OPINION – Retail Revolution: Rethinking the Retail Store Model
* By Victoria White
Over the past year, consumer buying behavior has shifted overwhelmingly to digital channels. Online e-commerce and, in particular, social commerce has grown to account for over 52% of total retail sales in the Chinese market in 2021.
This was driven by greater accessibility, convenience and consumer confidence compared to traditional brick and mortar retail stores. With the latter suffering from forced shutdowns during shutdowns, an overall reduced footfall and limited supply of inventory due to supply chain disruptions, as well as higher operating costs to support post-pandemic security measures , we have to ask ourselves if physical retail stores are on the verge of extinction?
The answer is probably twofold: Retail stores still have a key function to play in the consumer’s sales journey, but must transform to take on a new role. The efficiency of online sales and delivery was found to far outweigh traditional store purchases, forcing the function of retail stores in the customer cycle to adapt in order to make a living and survive the market. ‘to come up.
As the majority of retail transactions are now done online in China, we see in the future that retail outlets will function primarily as marketing tools, rather than outlets, in order to strengthen the market. Brand DNA and lifestyle values in person with consumers.
Even before the events of 2020, leading luxury brands had cobbled together the concept of lifestyle destinations replacing the core retail location. Prada’s Bar Luce, Gucci Osteria da Massimo Bottura, The Blue Box Café by Tiffany & Co. and Ralph’s Coffee & Bar have all tried their hand at crossovers with F&B partners to stimulate consumers’ appetites – literally – and entice them to s ‘linger for hours surrounded by the designs and ethics of brands.
The labels had also sought to dedicate a space to better inform customers about the brand’s heritage, presenting pop-up exhibitions and art installations to transform stores into cultural destinations. The flagship stores of Alexander McQueen, Ferragamo and Cartier all featured archival designs, photographs and artwork alongside current collections to engage customers and cultivate an emotional connection with the brand.
Today, however, it is not only flagship stores, but also shopping malls and central outlets that need to reshape their function and design in order to play a role in the new cycle of offline to online consumption. , under penalty of closure.
As digital media advertising costs continue to skyrocket due to the growing demand for advertising space on major digital platforms, brick-and-mortar stores serve as an alternative marketing medium for customer acquisition and engagement. .
We can expect to see outlets emptying shelves and inventory, making room for digital imagery, interactive displays and entertainment to immerse customers in the brand’s lifestyle proposition. The real value of physical locations lies in their ability to draw consumers’ attention to the brand and its story longer than the duration of a Douyin / TikTok music video, and to make a face-to-face connection with potential customers.
In Macau, we’ve already seen luxury brands invest heavily in new pop-up exhibitions and displays to support product launches and improve the overall customer experience. In the future, increasingly inventive concepts that convey the brand’s identity will be required in order to maintain the impact and differentiate the brand from its competitors.
Originality is the key to success: for example, mattress and bedding retailer Casper has opened a store in New York City where customers can pay US $ 25 for a 45-minute “rest session” in a sleeping cabin. Equipped with the Casper mattress and bedding, with complimentary pajamas, healthy snacks and samples of luxury skin care brands. The Dreamery, as it is called, exudes well-being and relaxation as an oasis of calm, reinforcing the brand’s image as a premium product among young, health-conscious consumers.
For Macau retail outlets, this general industry shift from sales to marketing functions may be nuanced somewhat by the unique makeup of the consumer market.
Duty-free shopping and the casino loyalty rewards ecosystem can still drive customers to buy from physical retail stores in Macau ahead of e-commerce channels. The sales function should continue to exist alongside the new marketing / destination lifestyle function, which now represents a dual objective for retail stores in the SAR.
A particularly important aspect of the marketing potential of these retail stores encompasses the e-commerce live streaming services. In the Chinese market, social commerce live streaming has seen a huge increase over the past year, up 210% from 2019 sales, with an audience of over 617 million and 388 million. buyers active in December 2020.
Live streaming directly from the brand’s store helps reassure customers that they are buying directly from the premium brand and gives them access to collections and products potentially not available in China. In addition, where the products sold come from the store’s inventory and the sales contribute to the store’s turnover, local tax regulations will apply.
Therefore, retail groups should revisit their regional sales strategy to centralize live streaming and online sales in the tax-optimal retail location. Macau, with low tax rates compared to other Asian countries, could play a central role in these sales activities for the Asian market.
Now, dedicated live streaming studio areas in retail stores will emerge as an essential feature that ensures professional streaming quality and avoids interrupting in-person customer visits.
At the same time, taxes, shipping, consumer protection, intellectual property and data privacy are all issues that must be overcome before embarking on live streaming and e-commerce activities at destination. an international audience. However, a well-planned strategy can support a tax-optimal sales structure and new sources of income from extended target audiences.
With the change in function of retail stores from a purely commercial function to a hybrid marketing function, store profitability can no longer be calculated on the basis of sales performance figures alone. Instead, store ROI will likely be determined by a combination of sales and marketing KPIs.
These could include the store’s media value, which could be based on the number of consumers visiting the store counted with an RMB / $ value per consumer impression and the store promoter’s net score. Point of sale sales, online sales to delivery addresses in the catchment area of the store, and live sales could also be considered in determining the overall performance of the store.
Retail stores have the ability to provide consumers with total brand immersion that outperforms digital media in terms of impact and longevity. To that end, the store’s traffic volume and visibility are key to justifying the underlying operating costs, which means prime locations with high customer flows will have a premium. Secondary sites with less exposure can adapt as destinations for live broadcasts and distance selling potential.
The ability of brands to cultivate a sense of brand community within stores – effectively becoming “branded residences” or “club houses” – is critical to attracting loyal customers and the store’s overall success as a tool. commitment.
Due to the change in function of the stores, the conventional method of calculating commercial rents may also be reviewed. Rents can no longer be tied to a standard base rate and an additional percentage of gross retail income.
Instead, retail rents could be viewed as a customer acquisition marketing cost, calculated based on in-person visits and the number of impressions the store generates. Digital imagery and footfall technology can help homeowners and retailers accurately measure store visits and dwell times to calculate store rental values accordingly.
Meanwhile, retailers may also consider negotiating extensions to the scope of activities permitted under their current rental agreements to enable the provision of new on-site services: such as catering, exhibits, entertainment and broadcast (live broadcast).
In the future, retail stores could play an important new role in the customer journey as highly visible and effective marketing channels. Additionally, the benefits of consolidating live streaming and online sales at retail outlets in low-tax jurisdictions, such as Macau, should not be overlooked as part of a regional sales strategy. .
With these new features, store performance can no longer be measured solely in sales volumes, but will require the use of AI, built-in analytics, and consumer tracking to calculate the store’s overall impact on productivity. of the brand. Therefore, retailers may seek to revisit existing business models, as well as sales and marketing functions and rental agreements, to meet their new needs. It will also allow businesses to equip stores with the engagement resources and sales tools needed to support their role in the new retail ecosystem.
About the author: Victoria is Special Advisor at MdME Avocats. She leads MdME’s digital transformation team which focuses on the legal, regulatory and policy aspects of digital transformation, emerging technologies and digital solutions. Victoria is a Data Privacy Law Expert and Information Privacy Professional / Asia Certified by the International Association of Privacy Professionals.