Is It a Waste of Money for Retailers to Invest in In-Store Experiences?

Last month, 36 Macy’s stores across the country got a lot more colorful thanks to the rollout of Story, the retail concept the chain acquired last year.

Story’s main draw is its rotating themes — the product lineup and design change every six to eight weeks — and the debut theme, “color,” has brought in a rainbow of merchandise, along with Crayola- and MAC-sponsored events and, at New York’s Herald Square flagship, Instagrammable features like a Lite Brite wall and an LED-illuminated tunnel.

It’s a bold bet for the storied department store, which is facing many of the same headwinds that have battered — and in some cases bankrupted — its peers, including the increasing dominance of Amazon, a larger fleet of stores than the market can support and the shift of consumer dollars from goods to experiences.

According to a 2017 McKinsey report, spending on categories like restaurants, concerts and travel has grown at nearly four times the pace of spending on goods. It’s this trend that’s driven much of the industry to invest in so-called “experiential retail” — a descriptor that can encompass everything from in-store cafés and speaker series to a slide that takes customers from one floor to the next (a feature from Manhattan’s “new retail” concept Showfields). The approach goes hand-in-hand with the current vogue for pop-ups; since retailers are only in a space for a matter of months or even weeks, they have a limited window to make a lasting impression on shoppers.

For its own experiential push, Macy’s tapped a proven success in innovative retail (the original Story boutique opened in 2011 and was profitable in its first year), but some questions remain. For one, apart from the Herald Square flagship, the Story shop-in-shops only average about 1,500 square feet, or about 1% of the size of a typical Macy’s.

“It’s amazing they’re making this investment in Story, but what about the other 90% of the store?” asks Richie Siegel, founder and lead analyst at retail consultancy Loose Threads. “Can that transform a 40,000-square-foot store, or is the problem or the opportunity much larger than what one section of the store can accomplish?”

For fiscal 2019, Macy’s anticipates net sales to be roughly flat year-over-year, and to reduce costs, the company has cut down on floor space, inventory and staffing at some of its underperforming stores, converting some of the departments to self-service areas. For Story, though, it has brought on 270 “Story Managers” and “Storytellers” trained to engage with customers, produce events and set up the space — a sign that it understands the importance of investing in talent.

When any retailer wants to deliver an experience, cutting corners on staffing can be a serious pitfall. “Your store staff, especially in a pop-up, they are your most important touch points,” said Melissa Gonzalez, chief executive officer and founder of The Lion’esque Group, an experiential retail agency. “They are the front line. You can have the most creative concept and the most beautifully designed store and the best merchandised shelves, and then somebody goes to talk to your store staff, and then what happens? You don’t want that experience to be cut short.”

Employees should be trained to speak like a founder or ambassador about the brand, the merchandise and any other questions come up, she said, because “consumers are coming in the door so much more educated than they ever were in the past. Anything they want access to, they just Google it.” (That also means paying staff accordingly.)

Before that, though, retailers need to identify what they want to accomplish. “If your goal is to make money and you’re going to spend $200,000 building a store and it’s going to be up for one month, you’re probably not going to do it,” said Siegel. “But if the goal is to make a splash from a marketing perspective and lose some money, okay, maybe that’s actually achievable.”

Sneaker retailer Finish Line, for instance, converted three of its stores into shoe-centric bodegas as part of its #ShoesSoFresh campaign. While the marketing push also included an ad starring Billie Eilish and Migos, the store concept — which featured specially designed cereal boxes, vending machines and more — was only up for a matter of weeks.

Importantly, said Gonzalez, retailers need to keep their key performance metrics (KPIs) and goals in mind throughout the planning process, and these will help you determine the answers to some of the questions that come up about duration, location, footprint and collaborators.

“Especially in footwear market, collaboration is so key right now,” she said. “But it definitely needs to be purposeful and further the goals of what you’re looking to achieve and what you want to tap into. Is it something cultural? Is it sustainability? Really understanding that upfront will help you make some decisions of who are the right people to partner with for your brand.”

Where retailers can make a mistake is if they think tactically, rather than strategically, which can lead to superfluous technology (think VR headsets in stores where customers just want to feel and try on merchandise) or a lack of basic necessities (like a phone line so shoppers can ask if an item they want is in stock).

A question that retailers should ask themselves, said Siegel, is: “Are you trying to solve a problem with this? Or do you just have a solution and you’re trying to find the problem? And I think a lot of the technology and some of these other things in stores are solutions in search of a problem.”

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