Gather customer data to inform the location, format and design of your store portfolio
Prioritize the needs of your local customer-base
Use the halo effect of your stores to power omni-channel marketing and sales
Determine the specific purpose of each and every store
Identify which format best suits the purpose of your store
The retail sector is undergoing a period of unprecedented change, with increased online competition, recent developments in new technology and rapidly changing consumer expectations and behavioral patterns all having a profound impact on business as usual.
To meet the demands of modern consumers, leading retailers are revisiting their traditional location and positioning models to include more attention-grabbing flagship, small-format and popup approaches, alongside ensuring convenience and speed are placed at the forefront of their offering.
Here are a number of location strategies retailers are using to engage modern consumers:
Use customer data to power your retail location strategy
Before you can properly understand where to position your stores, you need to understand where your brand fits into the lives of your target audience, and to do that accurately, you need customer data.
Retailers are now experts in data gathering – or, they are when it comes to gathering data about their online audiences. But when it comes to stores, many retailers still only gather the basics – sales figures, footfall traffic, HR data on their store associates – however, there is so much more stores can do to understand their audience.
For instance, what drives your customers to enter your stores – what are they looking for? How long do they spend in-store? What channels do they use? What is their experience like?
This is one of the many reasons why leading retailers are investing in experiential stores. Sure, they’re great for attracting and engaging consumers, but they’re also incredibly valuable for gathering data.
Take apparel retailer Lululemon’s 20,000-square-foot experiential store in Chicago. The store has yoga and meditation studios, a restaurant and bar, and an area where local businesses can showcase their goods – it even allows customers to use its products during classes free of charge to see if they like them.
It’s a great branding exercise, but just think of all that data they’re gathering about their target audience. The brand is known for its high-quality yoga pants and exercise apparel, and with this new experiential store, it has access to HOW people use its products. For instance, they’d now know what time customers prefer to workout and how exercise fits in with their daily schedules. They’d have a strong understanding of the classes that customers love the most and why (the Chicago store has a number of unique classes, such as hip-hop yoga). And they have a fair idea of what people think about its products and where they could make improvements. All imperative insights that would power their product, marketing and operations strategies on a global scale.
Design your stores around the needs of local customers
These days, even the biggest brands are starting to think small – and by that I mean local. In our increasingly hectic world, location and convenience are becoming more and more important. On the one hand, modern consumers want to be wowed and entertained with incredible experiences – but on the other hand, if they want something now, they want it NOW! (part of the reason why Amazon is so successful).
As a result, retailers are adjusting their approach from mass market to localized – focusing their attention on engaging with the people who live, work or pass through the local area.
Hypothetically speaking, let’s say a fashion retailer decided to invest in an in-store fashion advice and styling service across its entire portfolio of stores and discovered the service was only used in certain locations, by certain people and at certain times. Rather than trying to keep all stores consistent, the retailer would be able to improve service and productivity by only offering the personal styling service in stores where it resonates the most, and then identifying what resonates well with other stores such as efficiency and convenience.
The Nike by Melrose store in LA is a brilliant example of a localized store offering. The store is exclusive to Nike Plus members, and gives its customers a local flavor by using data gathered by its customers in the neighborhood (buying patterns, app usage and engagement) to adapt its offering.
As a result, new apparel, footwear and accessories are specific to the needs of its local customers regardless of the brand’s broader seasonal priorities. The store is filled with new products on a bi-weekly basis and sometimes even exclusive products – which is a Nike first.
Another great example is MM to Go – a new small-format store by apparel brand M.M. LaFleur. Based in New York’s financial district, the store is focused on the specific needs of consumers in the local area. It’s products are workwear focused and ready to take away then and there (most M.M. Lafleur stores don’t hold stock), which is ideal if you happen to have a wardrobe malfunction. It also stocks a helpful range of products for life emergencies: stain removal kits, plasters for blisters and deodorant wipes.
Consider the halo effect when positioning your stores
For many retailers, the e-commerce store still operates like a store of its own – part of the existing portfolio of stores rather than a channel that connects them all together. It has its own digital team who look after it, the physical stores take care of themselves, and there’s very little interaction between the two channels.
But in this day and age, the purpose of a store isn’t solely to sell. Take the share volume of digitally-driven brands investing in physical stores as evidence of this fact. Despite the sharp increase in online sales, the “clicks-to-bricks” movement has seen a number of high profile digitally native brands open physical stores (at least 850 brick-and-mortar locations will open in the US in the coming years).
Amazon is the perfect example of this. The e-commerce giant has changed the way we shop in so many ways, yet it has invested in physical store environments such as Amazon Books and Amazon Go convenience stores and supermarkets.
Stores not only generate revenue, they also build stronger customer relationships that convert across channels and keep your brand font-of-mind – which is where the halo effect comes into play.
