Amazon’s new bookstore in Seattle has been getting a lot of questions and criticism — but only from people who think there’s still a distinction between online and physical retail. Analysts who try to set up a life-or-death dynamic between e-commerce and brick-and-mortar are missing the point entirely. The real story right now in the $4.5 trillion U.S. retail industry is a broad, systemic shift from a product-based economy toward a new focus on consumer relationships.
The 20th century product economy was based on discrete, anonymous transactions. Companies sold things to strangers. Retail was about inventory, shelving and cost-plus pricing. The sign by the cash register summed it up: “All Sales Final.” Sears, Roebuck and Co. and Macy’s had minimal insight into who was actually buying their products, or how they were using them.
Walmart is a good example of this model. Ninety percent of all Americans live within 20 minutes of a Walmart store. Walmart has more than two million employees, and serves more than 140 million shoppers a week — close to half of the U.S. population. These are staggering statistics. But what was the last thing you bought at Walmart? They certainly couldn’t tell you. To them, you’re basically just a vehicle for dispensing inventory. Once you pass the cash register, you vanish off the map.
Digitally native retailers, on the other hand, are maniacally customer-focused. What’s the first book you ever bought on Amazon? It’s sitting right there in your order history. Amazon and other companies like Birchbox, Warby Parker, Bonobos and Trunk Club are using their physical stores as extensions of their online stores, not the other way around. They’re flipping the script.
Today’s smart retailers are bringing back the fun and discovery of brick-and-mortar shopping.
Legacy retailers have to stop looking at e-commerce as a secondary storefront. Potential customers trying out products in stores then buying them online used to be a big concern, but Nielsen says that the opposite is in fact much more common. More people research online first, then head to stores to try out products before they pick them up. The online purchasing experience comes first.
Here are three ways that today’s smart retailers are flipping the script.
They Design Their Physical Stores As Showrooms, Not Warehouses
The Bonobos “Guide Shops” don’t really sell anything. If you like something in the store, they’ll ship it to you later. The main idea is for people to try things on and get advice. They’re using their stores to surface the discovery process, not manage inventory.
Warby Parker is averaging $3,000 per square foot of retail space (slightly under Tiffany’s number) by knowing that 85 percent of their foot traffic has already done extensive browsing online. They don’t try to clutter every inch of their retail space with stuff to buy, and purchases are handled individually via iPads.
Amazon’s new bookstore seems to be displaying their books (gasp!) face-out, with accompanying commentary and ratings cards. This is a lot more consumer-friendly than throwing shoppers at a wall of shelved books. They’re surfacing new and interesting content, the same way Netflix does on its home page.
They Take Advantage Of Online Data To Inform The Design And Presentation Of Their Physical Stores
In their New York store, Birchbox uses rankings and reviews from their website to inform the way they arrange their physical inventory. They also do simple, intuitive things, like organizing by category, not brand. Nordstrom tracks Pinterest social data to highlight popular products in its stores.
Amazon’s new bookstore will be using proprietary data like customer ratings and Goodreads popularity to inform its stock and display counters. Here they’re probably taking a cue from Birchbox. Again, the distinctions between e-commerce are becoming increasingly irrelevant.
Tesla dealerships aren’t huge lots of cars swarming with salesmen working on commission. They are dealing with a smart and informed client base, so the point is to inform and answer questions. If you like the car, you can take care of the transactional stuff online.
They Offer Pick-Up And Subscription Services
Lots of retailers are waking up to the fact that millennials increasingly favor access over ownership, and are offering subscription services for clothing, shoes and accessories. More and more of today’s customers are only interested in outcomes — a ride, a place to stay, a cool new coat to wear — not necessarily stuff filling up their closets.
Millennials increasingly favor access over ownership.
That’s why Nordstrom bought Trunk Club (which now sells to women, by the way). Trunk Club hit on a popular online clothing subscription model for younger shoppers, but Nordstrom realized even with personalized curatorial services, it’s still nice to be able to try stuff on and get fitted in a physical showroom. It was a smart acquisition.
Pick-up and subscription services also are a way of acknowledging that for most repeat purchases, stores should really just concentrate on seamless physical delivery. Target is realizing that Amazon has only 50 shipment centers in the U.S., while it has potentially 5,000 — say hello to Target Subscriptions. Like Walgreens, it’s also driving a ton of in-store pick-up traffic through its app.
In short, today’s smart retailers are bringing back the fun and discovery of brick-and-mortar shopping, because they know that today’s customers are starting online. Amazon understands that while e-commerce is growing at a healthy clip, it’s still only 7 percent of the total retail market. This new store shows us that they’re starting to concentrate on the other 93 percent. They’re flipping the script.