Stores are closing but they’re still needed. With retail’s shift towards experience and online sales comes retail’s new responsibility to improve customer service, knowledge, and product curation. There are still mysteries facing our industry, but I’d like to share with you what I’ve learned.
Online retail is a growing threat to the physical store, and we’re continuing to see stores closing. However this doesn’t mean that physical stores are no longer necessary. It simply changes the definition of what stores should be. If you’re in retail, and you don't have a store, there are certain kinds of products that will not sell as well as others. An example of this is the glasses company Warby Parker - one of the first to try online retail exclusively. After a while they realized that people wanted to physically try on their glasses, so they started opening stores, and it's going really well for them - because their online and physical components work as a whole. Up until a couple of years ago, people perceived two separate channels through which they could purchase from companies. It was either online or in a physical location; and the online business was competing with the physical location. This doesn't exist anymore. Retail requires an every-channel strategy. We now have several channels that must work together in order to make a sale. There’s the online channels; through websites, social media, ads, and email newsletters - and there’s also the physical: word of mouth and a showroom or a store. If a salesperson is selling an item, they’re not selling it in competition with the online anymore. The customer can find out about a brand’s products on Instagram, and then they might go to the store to buy it. Or - maybe they go home after seeing the physical product, and decide to purchase then. Maybe they then visit the website. Maybe they talk to friends online or in person and then they make the purchase. It’s no longer a fixed process; in-store purchases are no longer a certainty, and the customer has a choice. This begs the question: which channel is the one who pushed the sale? The answer: all of them!
Sales goals: should they change?
Because all channels work together now, retail managers and employers should teach their employees that their primary goal is not to make the sale while the customer is in the store. As we live in the age of information, today’s customers want salespeople to be highly knowledgeable. They need salespeople to give them all the information they need and to make them feel comfortable. Then the customer can go home, think about the product, and make the purchase another time. How do we reward these highly knowledgeable retail employees? Up until now, they’ve primarily worked on percentage. So if they make the sale, at the end of the day or the month, they are rewarded for the specific sales they made in-store. In a reality where the sale might happen online or somewhere else, it is uncertain which employee was the influence behind a particular sale. A solution to this could be that employees benefit from a share of equity in the company.
Warehouses might be on their way out. As I’ve discussed in my previous article (Why most retail stores are destined to fail), customers today are after experience. Thousands of products lining the walls of a huge fluorescent-lit space are not the keys to the personable, warm, human-focused environment that customers now want. Also, because customers like to be well-informed before purchasing a product, it is often the case that they’ve already researched the product they’re interested in before visiting a warehouse. They’ve made their purchasing decision and don't want to talk to salespeople about the product or alternatives in-store. As a result of this and the sheer number of products warehouse companies sell, the salespeople are unlikely to have that specific knowledge that a customer expects. They’re less informed than their customer. What is great about warehouses is the certainty that you will find the particular product you’re after, thanks to the huge selection. The warehouse-type store should really have everything. You should be able to walk in knowing "okay, I'm going to get that product", even if you are not going to rely on the expertise of the people working there. However, now that we have the internet - online stores like Amazon fulfill the need for this specific consumer much easier. Amazon is the new warehouse store. An example of this is Barnes and Noble. When I moved to New York 15 years ago, there was a Barnes and Noble on every street corner. Now, it seems that there are only one or two left. If I go there looking for a book I need right away, they never have it. I always end up going on Amazon, wait two days and get it, for a cheaper price, at home.
Smaller stores that have a more boutique feel and sell a smaller range of products than a typical warehouse retailer are the new winners of retail. If you’re in retail and you’re a small store, it would be beneficial to specialize on a specific product, or narrow range. Become extremely knowledgeable in that category and only sell that; so that when people come to your store, you know what to tell the customer. You’ve curated the selection, and have a knowledge of the product that can’t be easily found online. You’ve found your niche. You could be the rock-and-roll leather jacket store - and you know everything about your products. You know all the history from 50's until today of rock-and-roll leather jackets. A customer comes in to see what you have on display, and really wants to talk to you, because you are the one who knows all about this field. Good retail destinations are becoming more like museums, where going to a store is a much more educational and engaging experience. The salesperson should be extremely knowledgeable, and they also take on an extra role as a curator. And if you’re selling a limited range of products, as suggested above, your store will be extremely curated. One of the first things that Steve Jobs did when he returned to Apple in 1997 was to remove most of their products, leaving just three or four - one entry-level computer, one desktop, one phone, one iPod. It was heavily curated, so they were only selling a limited amount of product, but Apple was so knowledgeable about it and scaled it. Additionally, having a more curated store with fewer products makes it not only easier for salespeople to be knowledgeable about what they’re selling, but also easier for customers in terms of choice.
At the same time, however, there are limitations to what can be sold successfully when taking this narrow or exclusive approach - price. Thriving in a business focused on selling inexpensive products is becoming increasingly difficult. Why? There’s no return. There is no economy of scale. You can have a small range of items and you might be able to pay for the store; but if you're selling inexpensive items then you’ll need a much bigger flow of merchandise - which is likely not to work. Another key reason that inexpensive is becoming increasingly infeasible is that you’ll be exposed to a high level of competition from the online-only retailers. Online sales are naturally dominant in the inexpensive category. Though it’s hard, it’s not impossible. If a client came to me with a proposal for an inexpensive business idea, I would probably suggest having a very small space so that they don't pay a fortune for rent, keeping the merchandise at the minimum and trying to find a location with high traffic. I would also recommend trying to attract a lot of people to their brand. It doesn't matter if the sale is happening online or in-store, as long as they are exposed to lots of customers. It can still be done, but you're not going to get a 1,000 or 2,000 square-feet space to sell cheap products. In city spaces, there’s enough expensive, luxurious, infrequent purchase, small-range curatorial items and businesses to actually take up that physical space.
Unfortunately, the trend we’re seeing is that stores are closing and not reopening. Landlords are probably asking too much for rent. There are certain areas in New York City where you need $1 million just as a deposit to sign the lease. Who can afford that? Once the big brands start to close, there's nobody else with the capacity for that amount of money. What you see now is often pop-up: people who can afford the high rents, but only for two or three months. They pay month to month and when the sales don't justify the rent, they just shut down; there's no investment at all. Or maybe stores are going somewhere else. Maybe they're not the high-traffic location that we’ve always considered as the ideal place; maybe they're going on the third floor of a building where you wouldn't expect to find a store. Here’s a tip: if you go above the ground floor anywhere in the world, it's generally a fraction of the rent you’d pay at street level! Tokyo has been doing this for many years already, especially in the restaurant business. Basically, the brand’s Instagram page is the storefront and the space becomes a destination but the online presence must be amazingly curated with several thousands of local followers. Customers are attracted to the store because of what they know about it and its online aesthetic. They’ll want to go there to experience the brand and its products with their other senses and good design will enhance the experience of these stores.
*** Sergio Mannino Studio is a New York based design firm envisioning unbelievable retail spaces, residential interiors, furniture and fashion for culture and retail environments. SM Studio applies its unique approach to create unique and engaging experiences.
Want to see more?