Home News Thought Leadership 7 Winning Models for Retail Experiences in the Future

Feature Article

December 2019

7 Winning Models for Retail Experiences in the Future

In Brief:

  • As consumer needs continue to shift, and brand loyalty wanes, smart brands and retailers are embracing one or more of the seven key experiential models that win over shoppers: convenience, expertise, treasure hunt, curationentertainment,  frictionless, and community.
  • Retailers and brands are embracing new selling models, like rental, consignment, and service offerings to bolster those experiential models.
  • Blended online and offline capabilities are especially critical as retailers and brands aim to offer value-added experiences in an increasingly digital landscape.


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Experience is top of mind for most of us these days. Improving online and in-store customer experience was one of four main priorities for retailers in 2019, along with growing revenue, reducing cost, and improving products, the National Retail Federation reported.

The urgency around improving in-store and online experiences is not unwarranted. The ability for shoppers to buy products from the comfort of their own homes has reduced the need for stores in many cases. Meanwhile, brand loyalty has waned in recent years. As a result, many brands and retailers have found themselves aggressively cutting prices, resulting in lower margins.

In a time of fierce competition, experiences can help brands and retailers demonstrate their added value. Embarking on an experiential strategy, however, is easier said than done. “Experience is a tricky word. Often, people think there’s only one idea of what constitutes a good experience, when in fact there are many,” said NPD Vice President and Industry Advisor Matt Powell.

Analyzing market information from across industries, NPD has found seven key experiential models that allow brands and retailers to create compelling value propositions that move beyond price.


Chart:

7 Winning Experiential Models

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Convenience

The rise of next-day delivery, buy online, pickup in store, and mobile ordering has made it more convenient than ever for consumers to buy the products they want, when they want them.

Increasingly, however, shoppers want access to products without the perceived hassle of owning them. Retailers, like REI, now offer outdoor gear-rental services as a way to make their products more accessible to customers who have limited ability to store clunky outdoor equipment, use those products so infrequently that owning makes little sense, or are new to the category and would like try a product before committing to it long term.

Rental services have also taken hold in apparel, with upstarts like Rent the Runway offering consumers an accessible way to don designer dresses. Fifteen percent of apparel consumers have reported using an online apparel rental service, with 5% of apparel consumers currently using such a service, as shown by our Future of Apparel report.

Retailers and brands may be hesitant to offer rental goods out of fear of cannibalizing sales of new products. When asked if rental can be a viable model, Powell responded, “It certainly can be. Rather than a one-off transaction, a retailer and brand can use rental as a way to service one customer across many instances, and many customers with the same product. A rental engagement also provides an opportunity to trade-up consumers to more expensive products in the future, either through future rentals or sales, while demonstrating their value to the consumer.”

As companies look for lasting ways to build relationships with consumers, rental may offer shoppers a convenient way to interact with new product categories. At the same time, the retailer or brand offering rental offers a platform for continued engagement with the consumer.

Expertise

Brands and retailers that make expertise a cornerstone of their value proposition provide consumers personalized guidance during various stages of the purchase journey.

Home Depot, for instance, makes it a point to prepare its associates to answer any number of questions customers may have. “You’re going to bring in a spark plug for your 1979 snowblower and say, ‘I need one of these.’ If the associate doesn’t know the answer to that, you’ll be disappointed,” said Kevin Hofmann, Home Depot’s former CMO, in a 2017 Adweek interview.

Often, a retailer or brand may extend this level of expertise into the post-purchase stage of the purchase journey through servicing arrangements. This is especially critical in product categories with complex installation.

Consider the home automation category. In the past, the category was primarily purchased by tech-savvy early adopters. In the coming years, however, home automation’s growth likely will be driven by a broader swath of consumers. As home automation appeals to more consumers outside of early adopter stage, they’re more likely to need help installing such products. Fifty-eight percent of consumers who are likely to purchase home automation in the future plan to self-install such devices. By comparison, 65% of consumers who already own such products installed it themselves, as shown by our Future of Tech report. As fewer consumers plan to install home automation devices themselves, more are planning to pay a retailer to conduct installation, the report found. “Simplifying the installation process further will help drive ownership of [home automation] products,” said Eddie Hold, President, Connected Intelligence®.

