To Survive the Retail-pocalypse, Lean Into the Experience Economy

The Signal: As lockdown orders in many states have eased, brick-and-mortar retailers are hopeful that business will begin to recover. But the numbers tell a different story: An estimated 100k retail stores are expected to close over the next 5 years. That’s triple the number of stores that closed during the last recession.

In dollar terms, brick-and-mortar retail sales are on course to fall ~14% from 2019 to 2020, to $4.2T. This is compared to an 18% increase in ecommerce sales over the same period.

Historically, 3 roadblocks have prevented ecommerce from eclipsing brick-and-mortar shopping: tradition, pricing, and the in-store experience. The recent pandemic, coupled with innovations on ecommerce platforms such as Coupang’s “dawn delivery” (order by midnight, and it’ll be on your doorstep by 7am the next day) and Amazon Prime’s seamless same-day delivery, beg the question: Why would anyone want to go to a physical retail store again?

In her presentation on the second- and third-order effects of the pandemic, Steph mused about the future of retail, predicting that “the only kind of physical retailers that will survive post-COVID will be the ones that focus on [the in-store] value prop for the people that truly want some sort of in-store experience.”

The Opportunity: Despite the doom and gloom, the show is not over for physical retail stores, thanks to millennials who are fueling the experience economy. Prior to the pandemic, millennials said:

• 50% of their spending is devoted to experience-related purchases
• 78% would choose to spend money on a desirable experience over buying something desirable
• and 55% are spending more on live experiences than ever before.

Retailers that can wait out the pandemic and turn their physical locations into “experience hubs” will survive — and thrive — in a post-COVID world. (If you still don’t believe us, here are 9 case studies that prove experiential retail is the future).

Creating in-store experiences: Physical retailers can capitalize by creating memorable in-store experiences. For example, this Nike store, (a “powerhouse of experience-driven retail”), allows consumers to fully personalize a pair of Nike Air Force 1s at a shoe customization bar.

On a smaller scale, retailers are making use of pop-up gaming windows, interactive mirrors, and floral walls to create more interactive shopping experiences. An added benefit of experiential retail: brands that focus on engagement and personalization see up to a 10% lift in their revenue.

But opportunities are not limited to store owners. As Trung wrote about in his pre-pandemic report on the big business of supporting the retail business, opportunities in this space for entrepreneurs unaffiliated with brands include creating an agency model that ideates new experiential retail ideas (e.g., sleep pods within Casper stores) or organizes events (e.g., dunk contests within Nike stores). If you are a service provider, consider partnering with retailers to create an in-store experience that will ultimately drive sales in your business.

There is also an opportunity to provide an agency or P2P platform to match stores with local service providers that can create unique, complementary experiences (the “Airbnb of experiential retail”). For example, you could create an app that matches a paint store with a local graffiti artist to do a live demonstration.

Managing in-store experiences: As more people get out of the house and shop, they’re looking to make up for the “sensory deprivation experienced while in isolation.” But until there’s a vaccine, many people will still be reluctant to step foot in a mall.

This creates opportunities for entrepreneurs to help stores create a safe experiential environment. One idea: a dedicated event management or ticketing platform for retail-tainment to help stores manage crowds and limit contact. Creating ticketed in-store events will put a new kind of premium on the in-store experience.