Can In-store ‘Experiences’ Save Retail?

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At the Rebecca Minkoff store in New York’s Soho, “smart” digital walls and mirrors let you tap for a different clothing size or color — as well as a free glass of champagne. At the Warby Parker store near Hollywood, you and your friends can create your own 15-second shareable video in a “green room” furnished with props and backdrops. At Jungle Jim’s International Market near Cincinnati, bizarre animatronic figures entertain you while you browse unusual gourmet foods. And at Pirch’s luxury home appliance stores, you can try out the appliances before buying them, including shower heads (just bring your own swimsuit.)

Other brick-and-mortar retailers offer cooking classes, celebrity appearances, personalized makeup advice, wine tastings: the list goes on and on. Much of this activity, of course, is intended to combat the juggernaut of online ordering via Amazon and other sites.

“The customer can get all of their clothing without ever leaving their bed,” says Stacey Bendet, CEO and creative director of designer clothing company Alice + Olivia. “So the experience in-store has to become more VIP, more exciting.”

But are these in-store “experiences” worth the effort and money that retailers are pouring into them?

“You can’t just [look at] … what’s the ROI on a certain thing in the store, like short-term, immediate impact,” says Denise Dahlhoff, research director at Wharton’s Jay H. Baker Retailing Center. While various measurements are possible — comparing test stores to control stores, measuring differences in amount of revenue or number of new customers — she recommends thinking bigger-picture. Store experiences should be considered holistically, “part of your branding and marketing in general.”

Barbara Kahn, a Wharton marketing professor and director of the Baker Retailing Center, cautions that not all in-store experiences are created equal. For example, simply installing a photo booth in your store probably isn’t enough to get people to come in and shop. Rather, retailers should “create something that’s of value … an experience that people would go out of their way to take part in. Not just incidental experiential trappings.”

She talks about “drop culture” as a successful example. Urban clothing brands such as Supreme create specially-timed launches — “drops” — of unique new apparel that actually draw crowds. The scenario is similar to people camping out outside an Apple store to get the newest iPhone. With Supreme’s drops, she says, you can only get that cool thing if you’re in the right place at the right time. The customer is essentially purchasing excitement, a crowd experience, a social experience in addition to the clothing itself.

Another experiential success, in Kahn’s view, is Eataly, a chain of Italian marketplaces that combines restaurants, grocery stores and cooking schools. It capitalizes on the appeal of Italian culture and sophistication. “It all works together like a little universe,” she says. “There’s a nice synergy there; you can taste the foods in the restaurant … you might then go to the grocery store to buy it so you can make it at home.”

Beauty products, too, lend themselves well to in-person experiences, says Kahn. She says makeup is about “trying on, learning, a little bit of instruction about … what will look good on me particularly; talking to other people.” Physical stores such as Sephora and Ulta are doing well as a result. While cosmetics are of course sold online, too, says Kahn, those transactions are missing that experiential, social piece.

“In this retail environment where everybody’s so focused on promotions and discounts, adding an experience … diverts your attention from the price.”–Denise Dahlhoff

Reasons to Create Excitement

Dahlhoff notes that successful in-store experiences, “because they often involve human interaction, and services, and unique kinds of things … create stickiness and loyalty.” And there are other benefits. For instance, customers engaged in an experience tend to think less about how much things cost. “In this retail environment where everybody’s so focused on promotions and discounts, and nobody buys at full price anymore, adding an experience … diverts your attention from the price,” she says.

Generating in-store excitement is also a way for a store whose offerings don’t change very much to keep customers interested, says Dahlhoff. She references J. Crew, which has held special themed weekends. On one weekend, customers learned how to create their own fresh flower bouquets. Another featured a career theme: Store associates gave advice on career-boosting outfits, and shoppers who spent over a certain amount received a premium LinkedIn account.

If someone has an interesting experience in a store, they may well share it on social media, Dahlhoff says. Wharton marketing professor David Bell agrees and considers this a key benefit of today’s in-store events. He comments that 20 years ago, if 100 people visited your store, maybe 10 of them would tell someone else about the experience. But today, “when you have a physical footprint somewhere, 100 people come and maybe 20,000 learn about it because whatever goes on in there can be amplified through digital.” Your audience has an audience, he says.

“The sales per square foot of someone like a Warby Parker, or an Away luggage … those folks are definitely doing very, very well from the offline retail,” adds Bell.

Less Buzz, More Data?

Wharton marketing professor Peter Fader isn’t quite as convinced of the value of in-store experiences. While acknowledging that they do have a role in the marketing mix, he notes that competing to create ever-more-stimulating retail environments could lead to an “arms race,” similar to the way online retailers have competed to reduce shipping costs and have basically trained customers to expect free shipping. What’s more, it’s easy for businesses to copy in-store event ideas from each other so they no longer serve as differentiators.