Treasure Hunt

Off-price retailers, like T.J. Maxx and Marshalls, sell a wide array of excess inventory at discounted prices. For many consumers, the appeal of off-price is that they don’t know what they’ll end up buying when first entering the store. The experience thus turns into a treasure hunt, with consumers searching through the store to find the best perceived deal.

The off-price channel has been a recent superstar in apparel. Over the past year, apparel sales at off-price retail grew 3%, while total apparel declined 1%, as shown by our Consumer Tracking Service information. Additionally, leading up to the Holiday 2019 shopping season, 16% of consumers planned to shop in the off-price channel, up three percentage points versus the prior season. By comparison, planned shopping in most other channels remained relatively stable compared to prior year, as shown by our Holiday Purchase Intentions study.

With consumers reporting that they pay nearly 60% less at off-price stores compared to traditional department stores, price is certainly an important element of the treasure hunt experience. Off-price retailers, however, deliver additional value to consumers who enjoy the time spent bargain seeking. “The off-price consumer is there to shop for herself and it is her time to escape,” said Apparel Industry Analyst Maria Rugolo.

While the off-price channel draws an older demographic, Millennials and Gen Z are redefining the treasure hunt through different channels. Increasingly, younger generations look to purchase used clothing as a way to “enjoy the thrill of finding a unique item that others aren’t wearing . . . while decreas[ing] the demand for new products and the natural resources that go into making them,” according to Savers, a thrift retailer.

In fact, 40% of Millennial and Gen Z consumers have used an online apparel consignment service to order, sell, or buy previously owned, gently used apparel and accessory items, as shown by our Future of Apparel report. “Buying used or vintage clothing is becoming a new form of the treasure hunt,” added Rugolo.

Curation

“Retailers that offer a curated experience present consumers with the options that best meet their needs, rather than offering them everything under the sun,” said Technology Industry Advisor Stephen Baker. With more retailers investing in smaller spaces, a curated experience can help retailers maximize their real estate by guiding consumers to products, thereby helping them figure out what to buy.

Consider Toys“R”Us, which declared bankruptcy in 2017 and subsequently closed all of its U.S. stores. The retailer is plotting a U.S. comeback, under new ownership. Its two new U.S. stores, expected to open during the Holiday 2019 shopping season, will look different from Toys“R”Us stores in the past. Endless aisles stocked with toys will give way to smaller store formats and a carefully curated experience that showcases the latest products, to allow for in-person product discovery among kids and families.

Executed well, a curated experiential model can even bring new buyers into an industry. While kids are the primary driver of toy sales, there are products that retailers can showcase that appeal to a slightly older audience. “Family strategy games, for instance, is expected to grow by appealing to young adults hanging out with friends at home,” said Toys Industry Advisor Juli Lennett. More effective demonstration of these products can boost the category even further, already expected to grow 46% through 2021—a top growth area, as shown by our Future of Toys report.

Entertainment

“Experiences like travel, dining, spa, and health-related entertainment have eroded discretionary spending in recent years,” said Chief Industry Advisor Marshal Cohen. “To compete for consumer spend, retailers and brands should embed similar experiences into their stores to draw in more shoppers,” added Cohen.

While some retailers and brands have resorted to discounting in order to appeal to shoppers in recent years, some brands, like Lululemon, an activewear manufacturer, have invested in experiences instead.

“You have to make the choice as a brand to fund discounting, or you can make the choice as a brand to invest in innovation and invest in experiences,” said Lululemon’s CEO, Calvin McDonald, in a recent Wall Street Journal article.

As part of its experiential strategy, Lululemon recently opened a 20,000-square-foot store in Chicago. While the store stocks plenty of merchandise, customers can also sign up for guided meditation and yoga classes. When they’re done working out or shopping, they can savor smoothies, salads, Beyond Meat burgers, and beer with a visit to the store’s restaurant.

