Reforged in Fire: Brick and Mortar

The store seemed rather like a paradox at first. I don’t recall its name–it was some luxury french clothing company. Une entreprise de vêtements de luxe. But it was huddled in a section of the mall that seemed to have some kind of invisible barrier between it and the rest of the complex. On the bustling beat of a pleasant Sunday, and where every other part of the mall was packed like sardines, this section alone stood sparse. And the store itself reflected that same feeling. Unlike the tidily stuffed behemoths of H&M or Uniqlo, its interiors were adorned by nothing more than perhaps 15 outfits– each taking up the equivalent of a full display closet they would in their more casual brethren. There were maybe only 4 people inside. Three whom I believe were employees. Because of the sparse collection, the walking space in there was wide. Open. Empty. Dead.

It took me a month to realize the irony.

Because rather than the rest of the mall–abuzz with the laughter and energy of life– it was this almost barren landscape that symbolized and laid the clues to our future of retail. Not that retail was dying– rather that it would simply be transformed. And surprisingly, it would be transformed away from the model currently enjoying the veracity of a Sunday crowd.

Yet that’s a conclusion I struggled to arrive at, because the cursory and conventional comparison so boldly seemed to shout the opposite. Popularity and foot traffic mean everything in the brick and mortar world. Popularity means market size. Foot traffic means churn. Both things directly critical for the revenue generation of sales based retail business.

But one thing just kept nipping at my thoughts: If the luxury store was so empty… why/how has it stayed open?

The purpose of physical retail is to generate store presence for the sake of in-store sales. Any store so empty was bound to be suffering for that number. America’s great department stores, Sears, JCPenny, and Macy’s, were all closing their locations in huge numbers to reflect that fact– ceding ground inch by inch every quarter to the growing star of ecommerce. So how did this store, and its surrounding neighbors just as empty on a busy Sunday, still stay open year after year?

Following convention, I had made a mistaken assumption: that retail’s purpose was product distribution. That retail was a machine that took in foot traffic as fuel and spit out sales as output–a way to hand customers their wares. And that’s the standing basis that our current thought models for retail are applied, and why we have predictions and panics like these:

Warren Buffett just confirmed the death of retail as we know it

The death of brick-and-mortar retail…

Get ready for the regional shopping mall apocalypse

But I think that’s a bit overblown.

A standard look at brick and mortar:

Conventional wisdom thinks of brick and mortar in the most tangible sense possible. It is the mom and pop store. It is the retail behemoth. It is the distribution network that the commercial titans of industry and the daring entrepreneur use to directly sell and store their wares.

And it’s this definition of analog retail as a distribution and sales tool that I think deserves a reexamination. Because for this alone– the doomsayers are right. The product distribution network long ago only available in convenient enough technologies and costs to bulk industry buyers is now available to the consumer, and is what the entire digital retail revolution is fueled by. There no longer needs to be a dedicated space within prime real estate to hold inventory, when it can be held somewhere else much cheaper at a fraction of the cost and delivered still within time and budget.

And that’s why the latest trend has been speaking about the next evolution of brick and mortar to be “showrooms.” Because if things are no longer stored there– then at least they’ll still be sold there right? Maybe not. Rumors were soaring when Amazon announced their first physical store in the heart of new york. What are they planning? Will it be an actual store? Will be a showroom? A hybrid? Can you get the item there as well or is it only ordering? Turns out it was a store with no check-out lines, but the pure speculation showed the realm of new formats that people could imagine for brick and mortar.

Unfortunately though, most companies are way behind that sort of experimentation. Instead, they’re still investigating what customers want from a store and drawing conclusions like this:

Though cliche, the issue here is that they’re asking the wrong question. It isn’t “what do consumers want from a store” that should be asked– it should be “what can only a store give to consumers?”

It just doesn’t make any sense for all this stuff to sit on shelves. There is fundamentally a better model. – Marc Andressen

That’s not to say that the observations made in surveys like these are not relevant, far from it. It’s led to great insights on the importance of establishing an omnichannel for your sales pipeline and the pressing urgency for greater technological adaptation. At the end of the day however, it misses a key element. When the underlying assumptions of a mental model change, we can’t just change the results or action plans for the model. We have to overhaul the entirety of what we know the model to be.

