expensive SoHo storefront, which can cost some $60,000 a month.


Growing a Customer Base from Scratch Is Costly and Difficult

Digitally native DTCs drove up the cost of customer acquisition without investing in any way to retain the customers they acquired, or to meet the needs they promised their customers and their VCs. DTCs were great at landing customers onto their websites to make a single purchase, but retention rates were so low that the cost of CAC became astronomical – and only grew higher due to the increasing costs of digital advertising. More and more money was required to get the same number of eyes on an ad – to the point where CAC was costing more than the LTV of each customer. In fact, that seemed to be the entire focus of some DTCs: Buy up enough media ads to divert people to the website for a quick sale with no plan for how to keep them. And for some DTCs, retention wasn’t even a solution. How often do consumers replace their mattresses or their luggage, for example?


Traditional Retailers and Brands Have Lower Customer Acquisition Costs

As the pandemic drove consumers back into the arms of recognized and cherished brands, and just as traditional retailers and brands were kicking omnichannel and integrated retail into high gear, the opportunity became clear. Adding DTC doesn’t require the same type of investment from an existing brand or retailer as it does from a digitally native DTC. And consumers don’t care where you started. A third of American consumers see no difference between digitally native DTCs and traditional retailers. All they want is to get what they want, where they want it, when they want it.


Digitally Native DTCs Are Not Sustainable without Brick-and-Mortar Locations

Digitally native DTCs are struggling, more so since the pandemic. The ones that are surviving are partnering with traditional retailers (becoming brand manufacturers or wholesalers) or are opening locations (becoming traditional retailers). This substantiates what I’ve always said: pureplay is not sustainable. Digitally native DTCs are opening retail shops and pop-ups or are getting placed on the shelves of traditional retailers. Omnichannel, or more accurately, integrated retail, is the only cost-effective business model for the long run in most cases. Retail Dive outlined the major movements in these two directions, all driven by the difficulty in acquiring new customers in an affordable way: 

Target brought in brands ranging from Casper to beauty brand Versed. Nordstrom formed partnerships with Glossier, Away, Bonobos and Kim Kardashian West’s Skims shapewear brand, among others. And Crate and Barrel launched an exclusive, limited-run collection with Parachute to sell online and in 65 of its retail stores.

Other brands opted for pop-ups or permanent locations of their own. In 2018, Casper announced plans to open 200 stores across North America, while Adore Me around the same time said it had plans to open 200 to 300 locations over the next five years. Commercial real estate firm JLL previously anticipated digitally native brands could open some 850 stores by 2023.


Why Traditional Retailers and Brands Should Consider DTC

Consumers expect to be able to find the products they want and need anywhere they happen to be shopping, whether that’s online, on their phones, in an app, or in your store. Moving into DTC only makes sense for traditional retailers, especially given the past year in which most retailers survived by already taking those first steps. A comment from Peter Smith on Retail Wire reminds us (the emphasis is mine):

What can sometimes get lost in the DTC conversation is the need for an integrated and seamless experience for the customer. They shop where and when they want – and that clearly works both online to bricks and bricks to online. So the only thing better than a great online experience is a consistent online and bricks experience. What should never get lost, however, is the significant advantage for brands executing DTC to control the brand experience for the end-consumer. It is no accident that more brands are reclaiming that right (critical to survival) in the face of indifferent end-user experiences with many bricks partners.


Benefits Beyond Brand Control

For traditional retailers and brands, there are major advantages of going direct to consumers, beyond just controlling the brands from start to finish. These benefits include:


Consumer Data

We all agree that staying in business requires delivering an exceptional customer experience every time. While having integrated retail solutions makes that more likely, knowing your customer better does, too – and DTC lets you learn things about your customers that you wouldn’t learn otherwise.


CAC and Other Cost Reductions

Controlling the entire supply chain process can allow you to achieve economic factors not otherwise available and gives you more control over the kind of service your customers get.


Personalization

Success in retail today requires a degree of personalization you can’t offer without incorporating DTC.


Customer Satisfaction

It’s a numbers game you can’t afford not to play. Eighty-four percent of consumers say they won’t go back to a brand after a bad delivery experience. Forty-two percent of Americans would purchase directly from a branded manufacturer over a third-party seller if they promised free and fast shipping.


It’s About the Customer

To achieve sustainable customer acquisition costs, traditional retailers and brands will have to adapt and restructure. DTC will help traditional retailers and brands deliver value to the customer at every touchpoint along the customer’s journey. 

Reinventing Retail: The Post Pandemic Strategy

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Has there ever been a more challenging time for retail? Without the business disruption insurance that we lobbied for, we’re seeing more and more retailers forced into bankruptcy. And even as states are in the midst of phased reopenings, the ongoing civil unrest, however justifiable, has made it impossible for some retailers to open as planned. There are more unknowns than knowns – and there’s a lot to unpack. What has become clear, however, is that whatever role you play in retail, the one word you need to remember is flexibility. 


Flexibility is our Mantra for 2020-2021

Retailers, landlords, lenders, and consumers – and all the organizations involved in keeping them up and running – must all embrace flexibility. But what does that really mean?


Retailer Flexibility

Retailers who survive need to throw their old models out the window. Consumers have changed. The economy has changed. We are not going to be able to predict everything that is going to happen (did you ever once think in January that this is where we’d be in June?). 


