Just when you think you have a handle on the brick-and-mortar retail crisis, the prognosis gets worse. More than 8,600 stores will close their doors in 2017, according to Credit Suisse analysts—a number that exceeds store closures during 2008, when America was in recession. One quarter of all shopping malls are expected to shutter in the next five years, according to the same report.
This downward spiral has severe economic implications, although some are less apocalyptic than they seem at first. In fact, there’s some evidence that automation and e-commerce actually create more—and better-paying—jobs than they destroy.
But there’s one issue that no one has figured out how to solve: what to do with all those vacant stores. And America has more of them than anyone. Retail square feet per capita in the U.S. is more than six times that of Europe or Japan. As our physical stores continue to lose market share to e-commerce, more than one billion square feet of commercial real estate could be gathering dust by 2022. Because blight begets blight, that number could climb even higher.
If these predictions hold, America’s retail landscape could look a lot like the residential landscape of Detroit.
To find a solution, retailers need to face the failings that landed them here. Blaming Jeff Bezos doesn’t change the fact that many companies have spent years with their heads in the sand. Sales have been migrating online for almost two decades, and millennials prefer to splurge on experiences—tasting menus, concert tickets, trips to Iceland—rather than flat-screen TVs. Faced with a crisis, traditional retailers responded by iterating an outdated model. Chains like Sears and Kmart used loyalty programs as Band-Aid solutions. Guess and Payless played a discount game but couldn’t keep up with their online competition.
The industry as a whole needs to accept that the in-store sales of the past aren’t coming back. Consumers no longer spend their Saturday afternoons going shopping, and no promotions or window displays are going to change that. Consumers are looking for places to be—not things to buy—when they leave the house. What’s needed is a radical new approach to sales—one that may not include selling goods in store at all. Smart retailers arerepurposing physical stores to do what e-commerce can’t: offer a memorable, meaningful and multisensory experience. A reimagining of what retail can be is already under way. Only one thing is certain: That old retail mantra—“stack ’em high and let ’em fly”—now applies only to online order-fulfillment centers.
Three Disruptive Approaches to Physical Retail
The Nothing-to-Buy-Here Approach
New York City
You’ll find plenty of Samsung products at the company’s 55,000-square-foot space in New York City’s Meatpacking District. But the phones, tablets and TVs on display aren’t for sale. Instead of a store, 837 is a “full brand immersion” designed to push customer engagement rather than on-site purchases. In this paradigm, the store becomes a kind of 3-D billboard. “It’s about creating an authentic connection and moments where our technology meaningfully enhances the experience,” says Zach Overton, vice president of customer experience at Samsung and general manager of Samsung 837. In addition to product samples, you’ll find displays that flex the tech giant’s prowess, like an immersive image tunnel that pulls content from your Instagram account as you pass through.
The only thing available for purchase is food curated by Smorgasburg, Brooklyn’s locavore open-air market. For non-Samsung users—who represent the majority of visitors to 837—the message is simple: We’re cooler than Apple.
Culture is the New Anchor Tenant
West Palm Beach, Fla.
There was a time when anchor stores—Sears, Nordstrom, Toys “R” Us—were the beating hearts and financial engines of large shopping malls. But as the big chains have foundered, their sprawling, underperforming outposts havebecome anchors in a more literal sense. At the axis of a once-thriving shopping center in West Palm Beach sits a 110,000-square-foot former Macy’s location, abandoned by the struggling retailer earlier this year. An immersive arts experience is taking over the space in December. World-renowned visual artist Michael Craig Martin will transform the exterior of the entire building with his largest mural to date, and famed sound designer Stephen Vitiello is creating a sound installation that will live in and around the detritus left behind by brands that once called the space home. This experiment by the landlord, real-estate giant Related Cos., aims to transform the struggling shopping center by putting culture front and center—and relegating retail to a supporting act. “It’s all about driving different kinds of traffic to a project,” says Ken Himmel, the president and CEO of Related Urban. “Mixed-use retail developments centered on cultural offerings are outperforming every other type of retail offering by a long shot.”
Everything Under One Roof
Restoration Hardware Lifestyle Store
West Palm Beach, Fla. (coming in Nov.), Denver, Chicago and more
While most retailers are shrinking their physical footprints, Gary Friedman, the chairman and CEO of Restoration Hardware, is thinking big. In 2015, the brand took over the 70,000-square-foot Three Arts Club in Chicago—10 times the size of a normal Restoration Hardware. The space allows for expanded showrooms but also an expansive vision of the brand, including design ateliers, a wine-tasting room and a music venue. “The key to unlocking the value of our assortment has been to transform our retail stores into huge design galleries,” Friedman says.
“Our new galleries generate two to three times higher retail sales than the legacy galleries they replaced.” In November, Restoration Hardware will open a 74,000-square-foot gallery in West Palm Beach, which is turning into a hotbed of experimental retail. An RH-branded hotel concept is also in the works.