At Shoptalk in Las Vegas this weekend, AI may have been the most novel concept of focus, but a much more established idea was the subject of many conversations: brick-and-mortar retail.
Executives and founders at Shoptalk told Glossy that brick-and-mortar retail is coming back in a big way, especially as online commerce and marketing are both becoming much more expensive.
“Gone are the days of easy online customer acquisition,” said Amish Tolia, co-founder of the retail store operator Leap, which runs stores more than 100 stores for 60 brands.
Online customer acquisition costs have gone up by at least 60% in the last five years, and brands lose an average of $29 on each acquisition, according to research by social commerce company SimplicityDX. That, combined with a shift in investor priorities from achieving growth at all costs to establishing a stable path toward near-term profitability, has led brands to embrace physical retail. But in order to compete with the growth that e-commerce saw in the last two years, many of the leaders at Shoptalk talked about the ways brick-and-mortar needs to, and will, evolve over time.
“Brick-and-mortar is coming back, but what we will see in the next few years is the brick-and-mortar experience completely transformed,” said Shelly Kapoor Collins, partner at Sway Ventures, which has invested in companies including Le Tote. “Imagine a store where the shopping cart knows who you are, and you put your items in it and it knows what you got, and you can just walk out.”
Kapoor Collins pointed to Amazon continuing to open physical stores as something other brands should take note of. Last month, Amazon CEO Andy Jassy vowed to double down on more physical stores throughout the next year.
Tolia said one of the biggest associated challenges of retail is the required up-front costs, but Leap is among companies alleviating that problem. Later this year, Leap is launching a new program called Seasonal Stores, which lets brands lease a store space for only part of the year, alternating with another brand that gets the store for the other part of the year. Shorter leases with less commitment have become more common since the disruptions of the pandemic and can be a good way for brands to minimize risk while still letting landlords keep storefronts occupied. Even bigger retailers like Walmart have started to offer short-term leases for shop-in-shops in-store for as little as one month.
“Brands have always struggled with seasonality in retail,” Tolia said. “Some brands sell more in Q1 and others sell more in Q3. Our first seasonal store will open in May. From May to October, it will host a footwear brand called Freedom Moses [known for its summer sandals], and then from October to April, an outerwear brand will move into that store.”
Several executives stressed the importance of innovating not just for innovation’s sake, but by basing innovation resources on insights gathered from real customer behavior and feedback. During a panel discussion on how to thrive during tough economic times, Target CFO Michael Fiddelke said Target surveyed its customers about improvements they’d like to see in the returns process.
He said the company got two important bits of feedback: Customers want to be able to drive up to a Target store and drop off their returns curbside, and sometimes, they’d like to get some Starbucks while they’re there. Starting this year, Target customers will be able to drop their returns off outside the store and can have a Starbucks order brought out to them when they do.