As e-commerce continues to chip away at brick-and-mortar retail sales, stores are going to have to reinvent themselves to keep customers coming in their doors. To lure shoppers, savvy retailers are starting to focus on the total store experience, which may be even more important to a store's future success than the products themselves.
One person who continuously monitors the pulse of store-based retail is omnichannel expert Chris Walton. The former vice president of merchandising for home furnishings at Target.com, Walton also ran Target's "Store of the Future" project. Today, he is the CEO and founder of Omni Talk, a blog centering on retail. He also partners on an experimental technology lab, Third Haus, where new retail concepts are tested.
Walton sits on the advisory board for Delivery Solutions and Xenia Retail. He previously worked at Gap Inc. and has a B.A. in economics and history from Stanford University and an M.B.A. from the Harvard Business School. He spoke recently with DC Velocity Editorial Director David Maloney about the store of the future and how it might look.
Q: How have consumers' shopping habits changed?
A: I think the biggest thing is that the rise of digital in the 1990s really created a conscious separation between the items that you know that you need versus the products that you maybe don't know that you need—the items that are "more discoverable by nature" versus the things we want to "hunt, take, and destroy."
Q: Are you talking about the staples of life—bread, toilet paper, milk, paper towels—the kinds of things that you routinely consume and that you don't need to discover anymore?
A: Yes, exactly right. And that can even include things like basic white T-shirts or things from certain brands that you go back to again and again. You can find it quickly and just go get it, but it is not like you're surprised or delighted by something new and unexpected.
Today, if something strikes our fancy, we can literally just pick up our phone and buy it with a simple swipe of a finger. The statistic is that when people know what they want, 85% of the time they go to Google or Amazon to find it. They type that keyword into the search engine, and that's where they start their shopping experience.
And the crazy thing about that statistic is that even when people know what they want to buy, they are not even going to the retailer's or brand's website to find it. It shows you that people really are shopping in a very particular way for the things they know that they want.
Q: So with that in mind, what is the future of brick and mortar?
A: The future of brick and mortar really comes down to the physicality of the store and understanding the psychology around why a store is what it is. For me, a store has always existed for five key reasons psychologically. Number one is the idea of immediate gratification. Two, stores have been a means of convenience. Three, they have oftentimes been a means of inspiration. Four, they have been a place for the tactile or sensory aspects of retail. This is, the ability to touch, to feel, to try an item on in a way that you can't simulate online. And then five is really just the sheer experience of being somewhere. It could be creating a memory somewhere, oftentimes with other people.
Digital, especially by way of social media, can provide the first three things I mentioned—immediate gratification, convenience, and inspiration. A digital store can do those kinds of things as well as—if not better than—a physical store can, especially when you take into account just how busy everyone is and the constraints on their time. If you think about it, it makes sense. From an inspiration perspective, I can go on Google or Instagram and be inspired by so many more things nowadays than I can by making a trip to the mall.
From a convenience perspective, with one click I can buy almost anything I want, and depending on what I am willing to pay, I can have it delivered right to my doorstep within an hour. So, there is really no major difference there between the two worlds. If anything, digital in a lot of ways even has a leg up.
So, the only real things that can differentiate the store of the future from its digital counterparts are its ability to provide that tactile and sensory experience—by allowing customers to touch and feel the product—and to give them the experience of going somewhere and being a consumer, which you can't get from your couch.
Q: Does that extend across all age groups, or does it tend to be more millennials and younger people who are looking for that experience?
A: You are seeing it across all demographics. It really comes down to what you can't or don't want to do from the comfort of your home or via phone. I've written about sitting in Starbucks and overhearing conversations between octogenarians about how they are purchasing things on Amazon. It is a real-life thing.
Q: One recent statistic I saw showed e-commerce was up 14% from last year, while brick and mortar was down about 3.5%. Obviously, the needle is moving rather quickly.
A: Yes. Yet when you look at the last six years, the "flux" is going down. It is like 14% now, but if you go back a couple more years, it was 15% to 16%. Even experts predict that over the next three to five years, that number only goes to about 12%.
Q: We hear the term "experiencing economy." Retail has to become an experience and not just a place to shop. So how do stores transform themselves? What are some examples? I know that you're working with your group in Minneapolis there at the Third Haus to test some of these technologies. What are you looking to do?
A: I think the one thing I would caution people is that it is not just about technology. In fact, technology a lot of times can be a misleading indicator of what the store of the future will be like. When you start talking about the brand or the tactile experience and what the store of the future is, it is always going to be a combination of three ingredients—the technological choices, the physical architectural choices, and the human service design element that you put into that space. It is all three of those things working in concert and how you mix that cocktail depending on your brand, price promise, and product assortment as well as your delivery capabilities. That can play very, very differently. You've always got to be looking at some combination of those to find what's right for your brand.
