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OP-ED: Reinventing Retail: Trends to Watch in 2018

Daily Journal of Commerce
November 20, 2017

Overview

2017 has been a tumultuous year for brick-and-mortar retail. A wave of bankruptcies and store closures has underscored the fast pace of change in the retail industry—and the cost of failing to keep up. But retail is hardly dead. Far more retail stores will open in 2017 than will close, and by some metrics, consumers’ in-store shopping has increased steadily since 2014.

Savvy retailers are working to lure customers away from their smartphones—or at least lure customers and their smartphones—back to brick-and-mortar by focusing on the customer experience, convenience, and technology integration. At the same time, retailers are rethinking the role of the brick-and-mortar store. As we move into the holiday season and the New Year, here are some trends to watch and innovations to follow.

Creating “third places”

Starbucks pioneered the concept of the “third place” as a retail strategy—a place that is not home (the “first place”) and not the workplace (the “second place”), but offers a comfortable and informal space for gathering. Retailers, developers, and shopping center owners have recognized that such spaces can anchor and support the bricks-and-mortar shopping experience. Over the next year, expect to see a renewed focus on creating spaces within retail stores and shopping centers intended to make visitors comfortable and extend the duration of the typical shopping trip. These spaces may also provide a new way for customers to interact with products or brands through programming or amenities.

An Apple executive’s comments at a product release event last month underscore this trend. Apple has reconceptualized its physical locations as “town squares,” and hopes they will become “gathering places” where customers will come to relax, try new products, and take classes. New and redesigned stores implementing the “town square” concept will include more seating, interior landscaping, and educational programming in a plaza-like setting.

Personalization

Another significant trend is a focus on personalization and the customer experience, particularly for high-end retail. One recent example is Nordstrom’s launch of a new small-store concept, Nordstrom Local. At 3,000 square feet, Nordstrom Local’s Melrose Place location in Los Angeles is a fraction of the size of a typical Nordstrom location and carries no inventory. Instead, items are selected by salespeople for particular clients, or selected by customers using an app, and brought to Nordstrom Local from a nearby store or warehouse.

Personal shoppers are nothing new, but integrating technology into the shopping experience offers a wealth of new opportunities. Many luxury brands and high-end department stores are experimenting with technology that helps tailor the in-person shopping experience to individual customers and eliminate pain points in the shopping experience. Apps also offer a way of collecting information about customer preferences, allowing individual salespeople to serve consumers more effectively as they learn about the client and allowing brands to learn about customers in the aggregate. We can expect to see further innovation in this area in 2018, and beyond.

Smaller stores

Retailers are also focusing on bringing stores closer to their customers and to more convenient locations. Nordstrom Local gives customers the ability to pick up and return online orders, try on clothes, and work with a personal stylist in a relaxed, boutique setting—without fighting crowds at the mall or parking in a shopping center garage. Other retailers experimenting with small store concepts include Sephora, Target, and Ikea. Smaller stores may allow these brands to open more stores and to increase brand awareness in new markets or new environments. They can also serve as a distribution point for picking up and returning online orders.

Unique experiences

In order to lure shoppers away from screens, many retailers are designing stores that provide product-based experiences that cannot be replicated online. For example, Eddie Bauer has installed an “Ice Box” in some of its new stores, allowing customers to test outerwear in temperatures as low as negative 20 degrees Fahrenheit. A Nike store in New York features an indoor basketball court for testing shoes. Best Buy has found success with shop-in-shops, where customers can try out products from high-end retailers like Magnolia Home Theater and Dyson in separately branded environments. These strategies build customer trust and product familiarity, while providing customers a reason to shop in person instead of online.

Data collection

While many retailers and start-ups are experimenting with technologies that assist in data collection, Amazon is one high-profile pioneer. In Amazon’s physical bookstores, customers can scan electronic product labels with their phones to bring up current pricing and reviews. The data generated by customers provides insight into how they browse and buy, and allows Amazon to refine in-store and online shopping environments. Amazon is expected to introduce similar technology into Whole Foods stores to track the browsing and spending habits of grocery customers as they shop. Other retailers will doubtless follow suit.

Streamlining distribution 

Physical stores are also increasingly being used as distribution points for online sales. Target launched a new store concept with two entrances—one for online pick up and grab-and-go purchases, and a second for a more typical Target experience. Similarly, Amazon partnered with Kohl’s to provide a special area in Kohl’s stores for Amazon returns, and has installed Amazon Lockers in Whole Foods stores to allow Amazon customers to pick up online items while shopping in-store. Not only do these concepts make online shopping more convenient for the customer, they lower distribution costs for retailers because product can be shipped to and from a single point.

The 21st century store

The trends discussed in this article indicate major changes in the way customers shop, and the way retail tenants use space. Landlords, tenants, and owners and developers of retail projects should recognize that the store of the future may look different than the stores of today, and that as the retail landscape changes, the way retail properties are developed, leased, and managed may need to change too.

Column first appeared in the Daily Journal of Commerce on November 20, 2017.

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