Given the overall direction of the offline retail industry, Forever 21 shocked no one by declaring bankruptcy a few months ago. Ditto for Sports Authority, Circuit City, Toys R Us, American Apparel, and most recently Barneys. Other than a lingering sense of teenage shopping mall nostalgia, these retail deaths have become almost expected weekly updates.
In the amazonification of the retail industry, goods have become ubiquitous and commoditized, and the brands that succeed are the ones who understand how deeper experiences engage customers and build relationships. This is why you don’t really miss browsing the endlessly stocked aisles of Sports Authority, but you can’t wait until your Winter Camping Workshop at REI or Patagonia, both of which are thriving in the supposed “retail armageddon”. Experiences are the only way to drive loyalty.
The experience gap has completely bifurcated the retail industry into an armageddon for the status quo, and a renaissance for brands embracing the experience economy.
Macy’s lays off entire tech team and shuts 125 stores. 😢
Sephora announced its largest expansion ever! 😊
Sears and Kmart have shut down about 3,500 stores in the past 15 years, and are about to close 100 more. 😢
The Gap 😢
but… Athleta! 😊
Pier 1 😢
Bed Bath & Beyond 😢
Jim Cramer said shopping malls are becoming ghost towns. 😢
But experiential malls like those run by Caruso, Starwood, and American Dream are BOOMING. 😊
Retail brands have long spoken about putting the customer at the center of the business, but still struggle with two main challenges:
- Brands have no idea what modern consumers want. Differentiation is not coming in the form of more selection, connected shopping apps, or in-mirror Augmented Reality fitting services. Additionally, we’re living in an era of extreme digital oversaturation, and hiring a cheeky Twitter PR company does nothing for your bottom line.
- Brands that cross the engagement chasm to give consumers what they want largely struggle with figuring out what is working and why. Many brands invest in CRMs and marketing automation products, but fail to accurately understand the power of offline customer experience.
This isn’t just a nice to have, and it shows up pretty apparently – not only in bankruptcy filings, but also in public stock performance. Brands like Macy’s, Kohl’s, The Gap, Bed Bath & Beyond, and Nordstrom struggle to differentiate in customer experience, shrinking by the year as they throw spaghetti at the wall, doubling down on digital conversion rather than true loyalty, hoping customers will magically see their ads and start spending more time in their brick and mortar aisles.
Let’s contrast that with the brands who understand that customer engagement is not one piece of the puzzle – it IS the entire puzzle!
Nike is cannibalizing its own store real estate to build basketball courts where you can play ball against Nike employees. Why should they care whether you walk out with a new pair of shoes or buy them online that evening? If you spend time shooting hoops in a new pair of Jordans and strengthen your mental association between Nike and basketball, it was all worth it.
Costco makes practically all its profit off of memberships, and knows that’s the KPI it needs to focus on. By understanding what customers want, how many times they go to stores, and how they interact with the massive spaces, Costco works to optimize customer experience. Interestingly enough, because their margins on products are so low, they are more incentivized to make sure their customers are happy being members than they are maximizing purchases. They even have insanely cheap pizza and hot dogs at every store so their members don’t go hungry.
Lululemon not only calls itself an experiential brand now, but it’s also been building experiential stores, taking the emphasis off commerce and instead onto brand and sweat. You can take free yoga classes at Lululemons all over the world, and these experiences actually change brand perception and lifetime value.
When the shopping malls of our consumerist childhoods have transformed into community-centric experience centers – complete with event space, fashion shows, art exhibits, farmers markets, and concerts – it’s surprising to many that mall numbers have swelled to 1170, the most in 50 years!
As the world accelerates its transformation from a consumerist economy into an experiential one, the only retail brands that will be around in 10 years are the ones that transform into experiential businesses. Enrapture me in an experience that inspires, teach me things that make me look at the world differently, guide me to feel things I wasn’t expecting … and I might just be a fan for life.