3-2-1nsight: Rethinking Retail Real Estate
Why retailers are focusing on creating excuses to drive in store visits
Welcome to 3-2-1nsight from Marketing Sciences.
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Continuing with our retail series, today I expand on a previous newsletter regarding how DTC brands have started relying on pop-ups as we moved into Q4. Now we’re seeing certain brands take advantage of that shift and create brand new retail strategies rooted in concept stores and having multiple methods to buy. No longer tied to the need to drive in-store sales, retailers are now focused on giving consumers an excuse to meet outside, in their physical brick and mortar spaces, to encourage discovery, and the eventual sale. Retail continues to change, but so far the leading retailers remain one step ahead of consumer behavior and trends.
And as well, I feature a couple of great things I’ve read or started reading this week. And as always, download my 130 slide consumer research deck looking at the future consumer in 2021, It’s a ton of primary research, and you can download it for free.
3 Stories
Luxury brands like Gucci, Hermès and Balenciaga are opening stores in The Hamptons, Aspen and other suburbs and vacation hotspots - Washington Post
As the exodus of former city dwellers to the wealthy exurbs continues, luxury brands are following the trend. Using what they know about their customers from their eCommerce habits, they’ve been able to see faster than most cities where their consumers were congregating. Now, to ensure that they don’t lose relevance with their most prized customers to other brands or new DTC start-ups, these same luxury brands are finding themselves in areas like Detroit, Scottsdale, or Plano. Beyond just creating pop-up experiences in luxury vacation enclaves like the Hamptons, luxury brands are taking advantage of the favorable leases. With these new leases, they’re testing their brand halo’s strength to generate buzz and upmarket their offerings, taking advantage of the opportunity to build more brand equity with the newly and permanently wealthy.
Why America Fell Out of Love With the Pedestrian Mall - Bloomberg
As consumer shopping behaviors continue to change, it’s essential to look at the past success of the pedestrian mall. Many apparent differences exist between the pedestrian malls of the past and the malls of today. But many of those past successes still apply today, and retailers look to use their real estate portfolio better today. The big difference is like what we’re seeing happen today, these brands and location’s inability to adapt to the shifting changes and needs of the consumer. While city planners everywhere (I can say that as I used to be one) constantly talk about open streets or urbanism, many cannot see that poor urban design did not kill these past urban planning successes. Instead, it was the city planner’s ignorance to see how consumers’ behaviors were changing and adapting to that need, rather than getting caught up by the businesses and banks making urban design decisions for them.
Shoppers returning to their earlier pandemic behaviors, research finds - Retail Dive
Last week President Biden laid out a plan to help get America back to “normal” by addressing many critical problems with past pandemic policies. But with the wave of delta and fears of the next wave, consumers are finding themselves going back to their early pandemic habits rather than returning to their old habits. Even though the new plan from President Biden should reassure consumers, many choose to remain cautious and shop online more. 60% say that they will use a mix of online and in-person shopping for the holidays, which will be great for omnichannel retailers like Target and Walmart. 24% have said they plan to shop entirely online, leaving the remaining 13% to shop only in-store. Let’s hope they go to a store that has employees to help them, or they’ll most likely rely on Amazon, Target, Walmart, or any of those other retailers that used the pandemic to turn into an omnichannel powerhouse. As they say, the rich just get richer, but now we can add that the rich also get the employees to maintain their level of service.
Takeaways
Retailers are rethinking the use and experience of their real estate.
As the pandemic continues to delay the return to the office for many businesses, many retailers are finding themselves sitting on expensive prime real estate that they cannot fill with either customers or workers. And with so many cities and developers seeking retailers to fill smaller abandoned storefronts and leases, many are much more willing to negotiate with retailers with more favorable terms to fill these smaller locations. Recognizing this opportunity, retailers of all sizes are focusing on opening more stores in smaller sites rather than sizeable centralized statement locations. With a smaller footprint that spreads their reach, retailers benefit from having more access to more employees. They also can have an easier time hiring. With the holidays coming and every significant retailer already prioritizing hiring for Q4, retailers need to have more compelling reasons employees should pick them over a direct or indirect competitor. Retailers are converting their once large premier stores into smaller concept stores spread across an area that doesn’t prioritize shopping but the shopping experience. With a more diverse labor force, concept stores also become a more compelling reason for potential employees. They’re no longer as focused on driving or facilitating a sale but enhancing the shopping experience. Focusing on the experience rather than the sale allows potential employees to use their diverse backgrounds or interests as assets. By expanding their reach across a region, retailers extend and reinforce their brand halo instead of focusing on one centralized premier location.
