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The evolving role of the physical store

With consumer expectations across multichannel never higher, retailers are increasingly innovating with the role of the store to keep it relevant for changing customer behaviour. This article takes a look at some examples.

​The current situation

Physical retailing has changed radically. Consumer spend is increasingly moving online and into leisure. Many retailers have struggled to keep up, with high street names falling into bankruptcy or restructuring. However, some retailers are successfully adapting.

In our opinion, the role of the physical store is far from obsolete. Retailers are being more creative with how they use their physical space to meet consumer demand - in terms of fulfilment and customer experience. In this article we take a look at how some major retailers are re-shaping the role of the physical store, from a customer experience perspective.

Online players moving offline

2017 saw the slowest rate of annual growth in retail sales, as a whole, since 2013 (retail sales vol. +1.9%), whilst online sales of non-food items have sky-rocketed over the past five years - from 11.6% of the total market in December 2012 to 24.1% in December 2017. However recent trends suggest that physical retail still has a future. Over the past few years many major online pureplay retailers have been testing the use of physical stores for the first time. In the following examples we see how retailers see physical space as an opportunity for further expansion, as a “showroom” or to test the market.

Case study: Amazon

Amazon clearly sees strong value in experimenting with the role of the physical store. Amazon’s acquisition of Whole Foods last year provided the online giant with its first physical store footprint in the US. This was an opportunity to expand, grow visibility and improve brand perception in the grocery sector - a market where online penetration is still low.

The first Amazon Go store also opened in January and there are plans for further expansion across the US. In Amazon Go, there is no physical paying process. Customers take what they need whilst their bill is auto-tallied and paid. This revolutionises consumer convenience and provides Amazon with further recognition in the tech space.

Case study: Made.com

The “showrooming” trend of the last few years has seen many online pureplay retailers, such as Made.com and Loaf, using physical space as a “curation” of the brand. Space is used in an economised manner, with a select number of outlets or a single flagship store being used predominantly as “guide shops” or viewing spaces.

Made.com launched their first physical store in 2012 after two years of booming online sales. In order to optimise their relatively small store space, they have a selection of furniture on display but also fabric samples, miniature 3D-printed models, and QR codes to obtain more details about particular products. Products and store fit-out can be rotated fast and prompt the customer with the brand through a sensory, tactile experience alongside in-store employee expertise. Indeed buying furniture is largely a physical experience; consumers are getting more comfortable with online purchases but physicality symbiotically drives sales in this space. Research shows that e-commerce retailers opening showroom stores have seen an increase in sales of up to eight times.

Case study: Birchbox

Birchbox, a beauty subscription service through which subscribers receive a monthly box full of beauty products, launched its first standalone pop-up store in the UK at the end of last year. The space in Soho featured 100 of Birchbox’s best-selling items with Birchbox specialists present to assist customers in putting together their own beauty box. The pop-up served as a marketing campaign to grow visibility and brand awareness. A spokesman told Campaign: “The pop-up was always meant to be temporary but will help us to explore future plans for our continued growth in the UK”.

The store as an experience

Alongside a highly challenging retail environment, consumer spend on leisure activities has grown steadily in recent years - the leisure sector doubled in size between 2011 and 2016 and growth continued in 2017. Responding to this trend, bricks and mortar retailers are creating stores which are experiential destinations in their own right and which serve to market the brand. The following case studies show how retailers use personalised, educative or unique experiences to engage customers.

Case study: Nike

Nike has introduced a Basketball Trial Zone in Beijing and New York, which spans a half court and features an adjustable hoop and digital video screen. Customers can partake in nine-minute drills and, with the help of an on-site trained athlete, can understand the benefits of playing in particular Nike shoes. After trying out multiple pairs, they can use the Nike+ app integration to save their preferences for later purchase. Alternatively, they can use the instant personalisation studio to design and create their own pair. This personalised experience creates key customer engagement and builds the brand’s reputation invaluably. It also allows Nike to collect key customer data.

Case study: STORY

The concept: ‘STORY is a space that has the point of view of a magazine, changes like a gallery and sells things like a store’.

The US retail store STORY refits its store every three to eight weeks. They experiment with different trends and themes and change their merchandise accordingly. During one of their more successful refits, ‘Beauty’, certain products could be acquired for ‘social currency’ (e.g. by tweeting or taking a photo), generating more than 100 million social media impressions. The idea of ephemeral retail attracts young shoppers and the constant elements of surprise and change maintain their engagement.