So we have to re-examine the underlying motivation of brick and mortar retail stores. Without catalogues or traveling salesmen, physical stores were the only way to distribute and generate direct sales. Yet with the rise of ecommerce, this business model no longer accomplishes the goal most effectively, popularly, nor efficiently, which leads us to one of the two results:

One, brick and mortar then must fade away like the outdated animal it is–since it can no longer fulfil its purpose as the best method of distribution and sales.

Or two, it must accept its newfound inferior status and find new value.

This is tremendously freeing, because it means that we can give analog retail an entirely new identity. We can retire the idea of brick and mortar being the last step of the value chain where the interaction with consumers cease until either they need their next product or maintenance.

It lets us remember that analog retail doesnt just have to be the delivery of value, but another precious opportunity to create it.

In the post-Amazon era, retail cannot compete on proximity, selection, and price–experience is the only way to win– Heatey Cypher, Oak Labs

In the worldwide survey conducted by CapGemini Consulting, a UK manager is quoted;
“Consumers now… expect the products they are looking for to be available when they need it just as easily as online. But since they are also making the effort to come to the store, there had better be good service to accompany the product.”

This quote nails the point home– consumers now see brick and mortar as part of the product itself. By expecting better service to accompany an in-store visit– they’re demanding additional value. To see this done right, just look at Apple’s Genius Bar Effect— the customer experience adds so much to the product’s experience that customers actually leave 60% more like likely to purchase another Apple product. Analog retail shouldn’t just be there to sell you the product. It IS the product.

The evolution of Analog Retail according to Form Factor:

In order to really do that, it’s helpful to get a clear understanding of the dialectic between digital, and analog form-factors. Donny did a great brief over the tug-of-war taking place between them in the minds of user psychology in his last article: On Digital and Analog, so I won’t spend too much time on that. Instead, I think it prudent to examine what the features of brick and mortar that digital retail cannot replicate:

  1. Physicality
  2. Discovery
  3. Community
  4. Immediacy

If we take these as the inherent upsides that only analog retail can possess, then it is by these same characteristics that they will be defined and survive. By reflecting the previous four exclusive qualities of physical retail we get the following four type of future stores:

  1. Physicality: Experience-driven retail:
    Perhaps the most familiar concept that we hear about the future of brick and mortar. In articles with titles like “how millennials are changing the landscape of America’s malls” or “the future of retail is experience,” these are the archetypical stores that we think of. They are the amusement parks, the arcades, the hair salons and legal offices. The reason is simple enough– these products just cannot be delivered, owned individually, or it makes more sense for them to be centered in a set geological location.The emptiness of the luxury store in the introduction, done with purpose and carefully crafted precision, is yet another example of experience-driven retail. In manipulating the empty space for every article, it was as if the brand was appealing to the most animalistic sense within our nature. Just like how some birds puff up to seem bigger and more powerful, the clothes seemed to say: “I take up space, thus I am strong. Thus I am rare. Thus I am valuable.”Those two are examples of a form-factor of brick and mortar physicality that digital retail can not yet replace. Because no matter what, somethings still can only be enjoyed at a set physical location. And for the latter, the display of value can only be done physically because digital space is free and virtually unlimited (please don’t take that as a suggestion, FCC).It is how a use of physical space itself can add to the value of a product and/or how a product’s value can only be experienced at a specific location. At its most general, the products and services that fall under this category will be luxury goods, entertainment, and services.
  2. Discovery: Serendipity-driven retail:
    Going on Amazon’s potential showroom as an example, I define discovery-driven retail as stores that will act as an aggregator to display 3rd party wares. With the bifurcation in the age of the internet, discovery-driven retail will be the only way for small players to penetrate their fields in the future. With the internet being ever more crowded and organic search not being enough to drive traffic– discovery-driven retail will serve as both a way for online retailers to boost sales as well as people to find new products.It should be noted with some irony that this is the model that Sears, Macys, and JCPenny are closest to. Yet they are still experiencing declines in sales. My postulation is that this is because they have the business model wrong. Rather than serving as a repository that depends on sales, they should function more as a real estate and marketing company that rents out space for brands to display themselves. Inventory beyond displays should not be held, and all sales should be directed back to the renters.This exact model works great because it forces discovery-driven retail to churn through offerings by new businesses and serve as their ambassadors. Brand names already well-known have little to gain by renting space– if they’re luxury they’d have their own experience-driven space, and if they’re a basic commodity then they would already occupy the headspace for the consumer to purchase them directly online (ie. Kleenex, Tide, and Glad). For the large brands, they have the money and clout to spend the advertising dollars needed to stay on top. But small indie and niche brands do not have that luxury, and serendipity-driven retail can serve that very valuable function as a curator.
  3. Community: Socially-driven retail
    The social-driven retail model is actually a huge success already– just not for analog retailers. The essence of the model is in every Starbucks or cafe, and the goal is to just push your location as a meeting destination for the targeted niche. The Nike+ Run club success is a perfect example of this in actual brick and mortar. The people who join are not necessarily Nike fans or customers– they just have an interest in running and healthy living. Yet with repeated exposure to the brand because of membership in the club, it may be only a matter of time before they convert.This sort of retail model drives a middle-road between marketing and customer satisfaction. It serves as a resource to expedite and facilitate fans to gather and evangelize the product while also adding real value as a happy consequence. Apple’s new retail strategy for “Today at Apple” is also this, where they’re now trying to position it as a gathering place for generation Z. But like all things Apple, it is done in spades and I’ll cover in more in the next model of value-driven retail.

