5 Forces Driving the Retail Transformation đź‘ś

Net Net: The retail rebound is underway… but don’t call it a comeback. It is a transformation that was accelerated by COVID-19.

Retail is an industry inherently driven by momentum — retail brands must continually transform or innovate to stay relevant and profitable amidst variable economic environments and trends.

COVID-19 forced us to reimagine and reinvent retail. The brands staying on top are momentum masters: adept at challenging the status quo, taking risks, knowing who they are for, and leaning into their purpose and values.

What’s Up: Retail.

In this week’s Up & Down, we are highlighting 5 Forces coming out of quarantine that are threatening retailers and driving the transformation.

These 5 threats have been emerging throughout the pandemic and are now starting to take shape.

Force #1: Brick and Mortar vs. E-commerce

Brick and mortar is evolving to meet a different need by creating experiences that get shoppers off the internet and back into stores.

They are reinventing the purpose of the physical retail store:

  • From a place to buy products to a showroom model that acts as an opportunity for consumers to experience the brand in real life
  • From a necessity / chore to a high-touch hospitality, VIP, entertaining experience — the negative aspects of shopping turned into positives (e.g. less crowded, clean and sanitized, and employees with the time and motivation to provide them with great service)
  • From impulsive to a more mindful / strategic experience: Consumers are becoming more intentional with their in-person shopping — planning their purchase ahead and only going in-store for specific purposes

2 Brands leading the way for the future of brick & mortar retail:

  1. CAMP: Experiential retail expert Ben Kaufman says retailers have to “event-ize” their stores. “It’s got to be something to do, it’s not a chore … [it’s an] activity, a way to … have fun with friends and family … a place to watch a show or let some energy out.” Kaufman says that retailers now have to answer the questions, “what should we do today?” It’s not about stuff, he says, it’s about activity.

His Camp stores are focused on families and have products and activities for kids on their own and with their parents. The stores have two types of areas: one for products and one for activities and events. More than just stuff to buy, the store has places for kids to climb and explore and areas where I saw parents working on projects with their kids. The event areas are constantly changing. Before the pandemic they turned over every quarter.

Camp doesn’t just make money from selling stuff — they sell sponsorships to corporations that relate to its activities and products. That has given branding and marketing opportunities to large companies like Kroger, Scotts, Ally Bank and others in an environment where they can stand out, and it gives Camp an additional stream of revenue.

2. Google: “Twenty-two years into its existence, Google finally launched its first brick-and-mortar store on June 17th…

The Google Store is a prime example of experiential commerce, meaning it’s not only a place for consumers to test and buy product, but also a destination to have entertaining experiences that help them develop a stronger attachment to the brand. It has been a growing trend over the past five years. “Some brands, I think, are having trouble making the leap toward experiential [retail],” Ross says. “The beauty of this brand is that it is inherently experiential. My job was to bring that beauty to life.”

Force #2: Gen Z

How can e-commerce retailers stand out and capture Gen Z’s attention? Retailers that understand & integrate the elements of gaming & social media that Gen Z finds entertaining & captivating will be the ones that break through.

Netflix is leaning into retail and gamification by launching its online store, which will offer limited-edition merchandise based on its content.

Netflix Inc will launch an online store to sell limited-edition apparel, lifestyle merchandise and collectibles based on “Stranger Things,” “Lupin” and other popular shows, the streaming giant said on Thursday

Merchandise in the online shop will be “carefully selected high-quality apparel and lifestyle products… Items debuting this month include streetwear and action figures based on anime series “Yasuke” and “Eden,” and apparel and decorative items inspired by French crime thriller “Lupin,” Netflix said. The “Lupin” products were developed with the Louvre museum.

In the future, the company plans to introduce products based on hit series “The Witcher” and “Stranger Things” and Netflix logo-wear from Japanese fashion house BEAMS.

Netflix has also created video games based on shows “Stranger Things” and “La casa de Papel (Money Heist).”

Force #3: Sustainability

Eco-friendly is the price of entry. Climate change and environmental concerns are impacting growth opportunities and heightening expectations of companies.

One example of how brands are leaning into sustainability in a way that actually moves the needle for consumers: experimenting with innovative materials.

Hermés is the latest to adopt pioneering technology as designers shift to bio-fabrics.

The luxury fashion house’s Birkin and Kelly bags are among the most expensive ever sold. Demand outstrips supply by so much that you can’t even join a waiting list. Acquiring one is a matter of luck and contacts. So when Hermès announced this season’s handbag would be made from a leather look bio-textile, it marked a new era in designer accessories.

The autumn/winter 2021 Hermès Victoria (prices start from about £3,500 for its previous leather version) will be made from Sylvania, a leathery fabric created from fungus, before being crafted in France into a perfect Hermès handbag.

Mushrooms, pineapples, grapes, cactus and apples are just some of the organisms on the receiving end of billions of dollars of research and development funding to create leather and plastic replacements. Many of the first generation of vegan alternatives used plastic — which also has devastating environmental consequences and can take hundreds of years to decompose. The new materials are made using biotechnology.

Force #4: The Luxury Divide

How will luxury brands lean into the new evolutions that will attract a younger consumer? Authenticity.

Chanel is an example of a luxury brand leaning hard into staying true to its roots. Unlike brands such as Dior, Louis Vuitton and Gucci, Chanel refuses to sell its core fashion and accessories products online. When stores shut throughout the pandemic, consumers lost access to the brand’s most coveted items. Chanel sells perfume, cosmetics and eyewear online (and saw e-commerce sales more than double last year). But its main products — clothes, bags, shoes and jewellery — remain available exclusively via its network of boutiques.

Is their rejection of the e-commerce movement working?

Chanel still sold $10.1 billion worth of products last year. And sales are already back to double-digit growth, according to chief financial officer Philippe Blondiaux.

Chanel is in the business of selling a luxury experience, and that requires a personal touch that’s hard to deliver online, executives say. The company’s 206 boutiques and the interactions between its customers and fashion advisors are core to its strategy.

“Our focus continues to be on customer relationships in store,” Blondiaux told BoF earlier this week. “We want to protect the luxury experience for our clients by offering personalized relationships”. The strategy also helps to maintain the perception of exclusivity that surrounds the brand: core Chanel products are not available to just anyone who has an internet connection and robust bank account.

Force #5: Crypto & NFTs

The future of fashion retail is no longer confined to what you can touch. Momentum for NFTs is continuing to rise as additional industries like fashion and retail experiment with NFTs and digital collectibles.

Virtual fashion brand RTFKT, who recently announced an $8 million seed round from notable VCs including Andreessen Horowitz and C Ventures, is an example of an early adopter seeing success. They sold a digital jacket for over $125,000.

“NFTs are all about collectibles, and so is the fashion world,” says Benoit Pagotto, founder of RTFKT (pronounced “artefact”). “Fashion brands just need to look and see where their fans have a collector’s mindset already, and they can leverage NFTs to unlock new ways of creating products and generating revenue.” That doesn’t mean there needs to be a mad dash to minting NFTS, he adds. “Brands shouldn’t create NFTs because they have FOMO or want to be in the press. They need to consider their long-term vision and build towards the future.”

What’s Down:

Traditional brick and mortar filled with inventory that consumers pick off the shelves. Do brick and mortar stores like Old Navy survive the retail transformation?



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Mike Berland

Mike Berland

Momentum Maker, Author of Maximum Momentum, Founder & CEO of Decode_M