Retail’s Reinvention: Resetting Store Strategies to Drive Future Growth
During the pandemic, retailers started to wonder what kind of role the physical store still had to play. Many stores were shuttered and there was a higher reliance on online shopping and a resurgence in shopping locally. Overnight, retailers were challenged to rethink and reset their business strategies.
Three years on, stores are back at the top of the agenda in post-pandemic retail and the data speaks for itself. During the holiday period, in-store foot traffic was up, with consumers less inclined to do their seasonal shopping from their couches. And over the past year, more than twice as many stores have opened than closed in the U.S., according to Coresight Research.
However, the retail landscape has changed, and a new approach is required. To truly capitalize on the growth opportunities, retailers need to be willing to reset their store strategies — and do so as part of a broader reinvention of the business.
Store Locations
While many retailers are rationalizing their footprints, the smart brands are also being more scientific about their store locations. They are leveraging data on foot traffic, sales, and customer demographics to gain new insights into where their brand sits within each different catchment area.
We are also seeing retailers optimize the mix of store types and locations. In practice, this will often be about going smaller, more local, and more closely tied to the community. Increasingly, for example, we see retail brands focusing on strip centers and freestanding small-format stores rather than underperforming shopping malls.
This is true even for some of the largest and most iconic department store brands. Consider how Macy’s, for instance, recently announced it would open several new off-mall small-format stores across the United States. This is part of a broader strategy to reposition the brand’s physical store footprint and better serve customer needs with smaller stores focused on immersive discovery and convenience.
Similarly, Nordstrom’s “closer to you” strategy saw the retailer set-up Nordstrom Local, consisting of convenient service hubs for online order pickup and returns, express alterations, gift wrapping services, plus offerings tailored to shoppers at each location. It also partnered with local nonprofits to provide donation drop-off for gently used fashion.
Much like Nordstrom, other retailers have been experimenting with smaller stores. Ikea, for example, introduced small format stores, dubbed Planning Studios, designed to reach shoppers living in areas that its typical big-box stores aren’t located in such as Paris, Toronto and New York City. In addition to focusing on key areas integral to city living, such as kitchens, bathrooms and bedrooms, the studios also serve as e-commerce distribution centers.
Destination Shopping
Similarly, retailers can better tailor their layouts, in-store services, pricing and product assortments to the local catchment with the right data analytics. It means thinking creatively and innovatively about what the future retail store can be, seeing it as not just a place to purchase products but a multipurpose destination that offers a range of different experiences.
Increasingly, for example, retailers are adding adjacent services like cafes and wine bars for customers to enjoy while they shop.
We’re already seeing this play out. For instance, LVMH-owned Loewe recently opened its first Loewe ReCraft, specializing in repairing and maintaining its leather items, as part of the retailer’s commitment to the long-term viability of the luxury brand’s handcrafted bags.
With a full-time leather artisan on hand for repairs including re-stitching and handle replacement, it’s a great example of the embodiment of a brand’s value system complimented by excellence in use of retail space.
This reinvention of stores is also about combining online and offline channels into a seamless shopping experience for customers. At one level, that means services like in-store pickups of e-commerce purchases and localized inventory that lets shoppers check the availability of products before the come to the store.
At a more advanced level it can mean a fundamental reorientation of the store around localized micro-fulfillment, hyper-automation, and digitalized in-store shopping. We already see strong moves in this area from retailers such as Target, with its new large-store format giving significant floorspace over to backroom fulfillment to support same-day delivery.
Driving Engagement
The retail store also plays a critical role in building relationships with customers and legitimizing the brand. For instance, a physical presence gives customers a sense of security and reassurance that they’re dealing with a reputable company.
Stores also connect across other retail channels. Retailers have learned, for example, that closing underperforming stores can negatively impact their e-commerce performance in that locality.
Not only that, stores can also be a source of critical insights into local preferences, behaviors and purchase patterns. These insights can then inform everything from forecasting and replenishing to marketing campaigns, to store design.
Ulta Beauty’s major store redesign was partly based on listening to members of its Ultamate Beauty rewards program. This led to improvements in-store navigation and product discovery, making the shopping experience more engaging, welcoming and fun.
Stores: Route to Growth
Today’s retailers are managing constant change. But one thing remains the same. The retail store retains a crucial role in building relationships, understanding customer behaviors, and legitimizing the brand. Remembering that universal truth will be a critical factor as retailers reinvent their businesses for future growth.
