Technology and the Store: The Shoppers’ Perspective
There can surely be no question that the two defining trends re-shaping the U.S. retail landscape are the impacts of the recession and technology. But whereas the impact of the recession is, we hope, cyclical, the impact of technology on shoppers’ lives and on retail businesses is profound and structural.
Much of the discussion about the impact of technology on the retail industry has focused on the extent to which the Internet will replace the physical store as a sales channel. Indeed, as each successive quarter shows Internet sales growing much more strongly than store-based sales, a polarizing debate has begun on when the Internet will make the retail store redundant.
At Leo Burnett, we are far more interested in understanding the drivers of shoppers’ behaviors than we are in forecasting the pre-eminence of one channel over another. So when we explored how shoppers are behaving in a technology-enabled retail landscape, the insights we uncovered were variously interesting, provocative, nuanced and complex.
The first thing to say is that we do not believe that the death of the physical retail store is either imminent or inevitable. It is clear from asking shoppers that many of them still look to the retail store as their final preferred purchase point in the total (and often very long and complex) path to purchase. So it is not a case of either shopping online or in-store. For most shoppers in many product categories, the Internet plays one role and the physical store plays another, complementary role.
But this does not mean that the strength of the retail store is assured. Shoppers are often very clear and very vocal about the shortcomings of the physical store experience. For many shoppers, stores continue to under-deliver on the absolute retail basics of having the right product at the right price and in the right place. Indeed, the size of the deliver gaps between what shoppers want and what they feel they get is often notably wide and notably worrying.
But even if retailers are able to deliver better on the retail fundamentals, this will not be enough to secure the future of the retail store. The nightmare scenario for retailers with heavy investments in physical brick-and-mortar real estate is that their stores default to simply being collection points for merchandise purchased online — in other words, hugely expensive and inefficient mini-warehouses.
To avoid this doom scenario, retailers with heavy investments in physical store networks need to emphasize the attributes and experiences their stores can offer that the Internet and other remote channels cannot.
Many retailers have looked to in-store technologies to deliver enhanced shopper experiences on-site. Unfortunately, when we ask shoppers how much technology does to enhance their in-store experiences, the results often appear disappointing for retailers that have invested a great deal in recent years on customer-facing technologies.
Many retailers look to these technologies to deliver on the holy grail of both taking cost out of their businesses and simultaneously improving the customer experience. The disappointing news is that customers are often largely unimpressed. From the shoppers’ perspective, in-store technology is seen as being largely about functionally improving the shopping process in self-directed environments (such as grocery stores), rather than enhancing the shopping experience in more browsing, experiential environments (such as department stores). Right now, in many store types, shoppers see technology as putting up something of a barrier between them and the store experience. In other words, it is undermining the experience rather more than enhancing it. Furthermore, for most of the shoppers that we surveyed, in-store technologies are very low-order priorities on their wish lists of what will create more appealing shopping experiences.
What are the lessons for retailers? The good news is that most shoppers still value the physical retail store for many of their shopping needs. But in those stores, the promise of technology to deliver an enhanced experience for the shopper, as opposed to a lower cost model for the retailer, has been largely unfulfilled. More work is required.
Dr. Alan Treadgold is global head of retail strategy for Leo Burnett. He is based in London and Chicago and leads the agency’s strategy work and research program for the retail sector ([email protected]).
Counting Down the Hits
So many stores, so little time. That’s how I felt as I was putting together my annual Big Apple retail hit list. This year’s crop of stores is particularly diverse, and ranges from fast-fashion leader Forever 21 to the cult French candle-maker Cire Trudon — with some Disney magic thrown in for good measure. Let’s get started:
• Aéropostale: The mall-based teen fave is hoping to attract tourists and locals alike with its 19,000-sq.-ft., two-level flagship. The design mixes New York City-inspired accents with high-tech interactivity; a digital billboard illuminated by 2 million LEDs wraps around and into the store, with content that includes shoppers dancing with virtual models. (1515 Broadway, at 45th St.)
• Cire Trudon: The centuries-old, legendary French candle-maker (Marie Antoinette was a client) makes its U.S. debut with a design inspired by the Galerie des Glaces at Versailles. Antiqued mirrors, stucco, French molding and hardware, and molded Victorian busts — candles never looked so good. (54 Bond St.)
• Disney: With a digital billboard that towers six stories above Times Square, the 25,000-sq.-ft. Disney store is a showstopper. It’s also a real crowd-pleaser with all sorts of interactive bells and whistles, including a princess castle with magic mirrors. Wave a special wand and talk to Cinderella. (1540 Broadway, at 46th St.)
