What’s with all the recent talk of a retail renaissance?
The exodus from brick-and-mortar to online stores isn’t a new phenomenon—in-store shopping has been embattled for years. But the pandemic has upped the ante. Now that more consumers have gotten a taste of online shopping, and online channels have become more efficient at fulfilling orders (and gained consumers’ trust in the process), the pressure is on. Online shopping now accounts for 14% of all retail sales in the U.S., 20% in Germany, 30% in the UK, and 50% in China.
Are department stores doomed to become online fulfillment centers?
Are all shopping malls destined to be transformed into logistics facilities, or roamed by zombies like in George Romero’s Dawn of the Dead?
Not by any stretch.
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Yes, the shopping experience has changed forever, and innovations by online retailers will continue to drive change for the foreseeable future, but brick-and-mortar retailers still have a big advantage over their online counterparts: They meet their customers face-to-face. For shoppers in a physical store, the experience is more immediate (they get to leave with the product), more tactile (they get to touch the product), and more malleable (after all, the storekeeper is an influencer too).
That doesn’t mean, however, that physical retailers should be complacent. Roughly one in every 10 stores will close over the next five years, according to UBS. Coresight Research estimates that 25% of America’s shopping malls will close in the same time span. Some retail categories (like office supplies) will be decimated.
Thankfully, two key retail trends are hitting Main Street at exactly the right time.
The retail store as a DTC outpost
The first key development driving today’s retail renaissance comes from the direct-to-consumer (DTC) space.
DTC brands enjoy a relationship with their customers that’s unencumbered by intermediate channels like marketplaces, middlemen, brick-and-mortar stores, or third-party retailers. This translates into better margins, more streamlined supply chains, and robust CRM databases.
But getting the word out can be expensive. Chewy and Peloton each spend more than $400 million a year in marketing and advertising.
More than 80% of all retail shopping still happens offline, according to the National Retail Federation (NRF), and having a retail outpost in the right location can have a substantial impact on a brand’s website sales. A couple of years ago, the International Council of Shopping Centers (ICSC) measured that opening a new store had an average ‘halo effect’ of 37% on a brand’s website traffic.
Some top DTC brands are launching standalone retail stores to showcase their products and take advantage of that cross-channel dynamic.
Those stores may not have much inventory, but they catch the shopper’s eye and start the conversation.
Good examples are Allbirds, Warby Parker, or Bonobos. After testing the waters with a pop-up space in Covent Garden that served 100,000 visitors in just 10 weeks (and garnered record sales), skincare darling Glossier just launched a permanent store in London—its first flagship store outside the U.S.
This development isn’t going unnoticed by traditional brands and retailers. Unilever was one of the first consumer goods companies to blur the line when it acquired Dollar Shave Club in 2016 and made its products available at partner retailers, and it certainly won’t be the last. According to a recent WARC survey, 80% of global brand marketers today plan to support or increase their DTC activity in 2021.
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As the NRF reminds its member companies, “All shopping is retail—online, in-store and everything in between. Nine of the top 10 e-commerce websites are run by retailers that also operate brick-and-mortar stores.”
The store within a store
The second key trend driving today’s retail renaissance is the rebirth of the store-within-a-store concept. It isn’t new: the Ralph Lauren in-store shop at Bloomingdale’s dates back to 1969; the Starbucks shop at Barnes & Noble started in 1993, and the Sephora in-store kiosk at JCPenney launched in 2006. But as top real estate with valuable foot traffic gets pricier and harder to find post-pandemic, a store-within-a-store arrangement is emerging as a great option for brands (old or new, DTC or not) looking to capitalize on a prime location without all the overhead.
It’s also a chance for retailers to monetize their space and develop promising co-marketing opportunities. Casper and Target come to mind, Samsung and Best Buy, or Bonobos and Nordstrom. The Apple Shopping Destination at select Target stores is an even more recent example.
A store-within-a-store partnership can take many forms. Oftentimes, the staff is different. The inventory and POS systems are likely to be different as well. But for the customer, the experience is a unified experience. They value the convenience of finding the brands they love under the same roof, and if they’re treated well at the in-store shop, that shopping experience rubs off on the retailer. It’s a great opportunity for retailers and their partner brands to work together, raise the bar for their joint customers, and leverage co-branding opportunities to uncover new customers.
But to do that, they need to share data.
The retail renaissance needs a clean room and clean data
Retailers and DTC brands cherish their first-party customer data. It includes invaluable personal information (like name, address, email, phone number, or messaging opt-ins), but also transactional data and path-to-purchase details (like ad exposures, promotional responses, or product reviews). Companies use that data to learn about their customers and develop meaningful long-term relationships with them. But in the data privacy age, that data cannot leave the company’s data management systems.
Enter the clean room, a safe space where two partners (a CPG brand and a retailer, for instance) can share data and explore synergies without jeopardizing data security or compromising the privacy of their respective customers. The technology has been around for some time now, but its application to marketing analytics is fairly recent. It didn’t come a moment too soon: with third-party cookies and mobile identifiers on the way out, brands cannot rely on the programmatic ecosystem to connect the dots anymore. They need to take matters into their own hands.
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Of course, data sharing between brands and retailers won’t bear any fruit if either partner’s data is misleading. Unfortunately, today’s CRM databases are full of holes: 90% of data records are incomplete, and 20-40% are duplicates. Data scientists spend nearly half of their time cleaning up data.
The first step in solving a problem is to recognize that there’s one. For retailers and brands looking to launch a new outpost or store-within-a-store partnership, the first order of business is to take a comprehensive data health assessment and size up their respective data problems. Then, they should adopt a unified identity framework to enhance the value of their combined data and tie all the pieces together.
With the right tools in place, some large retailers are even taking a page out of Amazon’s playbook and helping their brand partners reach key segments of their customer base: new homeowners who might be in the market for kitchen cabinets and insurance, for instance, or sports fans who might be interested in a gym membership.
Retailers as media companies. Stores within stores. Retail stores as online outposts. There really is a retail renaissance underway, and it has nothing to do with the zombie apocalypse.
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