Q: Can you give us an example?
A: A company that's doing a great job of that is Lululemon Athletica. I just read an article that called Lululemon "the next Nike." I would almost go a step further and say Lululemon is the next Disneyland, where what you have is a retailer that is not just selling a product—Lululemon is not just selling yoga pants—but also selling a healthy lifestyle, which is very attractive to the younger generation.
The company recently unveiled its new "experiential store" concept at the Mall of America in Minneapolis. Not only do these stores have a great product that is highly differentiated from a brand perspective and can command a premium price relative to others, but they also continue to augment their offerings. They put in a full-fledged yoga studio, so you can come in and take a yoga class. You can actually try the product on while you're there and take the class, and if you like it, you can buy it. They also have cafés, so you can get a meal or a smoothie before or after class. So, they're making it much more of a social—and wellness—experience.
Q: Is this any different, though, from Bass Pro Shops, for instance? They have offered an "experience" in their stores for some time. They have an aquarium, where people can come and look at fish. They have an archery range and a coffee house and places where a customer can try out some of the systems and equipment they sell. How is what you're talking about any different from what some retailers have been doing for a while? Or is it just an extension of that?
A: I think it's just an extension. What is old is new again. That is the funny thing: Retail is always the same; it is just being interpreted slightly differently, depending on who you are as a brand or a retailer.
Q: So, in some ways, is it repackaging the brand?
A: Yes, absolutely. I think when you hear about the retail apocalypse, the places where you see physical retail dying are places where either the retailers or the business models haven't allowed for the flexibility to try to do those types of things that matter. It is not the malls that are dying; it is the things within the mall that are dying.
There is no reason to go to a specialty apparel store or a department store that just has racks and racks of clothing. I can get that very easily online if I know that I want those items. And I can also discover them much more easily via Instagram, Facebook, and other social media.
That is why our business models are challenged. It's the same with department stores. The only things in department stores are racks and racks of different products—items you can find in a Macy's but you can also find in many, many other physical stores as well as many places online. There is really no reason for me to go there because as a consumer, I just don't need those types of experiences for product acquisition.
Back in the 1980s, it made a ton of sense. The local mall was great because it made going shopping more convenient than it had been. That is not really valuable anymore. Therein lies the problem. It is about how you re-imagine the answer to the question of why a consumer would actually go there.
Q: I've heard you say there's a difference between search and discovery. Can you elaborate on those distinctions?
A: I use "search" when I know what it is that I want. It is really about find, seek, destroy. Get it. Buy it. Whereas "discovery" is something that happens when I don't know what I want. There are a lot of different ways I can try to be inspired by what it is that I may want. For a lot of us, it is coming through our Instagram feeds. It could be going to a physical place, and it still is probably, in some instances—but to succeed at that, you have to do it really well, time and time again. So that is why I would argue that physical retail is not dead; it is just being re-imagined, such as with pop-up shops. It is not the same all the time. It is not stagnant. It is not in the traditional places where we've come to expect it.
Q: Are you familiar with American Dream, the shopping and entertainment complex in New Jersey that recently opened with an amusement park, water park, ice rink, and snow ski slope? Is that an example of where the market might be heading—the development of a mammoth retail complex that's different from the traditional mall?
A: Absolutely. Again, I don't even think it is necessarily all that different. The model was used by the same company with the Mall of America in Minneapolis, where you are setting up a mall as an attraction, as a place of entertainment. You are building it in such a way that entertainment is really the first and foremost reason you go there. What you do from a shopping perspective is almost the convenience of something to do while you're there versus why you go there. It is the other attractions that get you to go there.
We follow the Mall of America here very closely. They are all about how you spend your time there as a family. American Dream is really an extension of that concept. It will be interesting to see because the dynamics of the two places are different, the localities are different. So, in a lot of ways, this is a variation on a theme that we have already seen work.
Q: You mentioned pop-up stores earlier. One of the more interesting examples was the GH Lab, which was a pop-up store that was open only during the fall of 2018. Can you talk about what made it different from a typical retail store?
A: The GH Lab was a partnership between Good Housekeeping magazine and Amazon, facilitated by the Mall of America. Good Housekeeping took out a space in the mall, roughly 3,000 square feet, where it offered a curated selection of home furnishings. The store was set up to allow shoppers to go discover products, but it was done in a way that eliminated the need for physical inventory—there were no shelves stocked with products, for example. It was set up more showroom-style, so you could come in and browse, and if you found something you liked, you could buy it online.
