The New Generation of Brick and Mortar Retail

Published on May. 06, 2019

For decades, retailers and brands have expanded their footprint by opening large Brick & Mortar stores as a way to attract more customers. These “Big Box” Stores, characterized by massive footprint and large product selection, offered exactly what customers were looking for - a wide variety of choices and a space to spend time with other shoppers during long shopping trips. However, the rise of e-commerce has significantly changed customers’ demands and expectations. With the ability to browse, select and purchase online, customers today have zero tolerance for chaotic stores, long waiting lines and overcrowded areas. The convenience, personalization, and ease of purchase offered by e-commerce has made the “Big Box” stores less attractive, often cumbersome in their layouts and more of a headache than a convenience. Furthermore, the continued rise of e-commerce has increased pressures for a major rethink of Brick & Mortar stores to better meet customers’ expectations today. 

Customer’s rationale for visiting Brick & Mortar stores has changed and that is the main driving force behind the retail evolution and the repurposing of Brick & Mortar stores. Nowadays, a trip to the stores is worthwhile if it offers the same level of convenience and personalization as e-commerce and a meaningful, immersive experience to the customers (see Fig.1). Especially true for the fashion, automobile and electronics industry, customers expect experiences powered by the latest technology, a sense of community through different learning events organized in store and personalized assistance from the personnel who is more of a consultant than a sales assistance. To better meet the ever-changing customers’ demands, brands and retailers are transforming their traditional one-size fits all Brick & Mortar stores into three main types: the flagship, the urban and the neighborhood store, with different value propositions. The flagship store offers the ultimate shopping experience by capturing all the dimensions of the retail experience which allows customers to have a new authentic immersive experience with the brand. The urban store is focused on the convenience and ease of purchase while helping the customer decide by narrowing the product offering to the most locally demanded items. Lastly, the neighborhood store offers a limited selection of items and a drop-in – pick-up hub for customers that complete their purchase online. These stores are designed to serve different customer demands at various locations and segments of the purchasing journey. 

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Figure 1: Dimensions of Retail Experience (Source: JLL Rooster)

The Flagship Store

The flagship store is the “store of the future”, more of a showroom than a store per-se. It offers an immersive and seamless experience powered by the latest technology, the highest level of product customization and boutique - like customer services. The Nike’s House of Innovation 000 offers the ultimate flagship store experience. Dynamic, immersive, and interactive, the Nike shopping experience bridges the digital and the in-store experiences in a seamless way while offering customers a “peak behind the curtain” opportunity. Similar to other flagship stores, this store is designed as an expression of the brand. It invites customers to explore the Nike brand and engage with it through different features in store and via the mobile app. Nike App’s users can check the local popularity of products to improve their purchasing decision in the store. The NikePlus super fan members can select products on their mobile phone and have them held in one of the lockers in-store to pick them at a later time. The Scan-to-Try feature allows customers to scan items as they visit the store and have them delivered in a fitting room waiting for them. The Nike Instant Checkout offers customers the option to pay through their mobile phone, while in-store, rather than wait in cashier lines. App users can schedule appointments with in-store specialist to receive product recommendations and advice. Furthermore, through the in-store Lab, customers could design their own shoes while receiving recommendations from designers. 

Many other brands and retailers are using their flagship stores to attract their customers by inviting them to be part of the production process, offering them personalized assistance and an exclusive community.

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Figure 2: Nike House of Innovation (Source: Nike's News)

The Urban Store

The Urban store is the revitalized version of traditional Brick & Mortar stores powered by the implementation of technologies aimed to provide a better, more convenient shopping experience for customers. They are expected to integrate technologies like smart checkout to solve long waiting lines, smart shelves to help customers identify the location of items, integration with the online app to offer personalized recommendations, etc. In their strategic move to re-target their stores, Macy’s argued that these are going to be the majority of their stores in the future. The retailer is adding the “Backstage off-price” concept to offer some of its products at discount, in an attempt to keep the deal-seeking shoppers away from discount stores like T. J. Maxx, who is planning to increase its footprint in the market. On the other hand, IKEA is planning to open 30 urban stores with a smaller footprint and localized offering for living spaces in the city. It aims to offer the customers the opportunity to discover, select and order IKEA products that best fit their city-housing demands and appeal to their convenience by shipping products to their home. 

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Figure 3: Macy's Urban Store (Source: Macy's Backstage)

The Neighborhood Store

The Neighborhood store, the smallest store format, caters to the specific needs of local customers and serves as a drop-in – pick-up hub. Brands and retailers are using these store formats differently to meet their customers’ expectations. Nordstrom was the first mover in this space with the Nordstrom Local stores in Los Angeles. These stores are designed as inventory -free stores and innovative “service hubs” aiming to “bring the convenience and accessibility of our some of the most popular or highly demanded services right to the neighborhoods where our customers live and work”. Customers can also visit the neighborhood stores to pick up their online orders, which is use as a strategy to attract online shoppers to the store. Other retailers are also experimenting neighborhood stores in an effort to cut off unnecessary costs and better serve their customers. Macy’s neighborhood stores, 8% smaller than the original Macy’s store and with 40% less staff, emphasize on customer convenience and localized offerings. The creation of neighborhood stores has created considerable idle spaces that brands and retailers are looking to repurpose and lease. Co-working spaces, grocery stores, convenient stores and other non-traditional services such as bowling alleys and movie theatres are seen as viable solutions for vacant retail spaces by decreasing vacancy and driving additional retail traffic.

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Figure 4: Nordstrom's Local Store (Source: Nordstrom)

The modern repurposing of Brick & Mortar stores marks the biggest transformation of the “Big Box” store in the last 30 years. It is a clear departure from the one-size-fits-all traditional retail, enabling brands and retailers to serve their customers in a nimble way in their physical locations. They are opening more of these specific - customer targeted stores in an attempt to be present at each step of the customers’ purchasing journey with updated value propositions. Their end goal is to deliver engaging, frictionless experience rather than increase conversion. With in-store sales happening through the mobile app, the financial impact of these new store formats is difficult to measure as they affect both physical and online sales. However, the most important win of this repurposing strategy is ensuring the relevance of visiting Brick & Mortar stores as part of the customer journey. This would place physical retail as a complement of e-commerce and mark a new era of Brick & Mortar stores, focusing on selling experiences.

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