Welcome to 3-2-1nsight from Marketing Sciences.
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This week we’ll focus more specifically on retail. As the grand reopening continues to progress, and the Holidays are just around the corner, we’re seeing retail businesses everywhere navigate this new normal for the first time. A changing digital landscape, unknown lockdowns, looming vaccination protocols, transitory inflation, random port closures, and the list just goes on. Today, I’ll discuss how pop-ups are being utilized by modern brands to combat some of those known unknowns, but more importantly how physical space is being rethought of by all businesses. Next newsletter I’ll discuss how larger businesses are rethinking the entire big-box physical retail space.
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
Gen-Z favorite underwear brand Parade opens first pop-up – Glossy
As Zuck tries to sell the rest of the world on VR workspaces so that you can see, Jan is still responding to emails while booking tickets for her vacation while attending stand-up. Leading DTC brands have been trying to figure out what their new physical experience will look and feel like, particularly for younger consumers. Like Goodr and Glossy, Parade creates a physical space that has more in common with TikTok and Instagram, including the perfect areas to record selfies or videos. These pop-ups prioritize creating bespoke experiences for their consumers and hope to establish deeper loyalty amongst their customers, but take advantage of society’s new excitement for going out again, knowing full well that most individuals will continue with their eCommerce habit than adjusting back to their old buying behaviors.
Party City to open four times more Halloween pop-ups as in 2020 - Retail Dive
Even established brands recognize the importance of utilizing temporary spaces, especially spaces in key areas they know competitors will overload their consumers with ads. The pandemic did two things for most businesses, forced them to create a digital plan and closed underperforming stores and offices. As the grand re-opening continues to progress, many retail companies know that using pop-ups to target popular areas is a far more effective use of ad dollars to win consumers. By focusing on pop-ups, these established businesses with brick and mortar expertise will better operate the pop-ups while also expanding their reach to market to potential customers that may have gotten too expensive for a pure ad-only approach.
Kohl's (KSS) Q2 2021 earnings beat estimates, guidance is boosted - CNBC
As consumers still crave physical experience despite the rising Delta infection rate, established retailers do whatever they can to increase their foot traffic to take advantage of this temporary bump. For many, that means utilizing a store-in-store strategy attracting customers of those brands and hoping that they’d also be willing to transact with some of the products offered in their store. For Kohl’s, this strategy has so far worked; as we see Target have Ulta and Disney store-in-store experience, we’ll determine if this strategy can scale.
2 Takeaways
Businesses want to take advantage of in-person foot traffic before its too late
Q2, for many brick and mortar or in-person businesses, saw a positive trend and uptick in individuals looking to participate in the grand reopening. That trend encouraged many brick-and-mortar businesses to take advantage of consumers’ desire for in-person experiences. As Q3 closes, given the success of brick and mortar stores in Q2, many natively digital brands are looking to jump on this trend and launch their own in-person experiences before it’s too late. Given that many schools across the country (especially in Florida, Mississippi, Louisiana), and other worrying trends that lockdowns are on the horizon, previously digital-only experiences are looking to launch their physical experiences. The delta variant proves to be an issue of concern as three senators last week tested positive for COVID despite being fully vaccinated. Yet, despite the recent news of the pandemic re-surging across America, Hot Vax Summer is still in full effect, as so many consumers are looking to enjoy communal experiences. Even established brick-and-mortar chains rely on pop-ups to extend their reach, give themselves more flexibility, and take advantage of the unique community-aspects to activate new customers or reactivate old customers that moved to recent locations.