Case study: John Lewis

Department stores in particular have been hit hard by consumer spend moving online and are having to work hard to differentiate themselves. John Lewis’ new department store opened in March in White City and aims to be a destination for leisure and educational activities. There are classes on anything from calligraphy, to how to create a ‘smart’ home, to mother-baby yoga, and many other services such as express manicures, food demonstrations and interior customisation such as a ‘design your own rug’ studio. A personal fashion styling service which can text you updates on new items you might like, is a further example of the personalised services on offer. The White City store is a space which John Lewis can use to interact and build a meaningful and lasting relationship with the customer.

Case study: Westfield

The future of shopping centres is set to change immensely. In June, Westfield released their vision for a new shopping centre ‘Destination 2028’, describing it as a ‘hyper-connected micro-city’. The vision is a huge community hub bringing together dining, entertainment and experience, alongside new technologies. Here leisure and entertainment will play a central role in driving footfall with spaces for live music events, fashion shows, food festivals and art exhibitions. Education and well-being will also play an important role with interactive activities, workshops and classes, green spaces and reading rooms. There will be allotments and farms where visitors can pick their own produce for a meal and a network of waterways for water sport activities and as an additional way to get around the centre. All will be driven by new technologies such as virtual reality mirrors and changing rooms, smart loos and screens which can detect one’s hydration and nutritional needs and eye scanners recalling information on a visitor’s previous purchases.

The store facilitates purchase

Retailers today are using technology in-store to facilitate the customer journey to purchase. This is pulling customers into the store for the sake of their own convenience. The store can aid different stages of the journey such as the research, purchase and collection. Examples of facilitating the customer journey could be optimising store collection options or improving the customer’s product experience through innovative displays or virtual reality mirrors. The physical space must complement online presence and add a unique element in terms of convenience, to drive online sales and vice versa, with a seamless integration of the two.

Case study: Swarovski

Some luxury brands have taken to tactics like virtual reality experiences in-store to give customers a smoother, easier browsing and transaction experience. Swarovski and Mastercard partnered in September 2017 to launch a virtual reality shopping app used in-store for the Swarovski home décor line. The headset immerses consumers in a home environment, where they can learn about each piece, read through reviews and descriptions and then simply focus their gaze on the Masterpass button to buy the item.

Case study: Nike

Similarly, Nike’s acquisition of tech start-up Invertex in April is a step they are taking towards a more personalised and convenient in-store experience. Invertex software uses AI and 3D imaging to scan a user’s feet and instantly sends recommendations to their mobile with the most suitable models and size of footwear for their feet.

Case study: Zara

Zara seeks to increase the convenience of online shopping in London stores by using robots in their Westfield Stratford store to speed up the Click and Collect service. The service was first trialled across their 85 US stores in an attempt to alleviate queues of customers, since as much as a third of online sales are picked up from store. Customers scan or enter a collection code when they enter the store and a robot behind the scenes fetches the parcel and delivers it into a drop-box for pick up. This has created a much quicker and smoother process.

Conclusion

Customers still value physical stores, with 70% of customers saying that they enjoy the full experience of shopping in-store, especially for expensive purchases, and 62% still prefer to try on clothes to get a look and feel. Besides, the store will remain a place for instant gratification, more so than online. Retail as an experience will continue to grow, with supermalls of the future offering a whole range of activities. There will be an excess of retail space as high street closures continue, and a more discerning consumer will expect stores to offer extra convenience and a highly engaging experience.

For retailers to keep their physical space relevant and evolving, a lot of investment is required in challenging times and not every solution will be profitable. It will likely take time to provide a return on investment, which means there are big risks. However not investing, means getting left behind.

Deep analysis of customer data and behaviour to understand who the customer is, what they want and what technology they are using is key. This will answer where investment should be prioritised. Implementation of new technology, experiences, products and store format can then be driven with confidence, and real change can be made to provide the best omnichannel customer experience and create long-lasting customer loyalty. Increased tech integration in-store will provide further access to customer data, which can feed a constant cycle of learning and improvement to meet consumer demand on and offline.

By Izzy Findlay, analyst at EI | Stone & River, with additional content from Lucy Orr-Ewing

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