It's no secret that online retail has been growing in recent years. Across the globe, the trend towards online retailing has resulted in the mass closure of physical stores, and for many brick and mortar retailers to rethink their strategies.
According to NAB, in the year to December 2017, Australians spent an estimated A$24.2 billion on online retail, which is equivalent to around 7.8% of the A$311 billion retail sector. Year-on-year, online retail in Australia grew by 10.1% last year, with spend on media leading the charge.
With online retailing showing strong growth in Australia, it wasn’t surprising that Amazon, the world's largest internet retailer, chose to launch here. In the US, where online retail is closer to 10% of retail spend, Amazon is dominant. This has led to a so-called "Amazon Effect", in which thousands of stores close and retail jobs go with them. Last year, Bloomberg reported that in the near future it estimates that almost 1 billion square feet (around 300 million square metres) of US retail space may need to close. With regards to job losses, Quartz recently found that there were 170,000 fewer jobs in Amazon-related industries in 2017 compared to the year before.
H&M’s failure to keep up with the rise of e-commerce is one of the reasons it had $4.3 billion in unsold merchandise https://t.co/YUNucfNgld— MarketWatch (@MarketWatch) April 4, 2018
Amazon's arrival in Australia has yet to have the same effect as it has in the US. In February, three months after Amazon's much heralded launch here, Australian competitors told The Guardian that they had yet to see a major impact on their sales. The main reason for this comes down to Amazon having just one fulfilment facility in Australia, located near Melbourne. Like Canada, where Amazon has not really caught fire, Australia has a large and challenging geography for the ultra-quick delivery times often touted by Amazon. Clearly, one fulfillment facility will not cut it. So while Amazon hasn't taken over Australia yet, as they add more facilities one cannot write them off just yet.
So with the Amazonian jungle continuing to spread, what kind of strategies are retailers employing to survive? One trend that has been rising in recent years is experiential retail.
As the name suggests, experiential retail is a marketing technique in which a retailer provides an "experience" for their customers. These experiences range widely in tone and delivery; as they may be educational, emotional, or entertaining, and can take the form of instore promotions, activities, art installations, or outdoor events. Experiential retail isn't exactly new; department stores for example have always had places where you can eat or find entertainment. But the rise of experiential retail has seen these experiences amplified as the marketing focus shifts from transaction to interaction.
The idea behind experiential retail is simple: to combat the rise of online sales, retailers must offer something that online retailers cannot. Things may be cheaper and more convenient online, but it's positive experiences that will bring people back to real stores. From a customer experience (CX) perspective, experiential retail is about adding value to a brand. Customers today have massive expectations for brands and are increasingly using social as a channel to advocate for or vilify them. By providing customers with a unique and special experience, brands are more likely to cultivate affinity and loyalty. Ultimately, this should translate into sales.
There is also a sociological force driving experiential retail. A recent study by Pew Research found that millennials are on the cusp of surpassing Baby Boomers as the nation's largest living adult generation. One of the traits commonly associated with millennials is that they crave experiences over materiality. A survey by PwC in 2016 found that 52% of millennials' holiday spending in the US would be on experience-related purchases. Experiential retailing is leveraging this phenomenon by trying to give millennials the experiences they want while at the same time selling them something.
A big trend led by Millennials, both stores and offices are increasingly looking like homes. It’s about providing an experience, and deeper connections with customers, and employees https://t.co/caHTcRcuj4— Felix Capital (@FelixCapital) April 5, 2018
Take activewear brand Lululemon. In 2015, Lululemon launched a new concierge service at its flagship store in New York. The in-store concierge informs customers about the best local places for a workout, places to get a healthy meal or just cool things to do in the neighborhood. In addition, the store has an in-house studio that offers a variety of yoga and cardio sessions. Almost as an afterthought, you can still pick up a pair of their famous yoga pants.
Nike is another big brand to board the experiential train. In 2016, Nike opened its Soho store, a five story, multi-sport building featuring basketball courts, an indoor soccer area, and treadmills with screens simulating different runs. "We’re leading the transformation of sport retail — offering the best of Nike products, services and experiences under one roof,” said Nike's President of Global Direct to Consumer Heidi O'Neill. "With Nike Soho we can realise the promise of personalised performance. Powered by immersive digital trials and in-store experts, this store is about elevating every athlete’s potential."
2017 was the year of retail’s existential reckoning— SET (@SETCREATIVE) December 22, 2017
"...The buzzword of the year has been “experiences.” Think the basketball court in Nike’s Soho store in New York, where you can test drive those sneakers you’re considering."https://t.co/Kn7jWu8tzl#retail #design #experience
Level 5 of Nike's Soho store has a basketball court. Inside. I repeat. A court. Inside. pic.twitter.com/CDlfvV5Xzj— Nico Lacson (@mrnicolacson) April 19, 2017
Closer to home, Xbox Australia opened its Xbox "Stay N' Play", a gaming-themed sleepover experience that gave select fans a chance to play the Xbox One X in the days before its official launch on November 7. Xbox built a mini popup hotel in Sydney's Pirrama Park where players could book overnight play slots. "Much like the One X, we've designed the Stay N' Play to give players the most immersive gaming experience possible," said Business Group Lead at Xbox Australia Jeremy Hinton.
It came. We stayed....N' we played!— Xbox Australia (@XboxAustralia) November 13, 2017
Check out how things went down when the Xbox Stay N' Play came to Sydney! pic.twitter.com/GTop0x7zzC
It all sounds great, but does it actually work? It's hard to measure the quantitative effect of qualitative measures, but the idea is that experiential retail is great for brand. In 2016, Samsung opened Samsung 837, which it describes as a "cultural destination" and "digital playground" set in the heart of the Meatpacking District of New York City. 837 doesn’t actually sell anything, instead offering its visitors a place to enjoy free curated content experiences such as live DJ performances, movie screenings, technology demos, workshops, and cooking showcases. "People are generally spending between 30 and 90 minutes within the space," Zach Overton, Vice President and General Manager of 837 said. "We’re seeing that three out of four people that attend one of our programs will post something about it on social and therefore become organic brand ambassadors for us."
We’re learning from the best. Join us as we chat with entrepreneurs about their work/life balance, and how they unplug. RSVP here.— Samsung 837 (@Samsung837) March 26, 2018
It isn't just big brands that can benefit from experiential retail, in fact, many experts agree that it will be the smaller, more niche brands that stand to gain the most. "The winners in this, I think, are going to be the local brands," retail strategist Bart Higgins told The Wall Street Journal. "The small boutiques, the really interesting places that are representations of local culture...They can take back what they lost from these big brands twenty or thirty years ago."
In the age of Amazon, retailers must be on their toes more than ever. Online sales are continuing to trend up, and consumers are looking to retail stores to offer them something more than just a place to buy things. Experiential retail is becoming an important way to survive in the retail jungle.