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The new retail: Brick and mortar re-envisioned

Smart retailers are transforming their stores to meet consumer needs

INSIGHT ARTICLE  | 

Online shopping and the retail digital experience has become a pervasive space for consumers, where shopping for clothes, accessories, food and services means easy access and quick delivery for the things one needs, wishes for or can’t live without. Consumers can order their groceries online, a new fall wardrobe and have their prescriptions delivered straight to their front doors, all from their trusty smartphones. Yet many consumers still prefer an in-store shopping option, too often looking for more exclusive customer service or a personalized buying experience.

According to a recent Forrester Research survey, online sales accounted for just 10 percent of the approximately $3.3 trillion in annual retail sales. Clearly, people are still hitting the bricks, but they’re also using clicks to get there. According to the International Council of Shopping Centers, a look back at last year’s holiday shopping season revealed that more than 60 percent of shoppers indicated they did online research first before buying, one-third said they picked up their online purchases at the store and 70 percent stated they bought additional items while at the store.

Yes, retail’s brick and mortar is alive and well, but today’s vibrant store space is certainly not your father’s corner shop. It’s a place that must cater to the customer at every angle, at every nook and cranny within the store, and the assessment of consumer data and the use of technology are often a big part of this re-envisioned space. In addition, it’s no longer about online shopping versus the physical store. Rather, retailers are understanding that it’s really how these channels work together and complement each other to deliver the ultimate customer experience.

What’s happening with retail brick and mortar and how are smart retailers transforming their stores to meet consumers’ needs? RSM’s John Nicolopoulos, national practice leader for the retail and restaurant sectors, and Michael Schwartz, national real estate consulting leader, share their insights.

Has the death of brick and mortar been greatly exaggerated? What are we really seeing in terms of the retail store transformation?

John: We’re seeing a greater dependency on technology by the vast majority of shoppers, especially the millennial generation. They rely heavily on technology in their retail buying decisions, but millennials and other consumers aren’t necessarily buying online. They’re still going to the stores to do that. However, consumers are more savvy, looking for good deals; they want quality, a personalized experience, and that’s where brick and mortar retailing really is transforming.

Consumers don’t want a homogenous shopping experience from their brick and mortar. They frequently expect a more customer-centric and individualized interaction that provides quality, value and convenience. And, stores, especially smart retailers, are creating spaces that deliver those preferences.

Michael: We’re also seeing a redefining of traditional retail space. For example, previously you used to see drugstores like CVS or Walgreens as part of larger shopping centers. Now, these stores are stand-alones or on corner properties very accessible to the public. With the expansion of health care needs, these retailers have tapped into consumer needs offering minute clinics and other health-related services. So the spaces are changing to meet what consumers want.

In addition, we’re seeing traditionally larger retail stores decreasing their square footage to control costs, and also because the consumer wants the smaller intimate space. Old Navy, for example, is currently decreasing their stores to address this inclination.

We’ve also seen a continued buildup, over the last 20 years, of main street look-alike lifestyle centers catering to consumer needs, with a mix of restaurants, coffee shops, boutiques and more. There’s a tremendous amount of research and money that have gone into these centers and landlords have positioned these to meet consumer demographics and buying preferences. Landlords of these centers are not going to abandon these investments any time soon. These properties are here to stay and will continue to evolve with consumer buying preferences.

What are the benefits of a retailer having a physical space to sell goods or services? And, what types of businesses lend themselves more to a brick and mortar format?

J: The benefits of a brick and mortar store include direct consumer interaction, brand promotion and the idea that a physical store truly compliments the online shopping experience. The consumer may research a product online, maybe even purchase it there, but many are having the product shipped directly to the store for pickup as well. While there, customers may buy additional items at the store, encounter product promotions which furthers brand interaction, experience direct customer service and may receive additional discounts or giveaways. Department store retailers or stores like Target all benefit from a physical space to sell their goods, but other retailers in sectors like entertainment, health and wellness and grocery, for instance, also benefit from the brick and mortar concept. This in-person engagement develops a memorable experience for their consumers, something that is key to building long-standing loyalty. E-tailers are also seeing the benefits of a brick and mortar as more and more are opening stores to advance in-person engagement where customers can touch, see, try on and experience the products they want.

On the other hand, the place I do see a change to strictly online shopping, versus a brick and mortar, is the traditional bookstore. We’ve already seen evidence of this over the last several years with the closing of stores like Barnes and Noble and Borders. If you want any kind of book, let’s say on nutrition or a specific hobby or the latest best seller, it’s easier to search for it online, purchase it online and have it delivered, either in hard copy or digitally. You don’t need to go to a physical store to get your reading materials. Consumers are definitely making that shift.

Are there specific growth geographies for brick and mortar stores? And, what about retail leasing prices? How does this impact the retailer?