    And you know, I’ve told the teams, ‘I’ll know we’ve done a really, really great job if the next generation, if Gen Z says, “Meet me at Apple. Did you see what’s going on at Apple today? – Angela Ahrendts, Apple SVP Of Retail

  4. Immediacy: Post-Purchase Value-driven retail
    This is Apple’s turf. Very early on, Apple realized how tremendous of a value-add apps were to their devices (not to mention juicy bottom-line margins for themselves) and consequently painstakingly manicured and shaped the entire experience even though it was post-purchase. They knew that with every additional app that the customer bought, it made their product that much more valuable and sticky to them.Now they’re continuing this in their new foray into “Today at Apple” to deliver this same sort of value in a physical setting. This is giving in-person lessons and courses in Apple stores, hosting events, and being a meeting place for its fans. But the important thing here is that it is giving value in a way that adds onto the already pre-existing ecosystem and use of their products. A lesson on how to program in Swift for example, general knowledge that may be useful for any developer, may have some peppering and inclusions of Mac-specific shortcuts and tricks– simultaneously marketing their system and boosting its value by giving people more reason to use it. This doesn’t even mention having the products be literally in your face due to being in-store.
    Like Socially-driven retail, Post-Care and Ancillary value driven-retail relies on adding value to the product or service post-purchase. But it does not do so necessarily relying on a social element (though in Apple’s case, social is one part of its elements).

Brick and Mortar 2.0:

Of course, the types can intermingle and blend with each other. Just like the “Today at Apple” example, a store can be primarily a Post-Purchase and Ancillary Value model, but contain social and discovery (albeit only discovery of its own products) elements as well. There is nothing that prevents them from dipping into each other– there is everything for saying that there must be a focus.

Finally though, there is one additional type of retail modeling that remains not included in the aforementioned list. And that is convenience-based retail. Our current delis, supermarkets, and convenience stores. Even in an age where Amazon finally conquers groceries and/or people are more comfortable with not hand picking their raw foods– there is the fact that not everyone plans ahead. Sometimes, you just run out of toilet paper. But in that model, I think the conventional methods are correct: reduce overhead, skim experiences, and automate. Because those stores will be the non-differentiated products and necessities. We will need those locations, but they will become more like insurance than our primary method of purchase– due to the ironic fact that they will actually be an inconvenience compared to buying digitally. With enough cuts, it might not be too crazy to say that they’ll be glorified vending machines… or just fully self-service stores.

And yet, this still won’t be the final resting place for physical retail. Depending on the future of both virtual reality and the sharing economy, physicality may become less of an issue as those physical experiences become possible to emulate and the services delivered. Discovery and its serendipity-driven retail stores might also become vulnerable– as a virtual showcase is just as good as a physical one with sufficient technology. Social and Post-Purchase models too. But nothing is ever doomed. At that point, different demands and user behavior will give analog different strengths, ones we can’t yet imagine. I can’t wait to see what they’ll be.

Photo Credits to and Oskar Crawczyk

Hero photo credits to, Michael Weber, and Ports Shanghai

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