The way they did that was through the partnership with Amazon. You walked in the store and opened up the Amazon app on your phone. If you saw something you liked, you just took a picture of a bar code next to it. You were then taken immediately to the Amazon web portal, where you could buy it and make arrangements to have it delivered to your home. It is super easy and super straightforward.
The thing I love about it is that it just shows how easily anyone can stand up a physical retail operation in today's day and age with the right combinations of technologies. In this instance, you had very little inventory on your shelf. You had very little operational expense because you didn't have a lot of inventory that you had to manage. As a result, you can do things a lot faster.
Q: Interesting. Most people are familiar with the Amazon Go chain of cashierless convenience stores. Is that a possible model for the store of the future?
A: I think Amazon Go is a really important model to keep an eye on. I believe there are 21 or 22 of them throughout the country now. The way they work is, you scan the Amazon Go app on your phone to get into the store, which resembles a traditional convenience store. Then, you just walk in, take whatever you want off the shelves, and walk out. So, it is different from the GH Lab. You're not actually using Amazon technology to arrange for something to be shipped to your home; you're using Amazon technology to pay for your purchases without standing in line. It's all done electronically.
Q: They use sensors and cameras to track your movements and track what products you're taking, correct?
A: Right. It is a combination of cameras in the ceiling as well as shelf sensors that monitor the weight of products on the shelves. So, they do that triangulation. They follow the product. They follow the gestures of the shoppers, and they know what they've taken by the time they leave the store. You exit the store, and you get a receipt pretty soon after leaving.
Q: So obviously, that involves some technology. We've seen advances in artificial intelligence (AI) as well as the Internet of Things that allow products to communicate with inventory systems and purchasing systems. What role will those technologies play in making sure that the store of the future operates the way it needs to?
A: The AI side is incredibly important in what we just described with Amazon Go. Essentially, the way that works is you have hundreds of cameras that are taking thousands, if not millions, of snapshots of products at any given point in time. It is through the use of AI that the cameras can become smart enough to recognize what is happening in the space.
Right now, there are a few limitations on the technology. One is simply the number of SKUs [stock-keeping units] it can identify. Another is how fast it can process the information.
So, AI is going to be incredibly important because as the machines get faster and better at understanding exactly what's happening, the technology can be expanded to applications beyond just a 3,000-square-foot convenience store.
What I think is really interesting is solving that problem is far easier than figuring out how an autonomous vehicle can drive down the street. It is the same inherent technology, where you have a vehicle that needs to take pictures of everything going on around it and using AI to understand what is going on around it, and yet we are actually hearing a lot more about that in the media than about AI and retail. The retailers themselves are more open about their experiments with autonomous vehicle delivery than they are about autonomous checkout. But in reality, cashierless checkout is a far easier problem to solve and a far less risky proposition, when you think of all the things that are at stake with autonomous driving.
Q: It will be fun to watch. I've heard you say that the store of the future needs to resemble a casino experience. Could you explain what you mean?
A: Yes, absolutely. At the end of the day, if you are a physical store, the most important thing you have to do is to answer the "why," as in "Why would customers want to come here?" So, I always allude to a casino because I think the casino still does a great job of addressing the "why." If you think about it, the casino has a job called "host." The host's task is to make you feel welcome every time you walk through the door.
So, if retailers are going to win, they need to adopt that kind of mindset in their physical stores and make sure their visitors enjoy their time there. Because for retailers, the most important metric, the most important indicator of success, is whether you, the customer, had a good time. It is not how much you bought on a given day. It is not how big your basket was. What's going to determine whether customers will come back over and over again, especially in physical retail, is whether they enjoyed it and whether it was worth the time to go there. That is what matters. That is what casinos understand really, really well.
Q: Tell me about Omni Talk. Who are you and what do you do?
A: Omni Talk is a blog, and it is all about the future of retail. It was started by my business partner, Anne Mezzenga, in 2017. Anne and I met at Target working on the Store of the Future project together. After Target, we realized that there are a lot of great things happening in retail. We have a lot of interesting stories to tell and a lot of experience to share, so that is what we started doing.
From there, we got into podcast content. We do weekly podcasts on the top 10 lines of retail. We do spotlight podcasts on companies that are changing the way retail works. Recently, we've been getting into video production as well. It has been growing pretty fast, and I am really happy with the response overall.
Q: Where can readers find your Omni Talk blog?
A: They can go to www.omnitalk.blog, or they can follow us on Linked In. Just go to the Omni Talk page and follow us there.