• Eataly: A temple to the food of Italy, Eataly takes shopping — and eating — to new heights. This 45,011-sq.-ft. marketplace is a culinary extravaganza — a sprawling grocery store complete with restaurants and a culinary educational center. (200 5th Ave., at 23rd St.)
• Forever 21: The fast-fashion chain is testing the waters on Fifth Avenue, renting a 50,000-sq.-ft. space in the former Takashimaya Building for six months. Also check out Forever 21’s giant Times Square flagship, which has been packing them in since it opened last summer. (693 Fifth Ave., at 54th St.; 1540 Broadway, at 46th St.)
• Lord & Taylor: An estimated $25 million makeover has given Lord & Taylor’s landmarked 650,000-sq.-ft. flagship a more modern aesthetic. Most dramatic: the redone 30,000-sq.-ft. main floor with its Swarovski crystal chandelier and a sleek, high-tech beauty department. (424 Fifth Ave., between 38th and 39th St.)
• Monocle: From the magazine of the same name, this 188-sq.-ft. shop features an evolving — and extremely edited — selection of the coolest global finds. (535 Hudson St.)
• Ralph Lauren: The company transformed its famed Rhinelander Mansion on Madison Avenue into its first men’s-only store, while building a women’s flagship (another first) across the street. Both are instant classics, but the women’s store is a stunner. (867 Madison Ave. and 888 Madison Ave., respectively, at 72 St.)
• Soigne K: Bombay meets the Upper East Side at this sleek, minimalist boutique, which deals in up-and-coming Indian designers. Contemporary styles are featured on the first floor, spectacular Indian gowns and saris on the second. (717 Madison Ave., at 63rd St.)
• Tommy: The newest format from Tommy Hilfiger, Tommy has a downtown, irreverent vibe reflected in its quirky store design and logo-free merchandise. (375 Bleecker St.)
Click here to see photos of Aéropostale, Disney, Eataly and Forever 21.
Focus on: Smart Growth Chains, big and small, plot growth with caution
Eighteen months ago, the word in retail was contraction. Talk of expansion was mostly shelved, pending some kind of palpable turnaround in the economy.
Today, as 2010 comes to a close and all eyes are trained on 2011, discussion about adding stores is supplanting talk of closures. But, caution the experts, retail growth should unfold slowly and strategically, and not with the optimistic abandon of years past.
“Before embarking on or resuming expansion, it is important to arm yourself with specific information prior to launching negotiations for new space,” David Rodgers, director of lease audit for St. Louis-based Brown Shoe Co., told attendees of the National Retail Tenants Association, or NRTA, annual meeting, Sept. 27-29 in Anaheim, Calif. “It’s about gaining leverage, and that is more important now than ever.”
In the session entitled “Living with the Deal,” presented by Rodgers and Matthew Bisignano, a director of development for the Taco Bell division of Louisville, Ky.-based Yum! Brands, the following lease provisions were presented as key negotiating points for the expanding retailer: termination rights, use clauses, no radius restrictions, consents, occupancy protections, first rights of refusal that at the very least allow the retailer to purchase its existing location, and assignment and sublet provisions. “
A termination right can be the single greatest clause to have in the event your store needs to close before the end of the term,” Rodgers said. Even when focus is on expansion, smart retail chains will provide for the possibility of closure, he noted.
Use clauses are another key lease provision worth bringing to the negotiating table. “Consider any possible use,” Bisignano advised, “and don’t be restricted to just your category of business.” A provision to avoid, Bisignano said, is radius restriction. “It limits the ability to grow your business.”
A buzz phrase among all lease negotiators is occupancy protections, and Rodgers and Bisignano noted four main protections to negotiate into new leases: co-tenancy; exclusive use rights; specific signage rights that include design, size and location; and visibility protections.
“At minimum, protect yourself against structures being constructed that would interfere with your store’s visibility,” Bisignano said.
Another key provision to negotiate into new store leases is eliminating percentage rents, which both Rodgers and Bisignano said are prohibitive for future expansion, remodeling and second concepts. As well, nixing percentage rents in a lease “removes budget uncertainty and eliminates sales reporting requirements and the labor associated with the reporting,” Rodgers said.
He added that building automatic renewal options into new leases ensures a retailer will never lose a store by missing a notice deadline and provides leverage if the landlord wants to re-tenant a space for a higher rent amount.
Other negotiating positions include relocation clauses to allow recovery of all unamortized costs of improvements, plus money for moving expenses, the ability to waive reconciliations and adjustments if not invoiced within reasonable time frames, and the right to obtain more capacity if needed for expansion or other concepts.
“In short, when negotiating leases for new stores, think long term and push for protective language for common issues, expansion and/or failure,” Rodgers said.