The ‘Retail Apocalypse’ Might Just Mean the Reinvention of the Shopping Experience

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Apocalypse, meltdown, death spiral: No matter the term, the economic wrecking ball slowly reducing the giants of American retail to rubble is bad news, and poised to get worse. Marquee names like The Limited, American Apparel, Macy’s, and Guess are closing stores, leading to shuttered malls and empty stretches of commercial space.

But viewing these trends as a disaster instead of a bigger cultural and commercial shift misses the point. While the giants are falling, smaller players are figuring out how to reinvent the store experience for the 21st century, focusing on authenticity and community while, in many ways, thinking about sales second.

“I’m not seeing the retail apocalypse in the world of creative, small entrepreneurs,” says Sarah Filley, a co-founder of Popuphood, a residency program for retail helping small businesses in the Bay Area. “There’s such an incredible spirit here. People are looking at suburban malls and calling it the end of an era. If you look at the startup scene in retail, there’s so much energy.”

The retail apocalypse, in other words, may be better understood as a great sorting out for those who haven’t adjusted to the present retail environment. As Filley and many others believe, the original mall and big-box model — wherein large chain stores essentially function as logistics companies with nice-looking warehouses — has already died. And the next phase of brick-and-mortar retail, born of pop-up shops, Etsy, and online commerce, is just beginning.

b8ta, a West Coast company focused on gadgets, believes selling to shoppers needs to be a much more personalized, educational process.

Photo: b8ta

“Making products is easier than ever now, so lots of people are bringing new ideas straight to the customer,” says b8ta founder Vibhu Norby. “The challenge today is finding new use cases for retail that are much different than what we’re doing now.”

Norby came up with the b8ta concept in 2015 when he was a software engineer at Nest, a Google-owned technology company that makes interactive thermostats. While developing the retail experience for the brand — Nest doesn’t have its own physical retail space, instead selling products in Best Buy, Walmart, and Target — he discovered that the sales process was a mess.

Nest had to create its own software system to manage distribution and track its inventory in stores, and since those same stores couldn’t provide the company with basic data, Nest had to employ a team to go into locations and track sales and customer response to displays themselves. He soon asked himself, why don’t stores work for those actually making the products?

“It used to be all about distribution,” he says. “Now it’s all about awareness and attention.”

His solution was a retail experience with a heavy focus on technology; the nascent chain was created for makers and small companies, providing the Kickstarter set with their own Apple Store experience. Sleek and streamlined, each of the seven locations features an array of new products and places to play: audio testing rooms with headphones, spaces for trying on wearable tech, a VR room, and even displays for travel and mobility products, such as an electric skateboard and connected luggage that doubles as a scooter. Nothing is inside a package — products are laid out to encourage testing and exploration, with a highly trained staff on hand to answer questions.

Behind the scenes, b8ta offers brands plenty, too. Every customer interaction is tracked, from stopping to check out a smartwatch to hopping on a smart scooter and taking it for a spin; a partnership with RetailNext, an in-store analytics firm, utilizes cameras, Wi-Fi, and Bluetooth devices, as well as point-of-sales data, to record and analyze consumer behavior. Every question asked about a product is relayed to the maker. If a product sells, b8ta doesn’t make any money from the transaction; rather, companies pay b8ta upfront (pricing differs on a store-by-store basis, and the company doesn’t release figures publicly) to display their products and reach consumers. The pitch to companies is that b8ta functions as an IRL discovery engine, since it’s likely most shoppers will buy the products they see in person online anyways.

“Retail should now be viewed as a service,” says Norby. “Companies tell us what demographics and customers they want to reach, and we figure out the best way for them to reach those shoppers, all for a monthly fee for the store and software access.”

Amazon can’t yet put products in most people’s hands — though it’s beginning to roll out brick-and-mortar bookstores and may expand its physical presence with the recently announced Whole Foods deal — and that’s the competitive advantage Norby feels he’s created with his new store. Since debuting in December 2015 in Palo Alto, California, b8ta has worked with 400 companies and launched more than 100 products into physical retail for the first time. Store data suggest the store trumps traditional retail when it comes to connecting consumers with new products; on average, customers interact with 36 items per visit and spend an average of 20 seconds of “dwell time” per product, up from the industry average of 7 (b8ta doesn’t have publicly available data tying store display to sales).

Photo: b8ta

Similarly, The Kolony in New York City is thinking about the store experience pretty differently. Instead of competing with massive big-brand flagships found all over Manhattan, it wants to create a destination in the Soho neighborhood that’s as much about storytelling as it is about sales.

“We want to build a more all-encompassing experience and create value for the customer, who isn’t just shopping, but having a great time,” says Bill Hajar, a Kolony co-founder and tech entrepreneur. “What we’re trying to figure out is how we can allow smaller brands to come into an urban space and be successful.”

Set to open this fall, the Kolony aims to be a curated shopping experience. A riff off Soho’s history as an artists’ colony, the 8,000-square-foot space will showcase 15 brands, with half the area split between retail display and half entertainment in the form of coffee shops, bars, and performance spaces. On-site tailors will help repair clothing and educate consumers on quality and craftsmanship.

“It’s really about slow fashion,” says Anshul Mathur, a co-founder of The Kolony. “It’s about promoting high-quality clothes and really showcasing how they’re made. You come in and leave with a story.”

The Kolony’s point of difference, according to company strategists, is that it will also function as an incubator. Brands and designers will be recruited for six-month residencies and will benefit from the company’s online sales system, e-commerce presence, and trained sales staff, as well as consultation and mentorship from the company’s own fashion director. The hope is that this model gives smaller up-and-coming brands a turnkey entry into retail and an easy way to participate in the expensive New York market, where rent for retail space jumped 22 percent in 2016 alone.

“Companies shouldn’t fail just because the rent was too high,” says Mathur. “That’s a shame.”

Kolony’s first class will be focused on women’s fashion, but Hajar hopes to expand into other categories and to other locations in New York, as well as Los Angeles and overseas.

But small businesses don’t just face problems in increasingly expensive retail corridors in Manhattan. Small business formation has hit record lows across the country, leaving many cities and towns scrambling to support retail and revitalize main streets and commercial centers.

Popuphood takes the pop-up retail model one step further by working with local officials in the Bay Area to arrange brick-and-mortar residency programs for new businesses. Filley’s organization, which started in Oakland in 2011, just launched a program with the nearby city of Hayward. Small businesses will receive free or reduced rent to take over underutilized commercial spaces in the sparsely filled downtown, a test run to see if the new tenant is a good fit.

“Retail shows the vibrancy of a city,” says Filley. “Hayward is a great place to start a business, but if you went to the historic downtown, you wouldn’t know that.”

The Hayward program has just begun screening applicants, but Filley’s program already has a track record of success in other cities. In Oakland, businesses such as gift store Marion & Rose used the program to achieve liftoff. A “yarn-to-table” sewing store, Black Squirrel, has found a niche promoting products made with locally sourced dyes.

“There’s a new consciousness around consumerism,” says Filley. “People want to understand how and when and where things were made. People want to connect with those skills.”

What unites these three concepts is their focus on the human factor. While many big retailers are cutting staff, smaller-scale startups believe that in the race to “out-Amazon” the online giant, focusing only on digital forfeits their competitive advantage.

“The retailer response to these economic shifts is to lay off their employees,” says Norby. “That’s a ridiculous notion. People come to stores to have a human interaction.”