Retail is expanding its real estate footprint closer to buyers.
Since the dawn of time, the most desirable assets of any potential retail location were its proximity to youth and the ability to get that youth to assemble at that location, creating a density of customers and excitement. Youth and density have always been the most important considerations for anyone building a new retail site, mall, or gentrification effort. So many HENRYs and wealthy millennials, who saw their incomes rise during the pandemic, made the ultimate move to the wealthy exurbs of their region. Once known as vacation towns or getaway locations, they became permanent residences for so many affluent millennials. Seeing this trend, we’re seeing retailers mimic the same move, expanding their footprint in these same wealthy exurbs. As the living situation for HENRY’s and wealthy millennials caused by the pandemic continues to shift behavior, brands recognize the importance of having an outpost near their next best customer to maintain the status of their brand halo. Over the past year, many retailers saw firsthand the importance of owning the sale and customer relationship.
1nsight
With the permanent shift to eCommerce and omnichannel due to the pandemic, most retailers do not need stores to drive sales or transactions but demand and discovery. Consumers seek excuses to go out again.
Omnichannel experiences and eCommerce efforts have helped differentiate the winners and losers in the retail space. Companies that could transition to driving brick and mortar sales into eCommerce sales fared the best early on during the pandemic. Then of those companies, the ones that could improve shopping efficiency and logistical obstacles through omnichannel strategies saw their share value soar to unseen heights. The pandemic accelerated many of these already underway trends, except those with the deep enough pockets and early enough insight on those trends adapted their businesses and prioritized tasks that made their 2025 plans a reality in 2021.
Now that shopping has never been easier, many retailers are moving on to their next problem, helping consumers discover what to buy. In the past, retailers were so focused on closing the sale by highlighting promotions or deals to facilitate the sale that they paid less attention to the entire buying journey. Using promotions or discounts to close a sale is still very effective. But the best retailers understand that if they focus earlier in the customer journey to convince the customer that they don’t just want their product but need it and can’t live without it, they can close the sale without a promotion or discount. And for customers that need a promotion or discount, the business knows with complete confidence that they can facilitate an immediate sale. Add that to the fact that every brand now has a robust CRM system. They can create specialized incentives and promotions that drive a sale more quickly and efficiently than ever before. In the past, loyalty programs existed to move discounts and promotions. Now the best-in-class loyalty programs offer everything besides sales to their consumers, and they can still see a 3x greater frequency and typically 30% higher AOV.
When we look at retailers like Nordstrom transform their premier location into a giant concept store and other retailers signing up leases across the country in wealthy exurbs to launch concept stores, we know that a change has happened. Rather than focusing on their brand, these brands now focus on the customer experience to motivate their customers, improve discovery, and create a lasting relationship. While many customers still go-to retailers for the sole reason to buy something, many wealthy customers won’t find themselves willing to risk going out into the world to do something that they can already conveniently do online. But if a brand can offer a unique real-life experience, that’s the excuse that can drive even the most cautious customer out and get them into a store.
The gap is widening between retailers trying to adjust and adapt to these new consumer behaviors and the retailers that have already adapted their business model. The leading brands and retailers share one thing in common, pandemic or not. They’ve always been the best at creating an excuse for their customers to purchase. Now they’re focused on giving their customers an excuse to discover, which may prove to be more profitable in the end.
My Readlist: Things I’m Consuming Across the Web
The Hollywood Reporter has a scoop about how Will Smith and Jada Pinkett Smith’s media company is a potential target for Kevin Mayer and Tom Staggs. They just bought Reese Witherspoon’s media company for $900M.
The NYT book critic Dwight Garner writes this great profile on one of my favorite new crime authors, S.A Cosby or better known as Shawn (read the interview to get this).
Finally, a great profile from Amy X Wang for Rolling Stone is about Clive Davis, who at 89 is still not ready to retire and has his eyes set on a more incredible prize.