Lululemon’s experiential strategy may help the brand stand out in an increasingly crowded landscape. While activewear category sales are expected to increase 7% between 2019 and 2021, as shown by our Future of Apparel report, competition is getting fiercer as more retailers expand their activewear offerings to rejuvenate their businesses.

“For activewear to maintain its projected growth trend, retailers and manufacturers will need to stay ahead of consumer trends, like increased demand for experiences. Several classic brands have experienced resurgences of late; capitalizing on the brand cache will drive growth in the category,” said Powell.

Frictionless

Businesses that offer frictionless experiences leverage technology to help consumers save time during the shopping process. Amazon Go stores, for instance, use image-recognition technology to automatically charge shoppers for the products they take from stores. “This eliminates a key grievance consumers have with shopping: waiting in line to check out,” said Food Consumption Industry Analyst Darren Seifer.

In the retail and general merchandise sectors, brands like Nike use apps to seamlessly guide shoppers through their stores. If a customer needs assistance, there’s no need to wait for a store associate to come by. With the app, Nike customers can request fitting rooms and shoe sizes through the app’s “in-store mode.” Shoppers can even use the Nike app to scan QR codes on mannequins to see if their size is available.

With total footwear spending projected to remain flat through 2020, as shown by our Future of Footwear report, and e-commerce penetration expected to increase, many brands, like Nike, understand the need to create frictionless omnichannel experiences that create added value.

“The way we look at digital and in-store is not channel-by-channel, or one channel helping the other. Instead, we architected the entire notion of why someone with a phone in their pocket would walk into a store,” said Michael Martin, Nike’s global head of digital products, as reported by Digiday.

Advances like mobile ordering and one-day shipping will continue to make the online shopping process even more appealing to consumers. To make the most of stores in such an environment, it’s critical to blend the benefits of both physical and digital through frictionless digital experiences.

Community

Non–big box retailers, or ones that focus on a handful of categories, can leverage their expertise and high levels of customer interaction to build a community of enthusiasts.

For example, retailer B&H specializes in photo, audio, and video equipment. Its only physical store in Midtown Manhattan attracts enthusiasts from around the world, while its robust e-commerce presence is used to serve other regions.

Blending both physical and digital assets, B&H forges a community through its in-store “Event Space,” which hosts seminars and lectures that are also streamed on digital platforms. The retailer’s website states: “The B&H Event Space is a leading-edge learning environment designed to educate, inspire, and cultivate a community of like-minded individuals who aspire to be great at what they love to do. By offering free workshops and lectures in photography, video, and pro audio, it is our mission to help those in this community achieve their goals.”

All of this helps to establish B&H’s authenticity as a retailer committed to helping enthusiasts create their best work. As more consumers, particularly younger ones, value authenticity, communities are one way to keep this audience loyal.

“In the age of social media, transparency and authenticity are also highly prized by consumers. This trend is especially apparent when retailers and brands communicate with younger generations like Generation Z. Forward-thinking retailers are already on the case, leveraging new and enhanced technologies and finding innovative ways, like omnichannel communities, to encourage as much demand as possible from this new breed of consumers,” said Cohen.

In a retail environment with low switching costs, developing community is an approach that appeals to consumers while delivering on the increased need for authentic offerings.

Building Value-added Experiences

As consumer needs continue to shift, retailers and brands will need to elevate the experiences they provide. From curation to treasure hunt, to entertainment and frictionless, retailers and brands have tapped distinct experiential strategies that appeal to differing consumer needs. Each of these approaches has been shown to have promise, as evidenced by select leaders in the space. Are you among them? And if not, what will it take for you to offer experiences that appeal to consumers in an age of ever-increasing options?

Learn More

Discover more from our “Future Of” report series across apparel, retail, tech, footwear, toys, and food. Visit our LinkedIn page, contact your NPD account representative, or email contactnpd@npd.com.

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