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Attention Retailers: Stores Are One of the Only Growth Channels Left

Physical retail isn’t dead, but bad retail is.

There’s a dichotomy in the retail industry right now: Sales are increasingly moving online, but more online retailers are moving into stores. The reason? According to Richie Siegel, founder of Loose Threads, retail stores are one of the only growth channels left and they offer an opportunity to connect with customers that can’t be matched online.

“Physical retail isn’t dead. But bad retail is.” — “It’s a Great Time to Be a Customer,” Phillip Akhzar, CEO and Founder, Arka

What Siegal, Akhzar, and many other retailers are finding is that the customer experience now has to be exceptional in whatever form it comes. To address this new mandate, all retailers and brands must continually innovate to offer better and more options to their customers.

In this article, we expand on our 2019 prediction that in-store would be back in style and explore the different ways digitally native brands and traditional retailers are optimizing their in-store experiences to best serve their customers. Here’s what’s covered:

  • Digital natives are increasingly expanding into stores after reaching their maximum growth capacity online.
  • Rather than taking a traditional approach, they’re using new formats like showrooms, experiential retail, and leveraging partnerships with larger retail stores.
  • Legacy retailers are also focusing on improving their in-store experience. Nike, Nordstrom, Walmart, and Target are all taking innovative approaches to optimizing their stores.
  • For both legacy retailers and digitally native brands, omnichannel logistics strategies aren’t sustainable without a flexible warehousing and logistics solution to support them.

Why digitally native brands are expanding into retail stores

For brands who were born online, it seemed like the internet had infinite sales potential. But they are beginning to see that growth plateau. According to Richie Siegel, founder of Loose Threads:

“The internet had this promise of exponential growth, which persisted for a long time. It’s this idea of no-boundaries retail. These brands thought, ‘Why would I spend money on a store when I can reach the entire world online? Meanwhile, retail is now the biggest and really only growth channel left for these companies, and brands are realizing that.”

This trend isn’t an entirely new one. One of the first digitally native brands to open a physical retail store was Warby Parker. Since its launch in 2010, the company has rolled out close to 90 stores because they recognized the value of establishing a physical footprint early on.

A steady stream of direct-to-consumer brands have since followed Warby’s lead. A 2017 study found that 67% of eCommerce brands that have received $6M or more in funding have opened physical retail spaces. And this trend will only continue; A JLL Research report found that eCommerce brands will expand into at least 850 more stores over the next five years.

3 ways digital brands are embracing brick and mortar

Though physical retail stores have become the logical next step for digitally native brands looking to grow sales and acquire new customers, they’re not looking to make the same mistakes that drove many of their traditional predecessors out of business. They’re pursuing new approaches that tend to fall in one of these three categories:

Showrooms: Smaller-format, limited-inventory showroom models are a common choice for direct-to-consumer brands. They allow customers to interact with the product in person, enable store associates to focus more on customers rather than restocking and folding, all without retailers having to deal with the inventory management and costs associated with a large retail footprint. Casper, Bonobos, and Modcloth are just a few of the brands taking this approach.

Selling within traditional retail stores: eCommerce brands who aren’t quite ready to make the leap into owned retail spaces can, and often do, test the waters with lower-commitment routes such as pop-ups and selling within larger more established retailers. Nordstrom has become known as a first stop for many direct-to-consumer brands including Bonobos, Everlane, Reformation, Warby Parker, Greats, Good American, and Madewell. For digitally native brands, partnering with the Nordstroms of the world adds to their credibility and gives them access to new audiences they likely wouldn’t have access to on their own.

Experiential retail: For digitally native brands who have expanded into retail spaces, offering an experiential component is a way to stand out in their customers’ minds and deliver an immersive and stimulating experience. But as more and more businesses try out this trend, the bar keeps getting higher. Casper mattresses is pushing the envelope with its The Dreamery nap space concept, while direct-to-consumer beauty brand Glossier is embracing an Instagram-worthy aesthetic, complete with stations for trying on products, for its foray into physical retail.

How legacy retailers are optimizing stores for a better customer experience

The past few years have seen big moves from retailers trying to keep up with the times. From optimizing the in-store experience to expanding into new retail formats, the ones that are surviving are the ones that are repositioning and expanding their offerings.

As Glossy points out, there seems to be a new game-plan for traditional retailers looking to withstand the age of Amazon, and stores play a large part in it: “Invest in private-label and other inventory exclusives, turn physical stores into fulfillment centers, position in-store employees as category experts and drive participation in loyalty programs, while continuing to invest in e-commerce and mobile commerce capabilities.”

