February 8, 2016

What NYC's top stores can teach us about the future of retail

Fredrik Bergström

Principal Consultant, Omnichannel Commerce, Tieto

My recent trip to New York left me in no doubt that retailers have a long and difficult road ahead, but I was also inspired by the level of innovation on display at Manhattan's top stores.

I recently flew back to Sweden from New York after a busy week at Retail's BIG Show, the annual convention and expo of the National Retail Federation (NRF). As regular readers of this blog will be aware, I had high hopes for the 2016 event, and I wasn't disappointed - we saw a lot of great speakers, met a ton of interesting people and had a chance to explore some of Manhattan's most exciting shopping experiences.

It's not all blue skies for the retail industry, though. One of the most common topics of conversation at the NRF show was that brick-and-mortar retailers are in a difficult position at the moment, and under serious pressure to transform in order to survive and succeed in the future.

Brick-and-mortar retail is under threat

Right now, retailers' traditional business models are under threat on two fronts. Firstly, and most obviously, they're up against the likes of Amazon and Alibaba - two 800-pound gorillas that are steadily breaking every established rule on what a retail business is meant to look like.

It's tempting to assume that some of Amazon's more ambitious ideas, like Prime Now and Prime Air, will never be practicable or profitable outside of a few test markets. But that would be to underestimate the power of a company that, according to Slice Intelligence, accounted for 39 per cent of US online spending this holiday season.

The second big threat to retailers' traditional business models is the internet of things (IoT). I was lucky enough to schedule a private meeting at the NRF show with Sima Nadler, IBM's research lead for retail, and her insights into this area of disruption were mind-blowing.

To summarise, the industry has traditionally been built up around the supply of commodities and consumable items, which the IoT threatens to automate entirely. In order to differentiate themselves in the future, retailers will be forced to focus instead on creating value from IoT data, and offering the best possible experience around product and brand rather than transaction.

Retail must become an experience business

All of this drives towards the conclusion that tomorrow's brick-and-mortar retailers won't be in the business of selling products, but selling experiences. We saw lots of evidence of this transformation during our trip to the NRF show, and not all of it was within the four walls of the expo hall. Perhaps more so than in any other city, New York's top stores aren't just places you can browse and buy products - they're social playgrounds where lifestyle and a sense of community are as important as the process of shifting stock.


A good example of this is the flagship Pelaton store in Manhattan. Pelaton is a truly omnichannel business - it sells both a touchscreen-equipped exercise bike and subscriptions to classes that are streamed live from its New York studio. The Manhattan store consists of a gear shop and cafe, and visitors can also rent equipment to take classes in the studio itself.

Rebecca Minkoff

I was also impressed by the way some retailers are using digital innovation to drive in-store sales. Take the smart changing rooms at the Rebecca Minkoff store, for example, which Tuukka Karjalainen wrote about last time around. Their mirrors are actually touchscreens that display product info and recommend accessories, and have reportedly tripled clothing sales since they were introduced in 2014.


At the opposite end of the spectrum, becoming an experience business might not be about increasing brick-and-mortar sales at all. Apple Stores are famous for their high square footage and premium locations, like the one inside of Grand Central Terminal, but they're not Apple's primary sales channel - they're more about customer service and brand-building than selling iPhones and iPads. And it works!

Setting the change in motion

Overall, it was inspiring to see this level of innovation on display at so many of Manhattan's top stores, and confirmed that brick-and-mortar still has a part to play in the retail life of a city where Amazon already offers one-hour delivery.

That said, the rest of the world needs to catch up. Retailers have a long and difficult road ahead, and most of them are only just beginning to break the rules and evolve with their customers.

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