The emergence of digital shopping channels has forced retailers to rethink the purpose and format of their physical stores. Most importantly, the rise of online shopping has transformed the store from an obligation to a choice; while the store was one of the only places to access goods and services 15 years ago, it is today one of many.
Though store strategies will and should vary significantly by retail category and brand, there are three major trends of adaptation across the sector. These three strategies, outlined below, are forming a critical part of retailers’ wider omnichannel growth strategies.
Focusing on in-store experience
As the physical store shifts from an obligation to a choice, retailers are creating distinct customer experiences to drive brick-and-mortar traffic. From offering in-store services like yoga classes to a rising focus on distinct architecture and design, investment in in-store experience is occurring across all retail categories. Clicks-to-bricks players have been especially adept at providing experience. For example, Trunk Club, which started as an e-tailer, offers “clubhouses” complete with bars and personal shoppers who bring out items for customers to try on in semi-private “living rooms.” Even in the grocery category, where e-commerce penetration has been low relative to other categories, major brands are proactively looking at ways to drive in-store experience through restaurants and bars. Spanish retailer El Corte Ingles has dedicated entire floors in its flagship to a uniquely branded “Gourmet Experience,” where offerings include high-end spirits and wines, luxury candies, international products and dine-in counters. Saks Fifth Avenue also integrated an 18,000-sq.-ft. luxury food hall into its Miami location, featuring restaurants and a marketplace. This trend is not limited to high-end department stores; apparel retailers like Frank + Oak offer craft coffee and a barbershop in-store, and Capital One is rolling out its large-format Capital One Café concept, providing drinks and financial services.
Leveraging stores for distribution
Brick-and-mortar stores have an advantage in last-mile logistics in that they are closer to where people live than the industrial warehouses that serve the distribution needs of e-tailers. Leveraging stores to help fulfill online demand allows retailers to service consumers faster and at lower cost. Many retailers, including major chains like Best Buy, JCPenney and Target, have already leveraged their locations for in-store pickup and returns.
Brands with large store footprints have a distinct advantage in reaching a wider customer base more efficiently. Even so, many large chains are either acquiring or partnering with third-party delivery services to help leverage store networks for last-mile fulfillment. In late 2017, Target announced plans to acquire Shipt, a startup that focuses on flat-rate grocery delivery, for $550 million. Ikea also announced its purchase of Task Rabbit, which some speculate could be leveraged for on-demand delivery.
Diversifying store formats
The impact of e-commerce varies greatly by location (urban vs. suburban, for example) and even by time of year (holiday vs. summer), forcing retailers to find more agile solutions to their brick-and-mortar strategies. One way that retailers are adapting is by diversifying store formats, sizes and features by location. Suburban big-box chains like Target have introduced urban or “flexible-format” concepts that extend their reach into affluent urban markets. Traditional mall anchor Nordstrom also launched its “Nordstrom Local” concept that mostly offers services like freshly squeezed juices, manicures and tailoring services, rather than merchandise. Temporary pop-ups are another format retailers are integrating into their more established real estate footprints to test products and markets with minimal financial commitment.
Though many suggest that retailers are downsizing their store portfolios in response to e-commerce growth, the evidence suggests retailers are instead investing in right-sizing their portfolios, adapting usage, design and formats to best serve the new omnichannel consumer.