A provocative story in the Washington Post suggests that retailers are under increasing assault not just from their direct competitors, but companies and industries that offer experiences, such as travel and entertainment, rather than "stuff":
Macy’s, Urban Outfitters, Bed Bath & Beyond and others this week reported ringing up weak sales during the holiday shopping season, capping a tepid year that many in retail attributed to cautious consumers who are not ready to forget the lessons of the last recession.
And yet look beyond the mall, and there’s a different dynamic: Spending on air travel hit record levels last year, even as the average price of an airline ticket dropped. Restaurant sales were up a robust 8 percent in the first 11 months of 2015, easily outperforming the 2 percent increase seen in the overall retail industry. Millennials were on track to spend an average of $750 each in 2015 on media, including video games and streaming services such as Netflix and Spotify.
In other words, consumers are plenty willing to open their wallets, but what they choose to buy reflects a fundamental shift: Increasingly, shoppers are passing up the cashmere sweaters or leather handbags and instead shelling out for experiences such as a beach vacation, a dinner out on the town or a concert.
In this climate, retailers and shopping centers are trying to better compete for consumers’ attention and dollars by jazzing up their stores. If people are looking for an experience, they reason, they need to give that to them when they visit the mall.
Nordstrom, for example, has begun adding counters to its women’s shoe department in which shoppers can customize their footwear. Women can check out fabric samples and various design details such as heel height and toe shape and then create their own shoe.
Still, are these measures enough to staunch the bleeding? The Post article references a mid-2015 study by research firm Mintel Group that determined non-essential consumer spending categories such as vacations and restaurant meals will rise the fastest, by 27 percent over the next five years. How's a retailer to compete on experience?
Analysis: Retail Is Undergoing An Evolution, Not Extinction
While the Post story pulls together a series of compelling statistics to back its premise, it would be a mistake to conclude the retail industry overall is headed for decline. There's a more nuanced way to view what's going on, says Constellation Research VP and principal analyst Guy-Frederic Courtin.
Overall, "retail sales numbers keep going up," Courtin says. "We as consumers have not stopped consuming products, last I checked. Are consumers looking to buy more experiences? I'll buy that. But many times, experiences are a subset of retail."
For example, a restaurant is a retailer—after all, it sells meals. Also, while nobody would argue Walt Disney World is a retailer, the amusement park certainly sells a lot of merchandise, Courtin notes.
But it's accurate that retailers need to bring more contextual experiences to their stores, Courtin says. Bed, Bath & Beyond, which as the Post noted reported weaker sales this holiday season, could be a prime example. While the chain offers a "mind-blowing" array of products, "what's the contexual experience there?" Courtin says. "It's a warehouse with rows and rows of SKUs."
Compare that to the New England chain Jordan's Furniture, which hosts a variety of attractions within its stores, including an ice and water show, rope adventure course and even IMAX movie theaters. "They've brought this whole playground atmosphere into a furniture store," Courtin says.
Another high-profile example of a retailer actually changing the makeup of its stores is Capital One, which has added coffee shops to some of its banking locations, complete with free wifi. "They're becoming meeting areas, hubs," Courtin says. "They're not just giving you a lollipop. They're giving you a whole new experience."
On the flip side, entertainment and other experience-oriented companies have to start thinking more like traditional retailers and find ways to get more product offerings in front of customers, Courtin adds.
If there's a bottom line, however, it's this. "No amount of great experience will make up for an inferior product," Courtin says.
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