The rise of multi-functional retail

Oct 15, 2020

GDR Innovation Strategist Charlie Lloyd explains why multi-functional spaces will be the saviour of physical retail.

The Covid-19 pandemic’s impact on retail can perhaps best be summarised as accelerating pre-existing trends and making conversations that were already necessary all the more urgent. We’ve seen e-commerce take great strides, not only in terms of adding huge numbers of customers but also in the scope of its remit; e-commerce is now a rapidly growing marketplace for experiences as well as products. Brands such as Nike have taken the pandemic as an opportunity to ramp up their DTC strategies and sidestep the traditional retail-based system. But arguably the most fundamental acceleration of all – certainly the one that poses the most difficult questions – is the decline of physical retail.

In the UK, the number of retailers that have fallen into administration this year makes for bleak reading and includes several well-known and long-established names such as Cath Kidston, TM Lewin, Monsoon, Oasis, Quiz and Debenhams. The demise of these companies marks just the latest point in a prolonged period of high street decline, but the pandemic has turned a precarious descent into a cliff edge. Even with stores open again, social distancing, consumer fears and new behaviours have coalesced to make it clear that a high street already not fit for purpose needs to change… and change fast.

 

A future with less retail

Change is certainly coming, but exactly what that will look like isn’t yet clear. Much of the recent discussion about empty retail spaces has tended to point towards a complete move away from retail. From the UK government, we’ve heard about plans to repurpose empty stores into homes, and John Lewis, for so long a retailer curiously impervious to the problems facing other department store chains, has announced that it is exploring the possibility of transforming underperforming stores into affordable housing.

This has the potential to make a meaningful difference to the economy, and when you weigh the performance of physical retail on the one hand against the UK’s housing crisis on the other, it is clearly a shift that has to be explored. Yet most of us, surely, want stores to continue to play a big role in our everyday lives and so we also need to have smarter conversations about changing the role of stores, rather than simply eradicating them.

Amazon has its own plans to repurpose stores, according to reports of negotiations between the company and US mall owner Simon Property Group about converting former JCPenney and Sears department stores into local fulfilment hubs for packages. We will inevitably see more of this, but again, it isn’t a solution that bodes well for retailers or for anyone rooting for a future for physical retail, so below I’ll lay out three pivots that will safeguard the future of our stores.

 

Meeting the customer where they want to be met

Amazon’s plans do touch on a potentially helpful solution for traditional retailers, however. Best Buy is adapting 250 of its stores to better fulfil online orders but it’s also using its digital channels to drive one-to-one appointments in-store. Given that 60% of Best Buy’s online sales are already picked up in-store, the move is really just a recalibration of its physical estate to better align with the way customers want to use it. As CEO Corrie Barry put it: “It’s not about less stores. It’s probably about using stores differently and meeting the customer where they want to be met.”

Thoughtfully integrated automation can help retailers meet customers when they want to be met too. 7-Eleven‘s recently opened hybrid convenience store in Seoul is staffed during the day, but between midnight and 6am the store is unmanned and fully automated. Using automation technology in this way allows retailers to serve customers 24/7 without sacrificing jobs or customer service during the daytime.

 

Putting spaces to work

Other brands are responding to broader and more recent changes to consumer behaviour, namely the shift towards co-working and working-from-home. Co-working has been steadily entering the mainstream for some time, and as far back as May 2018 we reported that Auchan was redesigning a Lisbon supermarket to include a free co-working space on the second floor. At the time the move was undoubtedly interesting but it raised a few eyebrows; today it feels truly inspired.

More recently we covered Starbucks’ Smart Lounge in Tokyo, a cafe that doubles down on giving customers everything they need to work while they’re there, including private booths for video calls and meeting rooms that can be booked in advance. Both Auchan and Starbucks have retained their core offer – groceries and coffee respectively – but have given them supporting roles in responding to their customers’ changing needs.

 

The rise of multi-functional retail

That retail needs to become more experiential is at this point a truism, it’s been clear for many years now that stores can’t compete with ecommerce if they are only about sales. Promisingly, we’ve seen three examples from China in recent weeks of stores pushing the boundaries of experiences while placing the customer and their lifestyles at the centre of what they’re doing. We hope that stores like these will herald a new era of multi-functional retail, where stores can stretch their brands to offer a variety of different services and experiences in response to the needs of their customers.

One of these examples comes from Traditional Chinese Medicine pharmacist Tongretang, which has recently opened two new spaces that combine a cafe with a more conventional diagnosis and treatment area upstairs. The cafe itself is health-oriented and uses its menu to highlight Tongretang’s healthcare offering by focusing on ingredients with functional benefits. Some customers will just use the space as a cafe, but the menu allows the brand to start conversations with others that lead upstairs to its core proposition.

Social House in Shanghai is another prime example of multi-functional retail. As the customer enters the store and moves around the space, they are taken through the retailer’s various products and lifestyle offerings that are themed according to the seasons.

The Spring Garden, at the entrance to the store, is the most directly retail-focused and features an ever-changing roster of pop-ups from fashion and beauty brands. The Summer section of the store comprises a cooking school and teahouse as well as a gallery space that hosts regular exhibitions on photography and travel. The Autumn Garden is similarly dedicated to pursuits associated with that time of year, featuring a bookstore, a cafe and bakery, while the Winter section focuses on health and wellness and it’s in this part of the store where customers can access its gym. Whereas the department store of the past was about being able to buy everything you need, Social House points to a future where it is somewhere you can do anything you want to do.

The third example comes from Nike, whose Rise store in Guangzhou exhibits a fundamental rethinking of the role of the store, focusing as much on what takes place outside of it in the wider community, as inside. The store offers all the hi-tech omnichannel wizardry that Nike’s stores have become known for, but the Rise store is special because of its role as a hub that helps its members to enjoy various sports and other events throughout the city. The store’s app has a Nike Experiences section that aims to “turn the city into a digitally-enabled playground for Members”. The Experiences focus on the most popular participation sports in the city, namely soccer, basketball and running, and includes soccer and basketball games and drills with Nike’s Master Trainers at the nearby Tianhe Sport Centre, and virtual and physical Nike Running Club events. These are complemented by a raft of in-store workshops and events, many hosted by high profile athletes and influencers, also driven by the app.

The Rise model rethinks the store as a central component in a city-wide network of experiences aligned to both the brand and the customer’s lifestyle. Nike, Tongretang and Social House have all demonstrated an understanding that stores must take a holistic, multi-functional approach to serving the customer and their lifestyle needs, and in doing so, they have created new propositions that simply aren’t possible online. If physical retail is to survive – and we think it will – then this is the blueprint for survival.

News & insights straight to your inbox!