Location

For a retailer, this means flexibility in your location strategy: pop-ups, regionalization, localization, adapted design, modular design, movable walls to adjust to consumer and operational needs. 


Leases and Lending

This also means flexible negotiations with landlords and lenders, because traditional, long-term, fixed deals are not and cannot be the future. While terms have been adapting over the last two years, even more change is going to be required for new retail players. Flexibility tied to performance and structure will be a mandate from those retailers expanding and moving forward.  


Customer Service and Customer Experience

Flexibility in service to the customer, whether this means curbside delivery OR curbside return – yes, you read it here: curbside return – will be necessary.  Providing delivery options is only one of the simple changes that retailers have to make. The long pole in the tent is a complete overhaul of old processes and procedures as well as systems and devices that both associates and customers use.  Retailers have to pivot their strategies in order to address these new customer expectations.  Rachel Williamson provides the best guidance here:

  • Retailers must start with WHY. It has to be clear to your customers. Many businesses are focused on the WHAT and HOW. WHY is more important and draws customers to your brand.
  • Create WOW experiences. While safety is top of mind (and should be for the time being), it cannot replace genuine customer engagement. Sanitizing, masks, and long lines to enter the store must be met with engaging associates who are making the customer feel glad they chose to shop in-store.  The experience has to be tantalizing and connect the customer to the brand.  The only way this happens is through really thorough training of the store teams.  Shortcuts to training means shortcuts in delivery.  The customers will feel it and may not come back to shop.
  • Communicate to your customers regularly, reminding them about the safety protocols, but more importantly, about the different ways they can connect with your brand.  Now more than ever, the online and offline experiences have to be seamless.
  • Create a compelling reason for customers to come shopping and then continue to create reasons to return. Covid-19 created a supply chain disruption bigger than we have ever seen.  Stores have few fixtures on the selling floor and even fewer products.  Get creative on how to make the stores look and feel full.


Operations

Flexibility also means streamlining your company’s operations. Before COVID, removing ‘friction points’ was the focus. Now, the new processes designed to keep customers safe have created a new set of friction points for both store teams and customers. Every process that can be automated should be.  Examples include labor scheduling, merchandise flow, and performance management, as well as sensor product in the DC or at the manufacturer. Take it off the list of things the stores have to do. The focus in-store must be on delivering customer experiences and exceeding their expectations if brick-and-mortar is to survive.  

To be as nimble as possible, retailers should outsource everything that’s not part of the core business so that they can adjust more readily to changes. The future of retail belongs to the brands and companies willing to adapt to this constant state of flexibility – and there is a lot of market share up for grabs.


Landlord Flexibility

One of the core lessons learned during the pandemic is that force majeure did not save anyone but the landlords. Landlords – and the lenders behind them that often tie their hands – who refuse to renegotiate or provide any kind of flexibility will end up with empty buildings. The landlords who remain under-standing and flexible will be the landlords who win going forward. Retailers must be able to adjust lease terms to their needs. This can no longer be a negotiation to meet landlord demands. Retailers just can’t afford to do it anymore. Gone are the days of a 10-year, fixed-rate lease. Right now, retailers need leases that offer variable rents with more options; flexible terms are the new norm.   

The biggest outgoing is often rent. A number of landlords and tenants have already agreed short-term arrangements, such as rent concessions and deferments to cover the lockdown period. But what happens after lockdown? In a retail landscape where some trading is possible, but not enough to sustain rents at their pre-Covid levels, landlords and tenants will need to collaborate in order for both to survive. 


Store Construction and Design Flexibility

Retailers are going to need to be able to adjust locally and build in more regionalization and differentiation; so, there can be no more one-lease-to-fit-them-all or one size stores. National footprints won’t be normalized. Adding flexibility inside the spaces themselves will require flexibility with the landlord for things like movable walls to adjust backroom sizes and selling floor sizes as the stores or consumers demand, with multiple-size footprints and more showrooming for consumers.  

“This is a retail renaissance not a retail apocalypse,” said Whitney Livingston, COO, Centennial Real Estate. “For anyone to succeed, all parties need to move out of their comfort zones, and compromise and partner. Companies that are willing to innovate and think outside of the box will help the industry reset and thrive post-pandemic.”


Lender Flexibility

We’re spending all day every day in conversations with landlords. Landlords’ hands are sometimes tied as well. But without more flexibility from commercial lenders, we’re headed for a collapse that will make the housing crash of 2008 look like small beans. We’re already in a worse situation than we were then. It’s going to be ugly. 


Final Thoughts on Post-Pandemic Retail Strategies

Consumers may spend less. But even if they spend more, their spending is likely to be different. It will take time to collect data and develop trends, and until then, you’ll need to be able to quickly pivot.

The way forward in 2020 and 2021 is going to require innovation, technology, and data.

Data will be crucial. To get some real perspective on how little retailers know and how crucial data will be for future decisions, read this deep dive, from Retail Dive, on the uncertainty retailers face. From managing cash flow to determining a reopening strategy to making the tough decisions about locations in the coming 6-18 months, you will need analytics more than ever. 

“Retailers need to understand that their response to dynamic customer behavior starts and ends with data. We already have an endless supply of data but using it intelligently to make decisions on where and how to invest, and what the customer needs and values, is where we’ve seen traditional retailers struggle.” – Andy Halliwell, Senior director, retail, Publicis Sapient

The future is unknown. But we can begin to build new models now.

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