Moreover, efforts to create dynamic in-store experiences don’t necessarily insulate retailers from the problems currently plaguing the industry – for example, J. Crew has struggled with debt woes and the recent departures of longtime CEO Mickey Drexler and creative director Jenna Lyons amid declining sales.

Plus, Fader says, with many of the things we shop for, we’re not really looking for a fun and engaging experiences. If you’re just buying underwear or a dish drainer, you probably want to get in and out as quickly as possible. Of the Rebecca Minkoff store experience, he comments, “As if that is going to break them away from the pack. As if that is going to keep people from going to Amazon: ‘Oh, I can get champagne.’”

“The sales per square foot of someone like a Warby Parker, or an Away luggage … those folks are definitely doing very, very well from the offline retail.”–David Bell

In fact, he characterizes many of the initiatives that brick-and-mortar retailers engage in — at a time when many companies are forced to close their doors — as merely “rearranging deck chairs on the Titanic.”

For Fader, a better strategy for retailers is to focus on data and analytics: to understand their customers’ lifetime value and find ways to make the in-store experience better for individuals who are more valuable to the business. Essentially, the idea is to treat different shoppers differently and solve important customers’ pain points on the spot, rather than trying to “wow” everyone en masse. “Someone walks into your store and you should know right away, through a mobile app or some kind of status indicator, whether they’re worth lavishing attention on or not.”

But in his experience, retailers are resistant to the idea, unlike their colleagues in industries such as banking, packaged goods, gaming and pharmaceuticals. “I build a lot of these predictive models and teach a variety of companies how to build appropriate strategies around them. And there might be no sector … less willing to embrace it than retailers.” He says that as a group, retailers are risk-averse, afraid of data, and too set in their ways — and he believes they are making a mistake.

“A magic [dressing room] mirror, anyone can have,” says Fader. “But a deep understanding of your customers … you just can’t buy that.”

Online-offline Retail Hybrids

Tying together their online and offline operations – seamlessly — is a goal for many retailers, according to the experts. And it’s evident that online and offline retailers each recognize the value of each other’s business. Bell points out that digital native Amazon recently bought Whole Foods, and brick-and-mortar king Walmart has been buying up a spate of small online companies.

Bell notes that the jewelry, fashion apparel, and home goods sectors have had good success with the “buy online, pick up in store” model. When the customer visits the store to pick up, they may start browsing other merchandise, too. Kahn describes another big benefit of this model: it’s cheaper for the retailer. “The most expensive part of delivery is the last mile to the house. If you can get the customer to go into the store and pick it up instead of having it trucked to you, that reduces costs.”

“A magic [dressing room] mirror, anyone can have. But a deep understanding of your customers … you just can’t buy that.”–Peter Fader

Alice + Olivia’s Bendet notes that over the past few years, a major focus and challenge for her business has been integrating wholesale, retail and e-commerce “to create a more seamless shopping experience” and to build back-end technology for her company’s future. “I think the best experience is a hybrid one,” she says.

Bell believes that brick-and-mortar retail’s future lies in developing a white-hot focus on customer service and divesting itself from carrying inventory. “What’s wrong with a traditional store in my view is that you’re trying to accomplish too many things. You’re trying to hold inventory, which is a real pain the neck, [dealing with] how many blue blazers you need to have on the floor and how many in the back…. Trying to provide excellent service and manage inventory all at once is completely inefficient.”

He foresees physical stores which showcase only a few key items and offer personalized customer interactions. Purchases are then completed online and the items are shipped to the customer.

He says a similar model can be seen at the online men’s fashion retailer Bonobos (one of the companies recently purchased by Walmart), which runs physical stores called Bonobos Guide Shops. A customer makes a reservation to meet with an associate, who shares style pointers and personalized recommendations. The store holds a limited amount of stock, but has swatches of all the colors available. The shopper makes his purchase on an iPad, and the items are shipped to him the next day. “Separating out the inventory holding from the experience is doing what a store’s really good at, which is giving someone potentially a great experience with the brand,” Bell notes.

Bendet echoes this type of approach to the physical store: “Our salespeople are trained to be stylists, creating a more exclusive and personalized shopping experience.”

Whatever form the experts project physical stores would take in the future, none predict they would disappear entirely. Kahn, while stating that the U.S. is “over-stored” and that many stores are closing or being turned into distribution centers, says, “People do have a need for enjoying their day, for something that’s fun to do.”

She compares in-person shopping to going to the movies — something that pundits were predicting “forever and ever” would go away. “Some people want to go out on a Friday night. They want to do something; they don’t want to hang out in their house the whole time.”

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