It seems only recently that big-box stores were seen as the future of retail. With their ability to leverage unprecedented efficiencies of scale as well as ranges of merchandise, big-box stores — whether general or specialized — seemed to have a lock on the future. Of course, the past few years changed all that, as evidenced by the shuttering of once-prominent chains and brands. While some of these failures were due in part to a transformation of the particular business (think Borders/Waldenbooks), and all of them were accelerated by the recession, the fact is that the big-box store is under siege from two distinct directions.
The first is the immutable law of supply and demand. There is simply an overabundance of square footage of stores these days, perhaps twice as much as would be sustainable even in a healthy business environment. Store closings, rationalizations and redeployments (for example, as distribution centers for the online channel) are in our future, no matter what the economies of scale. Whether they will be individual sites or whole chains remains to be seen.
At the same time, e-commerce is rapidly eating away at the market share of brick-and-mortar merchants. Virtually every American consumer who can afford to go shopping has Internet access through a smartphone or computer, and there is little that one cannot buy online, often faster and cheaper than in a big-box store. In other words, if you want a shopper to come into your store, you have to give her (or him) a compelling reason. Actually, we’ll go further than that.
Traditional thinking about retail might suggest that after selection, price and convenience there’s not a whole lot left to offer, but fortunately for merchants that’s not the case. Have you heard the expression “Experiences are more important than things”? That’s not a slogan on an herbal tea box, that’s the finding of some remarkable neuroscience research done by Leaf van Boven, Thomas Gilovich and others, who have looked at the ways the brain responds to different kinds of stimuli, and they’ve identified the kinds of events that lead to happiness. Translated to the business world, people have to spend money when they need the product, but people choose to spend money when they want the experience. (The most extreme example of this, of course, is gambling, where people put down money simply for the sake of putting down money and the hope of a thrilling experience as a result.)
When a retailer or service or brand is able to provide an experience reliably, consumers come to associate it with that brain-level happiness, and they develop an attachment — almost an addiction — to it. In our book, The New Rules of Retail, we talk about neurological connectivity as a key to providing shoppers the reason to come to a store for a product that could just as easily be purchased from an e-retailer without getting up from the couch.
Retailers can engage their customers in a variety of ways, from the sensory excitement at Abercrombie & Fitch Co. to the kindness of the staff at Nordstrom Inc., but there a few things to keep in mind:
- This approach is not just about making the store entertaining. In the early 1990s Tandy Corp. built 17 “Incredible Universe” superstores, featuring music, laser shows, etc. They lost money and were ultimately closed, in part because they did not establish a connection with the brand.
- At the same time, neurological connectivity is not dependent on a huge capital outlay or limited to high-end stores. The constant introduction of new lines at Zara and the accommodating service at Zappos.com prove that neurological connectivity can be part of the DNA of stores at every level.
- Even when successful, neurological connectivity does not trump economic fundamentals. At the end of the day, there are only so many consumers with only so much money, and there is a limit to the retail square footage that they can support.
As they are currently configured, most big-box stores are simply too uninteresting to drive enough traffic for their size. But are any big-box outlets or large department stores sustainable these days? We certainly think so. While the past few years have been particularly hard on department stores and big-box chains, a few have found a path to success by creating — or welcoming in — a variety of mini-boutiques, strategically chosen to complement the overall brand experience. Shoppers do not experience themselves as trying to negotiate a single huge institution but a series of human-scale, connected merchants. J.C. Penney Co., Macy’s Inc. and others are taking the approach a step further, turning some of their stores into indoor “mini-malls.”
Beyond changing their configuration, big boxes will have to design and execute a store experience that will grab customers at their brain stem and connect them to the brand.
When Home Depot Inc. first began, shoppers — especially male shoppers — came back again and again just for the opportunity to speak with the staff. Will a new Home Depot have plumbing classes? an in-store wood shop to try new tools? master craftsmen on call? a restaurant using the very model grills that are for sale? To be successful, Home Depot and others will have to create those experiences that compel their customers to keep coming back.
This much we know: The retail ecosystem will not support many big-box stores as they are now for very much longer. Those that will survive past 2025 will be those that have made themselves not just attractive but indispensable to their customers’ happiness.
Originally published in Mass Market Retailers.
16 April 2012