Is Experiential Retail Working?

ooking to rejuvenate their shops and slow the tide of closings, many retailers and mall operators have adopted experiential retailing — changing from selling products to providing an”encounter” that occasionally doesn’t include selling anything.

Instead, shoppers can drink wine, speak with a personal shopper, listen to music, meditate in a pod, see a small sample of products, and possibly try on some clothes. I wrote about this 18 months ago, expressing skepticism.

These experiential efforts cost money, and after two decades of hype, the attempts at personalization, immersion, and entertainment haven’t persuaded consumers to purchase more.

Indeed, up until the last 3 weeks of 2018, indoor shopping malls with”experiential” service-oriented tenants failed to benefit from shopper traffic, let alone earnings, on a year-over-year basis in comparison to indoor malls with no of experiential tenants, based on data intelligence company Thasos.

Sooner or later, retailers want shoppers to buy their goods.

Shop Closures Soar

During mid-April, U.S. retailers announced the closing of 5,994 shops in 2019 while launching 2,641, based on real estate analysis firm Coresight Research. That amount is more than all store closings in 2018 if there were 5,864 closures and 3,239 openings. Over 2,000 of those closures this year are from Payless Shoes, which filed for bankruptcy.

As mentioned on CNBC.com, Deborah Weinswig, founder and CEO of Coresight, said,”I anticipate shop closures to quicken in 2019, hitting some 12,000 by year-end. The slowdown we found in 2018 appears to have been a short respite in what is a steady, long-term tendency.”

Retailers which are shuttering stores include Victoria’s Secret and Bed, Bath & Beyond, two chains which ranked among the top 10 in experiential retailing, based on some 2018 report from JLL Research. In February, Victoria’s Secret announced plans to shut 53 shops this year. Same-store sales at the merchant dropped 3% in the 2018 fourth quarter in the same quarter in 2017. This month Bed, Bath & Beyond reported that it intends to shut 40 shops in 2019.

Saving Malls?

In an ironic twist, it will probably be online merchants that will rent space in malls. I have addressed this tendency , describing how ecommerce celebrities like Warby Parker and Caspar were signing mall rentals.

Late last year mall real estate investment trust Macerich Company established a new retail alternative named BrandBox in Tysons Corner Center in Virginia, near Washington, D.C.. It provides retail space to native brands looking to try brick-and-mortar.

In an ironic twist, it will probably be online merchants that will rent space in malls.

The walls inside each BrandBox are movable, accommodating two to seven manufacturers. Stores can vary from 500 to 2,500 square feet. Each brand has its own mini-store within a huge space. Brands inhabit the shops for six to 12 months. This offers the brands a place to test new theories. Macerich supplies shelving, data on foot traffic, radio-frequency identification tagging for stock, and marketing support. Tenants pay Macerich a monthly fee for the prepackaged support.

Macerich intends to enlarge BrandBox to places in southern California, Chicago, Philadelphia, Portland, Oregon, and Scottsdale, Arizona. The company says it has identified over 500 online brands that could benefit from this agreement and at a February earnings call, executives said they’re in talks with three present BrandBox tenants for long-term rentals.

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Other malls are experimenting with similar theories. The Simon Property Group has a business model called”The Edit” in its Roosevelt Theater in New York. Another mall operator, French-based Unibail-Rodamco, which owns New Jersey’s largest mall, Westfield Garden State Plaza in Paramus, opened The Gathering Shops. The shop has 15 to 20 boutique pods where local brands can secure some of the 4,700 square feet in one of the nation’s most prosperous malls. The Gathering Shops also supplies shop staffing and an ecommerce website.

A startup called Fourpost has partnered with Mall of America in Minnesota and West Edmonton Mall in Alberta to install 20 to 30 Studio Shops that contain local brands.

Omnichannel

Restaurant operators are experimenting with methods to fill empty retail space. Retailers are attempting to find ways to increase sales and discover the ideal omnichannel balance between physical stores and online.

Pop-ups and short term mall rentals are probably only a temporary solution to a complicated dilemma. Finally the malls will exhaust the supply of short-term tenants since many small ecommerce merchants aren’t ready for brick-and-mortar. Larger digitally-native merchants like Warby Parker and Caspar can help resolve the vacant space issue by establishing permanent stores in malls throughout the nation.

My strategy for living a trade war

For most companies, daily operations do not change based on who is in political power. Organizations are primarily affected by their own decisions, not from the authorities.

However, sometimes there are exceptions. Here in the U.K., it’s Brexit. In the U.S., it’s the trade tariffs and the threat of the President to close the Mexican border. Both have a similar effects. If it cannot count on critical products at predictable prices, a business suffers and might even collapse.

That’s why cross-border trade is so critical. Even the smallest companies depend — directly or indirectly — on exporting or importing manufacturing components, elements, food, medications, and employees with different nations. And it is all at risk when authorities don’t provide clear signals and strategies, with timetables.

If it cannot count on critical products at predictable prices, a business suffers and might even collapse.

Surviving a disturbance

So what should a company do? For starters, lobby your representatives. They’re supposed to represent you. But it might not be effective. If you reside in a district where one party is always chosen, agents will likely be beholden to insiders who pick them rather than Republicans. However, nothing is lost by means of a letter or two.

The threat of products no more crossing the boundary is real from the U.K. and the U.S. — even if it’s temporary. Again, Brexit is the danger from the U.K. In the U.S., it is tariffs and, too, a boundary closing with Mexico. It’s not likely that trade would stop for a protracted period. For the sake of argument, let us assume two weeks.

How would your business survive the disturbance? First, take a look at your product providers. Try to quantify the probability of the supply being disrupted. For items bought across boundaries, the danger is high. For purchases within the nation, the risk might be lower, but it’s still there, particularly if the provider is dependent upon the cross-border trade.

Second, it isn’t simply stock to be concerned about, although that it’s the obvious issue. There might be supplies, like packs, bottles, ink, and toner, which are affected. Sometimes you’re amazed by what can stop you trading.

As soon as you’ve got a list of goods which are in danger to be disrupted or in short supply, develop a program. Are there alternatives that don’t rely on trade? Do you want those items? Can you afford to stock up and, if so, how much could it cost? It might be a worthwhile investment to temporarily overstock.

An opportunity?

There might also be a chance here. By way of instance, if you inventory an imported item, what’s going to happen to that provider if the boundary closes? It would be not able to sell the inventory to you and other national businesses as it can’t send it across the border. What if you offered to keep the stock for the provider, and then forward the inventory to other national vendors (for a fee)?

Then there are revenue. How much of your earnings cross the boundary ? Would your customers be ready to wait? Are there any reasonable (and legal) ways to send to your clients without crossing the closed boundary, like via a third country? Or are there freight forwarders on the opposite side of the boundary which could warehouse some of your best selling inventory?

In short, develop a strategy and make sensible provisions. Try to take advantage of the political instability. You might be in a position to guarantee delivery and hence raise your price while your competition is scrambling, searching for that very important product or paying double.

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