Some of the most successful legacy retailers are making stores a central part of their innovation strategy. Here are a few legacy retailers that are doing this well:

Nike: Nike has fully transformed its in-store experience, opting for an experiential and highly-personalized approach with its Nike Live concept that uses “data to personalize experiences, services, and its product assortment.”

Nordstrom: Nordstrom is taking a similar approach with its new services-based concept shop, Nordstrom Local, but has also made pop-up shops an ongoing part of its strategy with its Pop-In@Nordstrom series.

Walmart: Walmart is also focusing on its stores, introducing VR training and mobile checkout at its Illinois stores and is testing a new merchandise unloading system,“‘FAST’ automatically scans and sorts items off [their] trucks based on priority and department, allowing Walmart employees to spend less time unloading in the back room and more time on the sales [floor] with customers.”

Target, in particular, is leaning in. It has heavily leveraged its network of 1800+ stores to its advantage. Here’s a spotlight on the retailer:

Target: A legacy retailer that’s doing it all

Founded in 1902, Target has been an innovator in retail long before the “Retail Apocalypse” made it a necessity. Target launched one of the first pop-up shops in 2002 and began experimenting with experiential retail in 2004—turning a Hamptons landmark into a home and garden store. Target has remained relevant in large part by harnessing the power of its retail stores. Here are a few of the store strategies it has taken to stay successful...

Reformatting and remodeling stores: Target understands that in-store is far from being dead. Its retail stores are one of its strongest assets and it’s continuously improving them. It first rolled out CityTargets—smaller-scale stores located in urban locations— in 2015 and just recently invested another $7 billion in even smaller-format stores. Target is also working to overhaul many of its existing stores, completing 325 store remodels in 2018 and laying plans to “reimagine more than 1,000 stores across the country by the end of 2020” as well as adding drive-through services to 270 of its stores. According to the chain, remodeled stores “bring in 2% to 4% more sales.”

Stocking stores with startups: Like its competitor Walmart, Target has also been leaning on startups in order to keep up with the times and attract new customers to its stores. Target now stocks 12 direct-to-consumer startup brands in its stores including Harry’s, Quip, and Casper. We mentioned that its beneficial for digitally native brands to sell in larger retail stores, but it’s a symbiotic relationship. Target gets to serve its customers exciting new products and attract new, often younger, audiences to its stores based on their brand recognition.

Leaning into the loyalty program: Like many other retailers, Target is revamping its loyalty program offerings in an attempt to capture more from its existing shoppers and keep them coming back for more. Its latest effort, Target Circle, aims to lower the barriers to entry and help the company “build a more complete picture of shoppers” via consumer data. Target Circle would expand its data pool to the “75% of its customers who don't shop with Redcard” according to CNN.

Using warehousing and logistics to excel in omnichannel retail

Adding new sales channels and retail formats makes inventory management and allocation even more complicated. Retailers and brands now have to manage both retail distribution and eCommerce order fulfillment across their warehouses. Here’s how they can do it:

  1. Store location and store type are the first steps to expanding into retail. It sounds simple, but you need to know where your customers are before you can determine the best places to locate your stores. Then, you have to decide what type of retail store you’re going to launch. As we mentioned, there’s not just one kind of store anymore. Pop-ups, retail distribution, and showrooms are just some of your options. The best choice for you will depend on your customer and how they like to shop.

  2. Next, it’s important to decide on what kind of experience and delivery promise you want to provide your customers. Once that promise is made, you have to uphold it or risk losing your customers' trust. Is your supply chain capable of two-day shipping? Can you handle omnichannel orders? All of these add value, but your logistics capabilities need to be taken into consideration when determining what you’ll offer.

  3. To that point, a flexible warehousing and logistics solution can help retailers and brands handle distribution across multiple channels far more efficiently than traditional methods. Warehouses and fulfillment centers can be popped up close to your customers and retail distribution sites, enabling shorter delivery times. This solution also allows retailers and brands to avoid being locked into lengthy contracts or incurring steep startup costs that can hinder innovation. Continuous improvement has become essential to retail success and it starts with your supply chain.

eCommerce and traditional retail stores are good for different things and provide complementary services to customers: eCommerce offers an ease-of-use and variety of options that retail stores can’t compete with, and storefronts offer the human interaction and experiential component that eCommerce lacks. A combination of both eCommerce and physical retail is the sweet-spot to meeting customers' differing needs and expectations.

By providing customers with unified online and physical retail channels, brands are able to give the best possible customer experience, and these days anything less won’t cut it.

Read the rest of our 2019 predictions in the "8 Retail and Logistics Predictions for 2019" whitepaper >>