M: We’re seeing millennials, currently our largest consumer population, settling in urban areas and frequently not in the suburbs. Many are holding off to have families and are renting as opposed to buying homes. They’re choosing to live in the cities where there are jobs and to join other young people who are living there, working, playing and shopping. Baltimore is one of those cities where millennials are flocking to and there’s a real commitment from businesses and local leaders to re-gentrify and develop these communities, which includes adding lifestyle centers, retail shops and restaurants. In addition, Chattanooga, Tennessee is another city expanding and growing their downtown retail as people are moving there because it’s affordable, provides the desired—albeit small—city life, but not the hassles of big-city congestion and traffic. And, still another spot is downtown Los Angeles where lifestyle and experience retail is blossoming to meet a growing consumer need due to increased residential development. As for retail leasing prices, depending on the area of the country, most rents are climbing and that’s why you’re seeing many retailers re-examining their space needs of their stores. As a result, in some cases, we’re seeing retailers moving to smaller spaces. Every inch counts and must be optimized for the customer to be profitable.

How is the traditional mall space changing? What about alternative types of retail spaces, like strip malls or temporary leasing spaces? How are these options being used?

M: Many of the traditional malls with their anchor department store spaces, are converting to lifestyle centers, restaurants, food courts, small specialty shops, theaters, entertainment outlets and even high-end restaurants. As for strip malls, they’ve been overbuilt over the last 10 years or so and we’re not seeing development in that area, except for pocket areas. As for pop-ups or temporary tenant spaces, interestingly, we’ve seen a rise in them, particularly for seasonal goods. Halloween and Christmas stores, for instance, have been a lucrative outlet and landlords are taking advantage of this quick in and out strategy. In this type of store, frequently the consumer is wanting to visit a physical store, as opposed to ordering online, to purchase costumes and decorations. In addition, the pop-up concept allows online retailers to connect with their consumers in person and experience their merchandise. According to a recent report from Business Insider, Amazon, which had just six pop-up stores at the end of 2015, recently announced their plans to add 30 pop-up stores by the end of 2016, and 100 in 2017 that will focus on their growing number of consumer electronic devices.

Finally, another area that continues to grow as a brick and mortar is those stores that provide fast fashion and low price-point fashion and home furnishings like T.J. Maxx, Marshalls and Ross. Even high-end brands are using this strategy by offering discount stores for their reduced-price fashions. Brick and mortar stores like Nordstrom’s Rack and other brand outlets are very appealing to consumers looking for deals on these popular fashions.           

J: One thing to add on to Michael’s comment on malls converting into restaurant spaces: it used to be that the restaurant operators desired to be at the mall because they wanted to take advantage of the shopping traffic. Now, mall operators are trying to reverse that notion and have positioned the restaurant as the attraction destination for people to initially come to the mall to dine, and eventually shop at neighboring stores. The concern here, however, is that many of these mall spaces have excessive seating for restaurants, which makes it challenging to be profitable. Combined with high rents, it’s a problem for many restaurant retailers to strategically assess before jumping into one of these mall spaces.

How are retailers enhancing the customer experience in stores and why is this important?

J: Understanding the customer is key in how a physical store looks and operates. Successful retailers are using their customer data to provide the best in-store experience. What kind of vibe does the customer want when entering the store? What kind of lighting, music, fixtures and outside façade will draw people in? Does your customer want an effortless shopping experience, one where as they enter the store, a scanner can detect their size and select clothing options? Or, one where a beacon notifies the salesperson that there are additional sizes in the store or like-options for the customer? The details are in the data, and the smart retailer will use this knowledge to meet the preferences of their customers to create unique shopping experiences.

Successful e-tailers like eyeglass purveyor, Warby Parker, knows this well. When opening their initial brick and mortar spaces recently, their expansive knowledge about their customers was used to create an inviting experience in these new stores. Their abundant collection of customer information, from previous online sales, allowed them to use this data history to interact with in-store customers, providing personalized product options and specialized service tailored to the individual. Clearly, Warby Parker sees the importance of the intersection of e-commerce and bricks and mortar; it is likely we’ll continue to see new stores from them soon.

M: The most critical thing about managing a physical store space is thoroughly understanding the customer. What do they need and what do they wish for? Certainly, making the space desirable, making it easy to shop, making items easy to find, allowing customers to easily understand pricing and discounts, having great customer service inside the store, knowledgeable people inside the store, all of those things are important, but none of it is worth anything if you don't understand what your customer wants and needs in terms of product, service and shopping experience. From that flows other elements such as having the right store location in the right geography where the concentrated target population is, optimally managing square footage pricing, space design, leasing and concession agreements, and leveraging tax incentives, if available.

Want more retail industry insights? Check out our key industry issues content. Questions? Contact us.

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