Experiential Retail Isn't Going Away. It's Just Changing Its Look

Macy’s officials have discussed at great length measures to improve revenues, including investments in their online shopping experience, closing underperforming stores and the launch of a new experiential store format.

The retailer during its Feb. 23 Q4 2020 earnings call shared plans to launch a new concept, Market by Macy’s, an experiential, smaller-format store that would go into lifestyle centers. There are now two near Dallas. 

The stores were conceived as a way to experiment with the Macy’s brand and to provide something to customers beyond what they could get from online shopping.

“Adding off-mall locations will provide customers with a fuller omni experience by providing more convenience, selection and speed, whether they are shopping the digital or store's channels,” Macy’s CEO Jeff Gennette said of the Market by Macy's concept.

Experiential retail was on the rise before the coronavirus pandemic rapidly altered occupancy levels in stores and reliance on online shopping. As the features that cropped up through the pandemic to get purchases to customers become requisite, the biggest question is how long will it take for experiential retail to make a full return?

The types of stores that many often associate with experiential retail — the highly designed and Instagram-friendly store from an online makeup retailer or a mattress retailer’s outpost where you can try out their mattress by napping on it — are still going to pop up, but they will capture even less of the market than before, Colliers National Director of Retail Services Anjee Solanki said. 

“It’s the consumer’s behaviors that retailers are reacting to, and based on those reactions, [retailers are] reinventing themselves,” Solanki said. 

The goal of those stores was always to engage with shoppers, but the different ways that engagement can happen include the convenience features that customers have come to expect over the last year of the coronavirus pandemic: buy online, in-store pickup and curbside pickup. These preferences have now become necessities and will remain a part of what customers expect moving forward.

The idea of experiential retail is also about a general feeling that retailers want people to have when shopping in their stores. Starbucks, which has committed to having 45% of its U.S. stores feature drive-thrus by 2023, has also stood firm on experiential retail, saying that it wants to meet "the fundamental need to be seen and experience a feeling of connection to others."

These convenience factors are not necessarily everything that customers want, retailers and landlords say. 

A seamless process for buying online and picking up in-store, or BOPIS, and curbside pickup at a store is a given now, but “that’s not something to me that is aspirational,” B+H Architects' Nadya Liebich said. An architect who has designed shops for Louis Vuitton and Chanel, Liebich said she believes there is more to a good retail experience than just convenience.

“I drive up to pick up my groceries, but I don’t have fond memories of that,” Liebich said. 

Even before the pandemic had entered the world stage, smart brands had figured out that the physical place where products are sold is just as important as what the store sells, Federal Realty Investment Trust Senior Vice President of West Coast Leasing Jeffrey Kreshek said. In terms of Federal Realty's shopping centers, experiential retail looks like a "frictionless" shopping trip: roomy sidewalks, easy parking, a relaxing shopping trip that links up with stores that offer up their own version of a frictionless and enjoyable experience. 

“It’s not enough to just get their four walls and sell their product. … It’s not about the function of shopping. There needs to be more of a relationship,” Kreshek said.

If you look at brands that are going bankrupt, Kreshek said, they are brands that haven’t “evolved their internal experience and their relationship with their customers.” 

Federal Realty controls over 24M SF and over 100 properties, including 23 in California alone. Some of the California retail centers — San Jose’s Santana Row or El Segundo’s The Point, for example — “have never been in better shape,” Kreshek said.

Though there has been some turnover, leasing for the Santana Row spaces has been very active, with at least six new leases signed during the pandemic, letters of intent recorded for five new tenants and negotiations with a Michelin-starred restaurant for space. Federal Realty’s portfolio was 92% leased at the end of 2020.

One of the Market By Macy’s shops is Trademark Property Co.’s WestBend retail center in the Dallas-Fort Worth area. Trademark Vice President of Customer Experience Chuck Steelman said his job includes everything from programming to working with third-party companies to come in and host an event, "some type of elevated opportunity that you cannot experience online," Steelman said.

During the pandemic, a lot of the bigger events like concerts and panel discussions that were in the works have been put on hold, though they are still able to do some pop-ups and other events where crowd flow is easier to control. They even moved some events online via Facebook Live. These adjusted events help the properties stay relevant and at the top of their customers' minds, Steelman said. 

For Macy's, the digital-to-store connection is running in the opposite direction. Its experiential, smaller-format stores are a way for its digital business to grow even stronger. 

“Off-mall stores can lift our digital business while profitably filling gaps in our geographic markets,” Gennette said in the earnings call.

Macy’s Adrian Mitchell, speaking during that same call, said that having stores in concert with digital was “critical to maximizing sales and relevance with our customers in any market.”

Macy’s digital sales are two to three times higher per capita in markets with physical Macy’s stores. Store closures have impacted digital sales, too, with growth rates of online sales dropping as a result.

The iconic retailer reported Q4 2020 digital sales hit $3B, up 21% from the same quarter the previous year, and now make up 44% of total sales. In 2019, digital sales made up 30% of total sales. In January, Macy’s also committed to closing 125 stores by 2023.