Poor retail businesses are relying on DTC to increase foot traffic
The department store apocalypse is a well-worn tale. Since 2011, when JC Penny poached Ron Johnson from Apple, many journalists wrote about the impending doom of all department stores. Ron Johnson displayed firsthand how hard it was to take a traditional department store and make it relevant in the digital age. In 2020, many iconic department stores continued shuttering their doors as the pandemic closed most of the country. The stock of those publicly traded companies took a beating. Still, as the economy recovers, the modern brands responsible for the demise of department stores realized that their once adversaries may now be their greatest ally. New omnichannel retailers need to operate three businesses, a physical one, a digital one, and an integrated one (being a master in either is tough, being a master at all three is a massive investment). The tradeoffs leading omnichannel businesses need to make are massive. As many department stores await their eventual doom, modern omnichannel businesses are looking to take advantage of their predicament. Traditional department stores have a near-impossible task of attracting the talent and leadership to excel in digital and retain their legacy and expertise in running and operating physical spaces. Newer retailers and businesses typically have great customer relationships and a powerful ability to activate their consumers across digital, which means a partnership between the two makes sense.
1nsight
As eCommerce hits a plateau, digital and omnichannel businesses are using pop-ups to diversify their advertising.
The other significant trend besides higher foot traffic in Q2 for most retail businesses was the rising cost of CPMs across the board. As Apple makes it harder for Facebook and other online ad platforms to target users, the brands that were once overly reliant on paid advertising have discovered that it was necessary to prioritize diversifying their advertising. As many new and established brands used the traditional DTC growth playbook to inflate their growth prospects with unsustainable media spending, first movers realized these tactics were a race to the bottom. The pandemic only exacerbated this trend, as more businesses suddenly needed an online presence and strategy to transact with customers, further pushing up the prices.
Loyalty programs, email strategies, and influencers were all popular buzzwords and considered viable alternatives to Facebook advertising, but those were more or less the same. Instead, the smart brands recognized the need to differentiate and often realized that spending the same amount on digital ads and hoping that specific digital interactions would drive loyalty was often more expensive than creating physical space. In high-traffic areas, businesses can more quickly move a consumer down the funnel by allowing them to interact with the brand and products in real life and when everyone is craving physical touch.
Pop-ups for many of these brands are the perfect solution as it allows online businesses not to build out internal expertise of brick and mortar. But it gives these brands an easy way to gain relevance in their most popular regions without needing to sign cumbersome leases. Instead, a thoughtful pop-up in the right location allows the brand to quickly and easily communicate with their most desired audiences while building greater brand loyalty and support from their most attractive places. A pop-up shop in the right location, partnered with the right businesses, with the right interior design, can not just become a brand shrine but become a lighthouse of trust and legitimacy amongst an ever-growing and crowded field of online retailers.
Likewise, as effective as pop-ups are, partnering with former foes and creating temporary but lucrative partnerships with a shop-in-shop strategy can be even more effective for established omnichannel brands. While employing a shop-in-shop strategy makes sense for older and more established brands, it can sometimes be a very costly and ineffective tactic. But for the right brand, like Sephora or Ulta, the businesses have an established customer base looking for more opportunities to interact with the brand. For the shop-in-shop strategy to work, the host business is typically looking for certain kinds of shoppers that they’re ineffective at targeting online. Kohl’s tactic to get the shine from Sephora’s brand halo isn’t to just sell more beauty products but to reach the desired younger audience.
Considering that Parade, Goodr, and other DTC brands are creating hang-out lounges that mimic Instagram in real life by curating products to the optimized selfie locations, these brands use their pop-ups to build a relationship with their younger customers. But as the Delta variant continues to ravage the country, closing up certain parts of the nation, businesses will need to hope that any investment they made in physical will last, as we continue to move forward in a brave new economy.
Playlist
Here is a list of a few of the things I’m currently reading:
Ian Vanagas wrote a splendid piece that uses tennis as a metaphor for getting better, with the piece entitled Every Point Matters.
Freya Rohn, who has a great Substack, writes an interesting history of vaccines and looking at who actually introduced them to our modern society, and how that history for many is actually unknown.
Carina Chocano, from Elle, writes about how Selena Gomez disappeared from the internet but is ready for her comeback.