Research by CACI shows retailers see websales increase by an average of 106% within the catchment area of a physical store. In fact, a number of reports claim that physical stores are essential to building a long-term viable retail business. A report by Simon Property Group found unsustainable customer acquisition and shipping costs erode margins, which means scale is essential but hard to acquire.
Determine the purpose of the store
When creating a location strategy for your retail portfolio, it’s crucial that you establish the purpose of the individual store and how it fits in with your existing stores. Ask yourself, why would a customer bother to step foot inside your store?
For example, in several sectors “click and collect” or in-store pick-up is proving a popular and increasingly efficient means of serving customers. More than 50% of Walmart’s online sales and around 40% of Best Buy’s are picked up in stores, according to McKinsey & Company.
Some of the most common reasons why people visit stores are:
- Convenience: they’re in a rush and need a product or service right away
- Efficiency: your store is on their existing journey and is easy for them to visit, such as collecting a pick-up item on their way home
- Inspiration: they want to find something that changes their life in some way, like a new product or idea
- Guilty pleasure: it’s a place to make impulse purchases and get things they want right then and there
- Problem-solving: they need the answer or solution to a common problem and could do with some expert advice
- Entertainment: they see stores as places where they can be entertained and have fun
- Community: they want to meet like-minded people who share their interests and world views
- Brand: they like the look of your brand and want to see what you’re all about.
Identify which store format best suits your store
The days of trying to have your brand on every main road, mall or shopping district in the country/world are done. For instance, a number of prominent retailers on New York’s famous Fifth Avenue are closing up shop – Calvin Klein, Ralph Lauren and Henri Bendel have already left while Gap and Versace are reportedly on their way out – and vacancy rates have climbed to a 27.5% high from 49th to 60th street on Fifth Avenue.
This has largely been brought on by changes to the way consumers shop. Being seen on the main road or high street is a marketing tool – but this no longer gives the return on investment it once did. In response to its departing Fifth Avenue flagship stores, the parent company of Calvin Klein and Tommy Hilfiger, PVH Corp, said the restructure was to “evolve the traditional luxury fashion model” for the digital age.
Retailers need to be more creative in their approach to their store portfolio. According to a recent retail report from PwC, successful brick-and-mortar formats will look markedly different from one another in the years to come. Most major retail outlets will operate a multitude of physical footprints, all aimed at pleasing their target customer in a variety of shopping modes.
Here’s some examples of different store formats:
Pop up stores
Temporary store models used to be commonplace with small and somewhat niche retailers who couldn’t afford a permanent fixed location – now it’s a highly effective way for retailers to meet customers in convenient locations and in exciting new ways. Take mattress company Casper’s The Dreamery in New York. The pop up allows consumers to book 45 minute naps in their sleeping pods – it’s fun, convenient and a brilliant way to reach an entirely new market of consumers who might not necessarily be on the lookout for a new mattress but could easily be persuaded.
Small store formats
You might sell thousands of products, but that doesn’t mean you need to occupy thousands of square feet. In fact, you might be better off investing in small store formats that meet your target audience in locations that better suit them, such as inner-city locations. For instance, Target has realized that smaller store concepts are equally as valuable (if not more) to its customers than larger stores. With over 100 small store formats, they are supposedly twice as productive as larger stores, says Target’s CEO, Brian Cornell, as it means more efficient operations and stock allocation.
Stores within stores
Placing a small-format store into a larger, existing store is by no means a new concept – in essence, it’s something department stores have been doing for decades. But being available to customers during their existing journeys, like on their weekly visit to the supermarket, is a great way to meet your customers halfway. A good example is Microsoft and Samsung, who both have mini stores inside many Best Buy stores.
These act as places where consumers can interact with your products, people and brand – we like to call them brand interaction hubs. They’re exciting, innovative and experience-focused rather than transactional. Samsung KX in London’s King’s Cross is a great example, with a host of new technology on display such as a digital graffiti wall, VR racing, AR messaging boards, alongside a series of in-store events and workshops.
It might not make business sense to have a store in every far-flung town or village, but that doesn’t mean you can’t pay them a visit every now and then. That’s why a growing number of retailers are establishing mobile stores that can travel through rural areas and meet customers at their convenience. This approach is particularly popular with retail banks such as NatWest, who enable customers to pre-book appointments with its bankers online or meet them face-to-face as they are passing through.
While dissimilar to the other concepts, it’s worth pointing out that today’s marketplace operates around the clock, so while your stores might be closed, it doesn’t mean they have to stop offering value. A rather innovative example is cosmetics retailer Lush and its store in Shinjuku, Tokyo. The store provides a visual display outside that operates 24/7 and allows consumers to use the Lush Labs app to shop as well as display the mood of the local area with specific products.
The best and most profitable retail location strategies combine data-based customer insights, a strong understanding of omni-channel purchasing behavior and an-depth understanding of your store serves the local area.