VANCOUVER, Canada — Back in 2014, when Lululemon founder Chip Wilson and his family introduced their athleisure label Kit + Ace to the masses, experience was integral to the strategy. Instead of hosting in-store yoga classes, as he did at Lululemon, Wilson threw dinner parties and installed full-service coffee shops in his stores. But while these efforts attracted attention, they weren’t enough to keep the business from stalling.
In 2017, the company announced it would shrink its retail network from 60 locations to under 10, shuttering all its international stores. Then, in October 2018, Wilson sold the business to a group of investors — including current chief executive George Tsogas — for an undisclosed sum. (Wilson’s initial investment was $7 million, but the company had secured debt financing of up to $300 million by 2019, according to a report in Canadian Business.)
Today, the company says it's profitable with a fleet of six permanent stores — one with a coffee shop — and a focus on commuter apparel. But the rise and fall of Kit + Ace has several lessons. One of them is that in-store experiences, like coffee shops and special events — often touted by retail strategists as a way to boost foot traffic and dwell times — don’t always result in actual sales.
It's easy to understand why retailers might think layering on new experiences to the shopping journey could help boost business. In recent years, consumer spending on experiences — including sporting events, concerts, amusement parks and travel — has grown almost four times faster than spending on goods, according to a 2017 McKinsey examination of data culled from the US Bureau of Economic Analysis. As a result, many retail developers are weighting their tenant mix in favour of entertainment: think food and beverages, movie theatres and climbing walls.
A successful restaurant won’t save a struggling department store chain unless diners hit the shoe floor afterwards.
But where does that leave brands that make physical products, like clothes? Staging experiences might attract the curious, but will it actually boost business?
“You’ve got to do it well, integrating it in a way that promotes the rest of your offerings,” said B. Joseph Pine II, business strategist and co-author of “The Experience Economy,” the seminal text on the concept. “Foot traffic is good to have; people that go in every once in a while will buy something. But ideally you want the experience to feature and exemplify your brand.”
The problem, experts say, is that a lot of companies don’t set clear objectives for the experiences they create. “You have to figure out what people need,” said Sarah Hall, co-founder and partner of experiential marketing firm Harley & Company. “Then you have to decide if you want to create a deep emotional connection or push them towards a transaction.”
Many brands run into trouble by mimicking competitors’ strategies instead of figuring out which experiences make the most sense — and sales — for them. A café is only worth operating if its regulars are also purchasing margin-driving products. A successful restaurant won’t save a struggling department store chain unless diners hit the shoe floor afterwards. An in-store panel discussion will only create goodwill if the mission of the panel meets the mission of the brand.
“It's about questioning and redesigning every aspect of how the store works and how it sells what it sells,” said retail industry futurist Doug Stephens. “It's an intensive process that begins by breaking down the entire customer journey into its smallest micro-moments and then, within each of those moments, designing experiences that are surprising, unique, personalised, engaging and, most importantly, repeatable.”
Remaking the in-store experience often means a significant (and expensive) overhaul. Saks Fifth Avenue, for instance, committed to spending $250 million recognising and renovating its New York flagship. Thus far, the retailer has opened a new beauty and wellness floor, complete with spa treatments. February 2019 marks the opening of a Philippe Starck-designed outpost of the Parisian restaurant L'Avenue, a celebrity favourite that Saks is hoping will draw an entirely new crowd.
Saks has enjoyed six consecutive quarters of growth in comparable store sales, up more than 7 percent year after year in its most recent fiscal period, although it's unclear how much of that increase can be directly attributed to the changes made at at the flagship. Experts underscore that good experiences are only worthwhile if they are accompanied by good products.
Retailers assume customer experience implicitly means technology.
“You better deliver retail excellence before you start trying to deliver coffee excellence,” said Jeremy Bergstein, president of The Science Project, a retail innovation agency.
Many retailers have fallen into the trap of betting heavily on technology — like the now-infamous “magic mirrors” — that add little value for customers. “Retailers assume customer experience implicitly means technology,” Stephens said. “When they think of designing experiences in their stores, executives often default to thinking about virtual reality installations, robots and tablets... Without anchoring technology choices into the fabric of genuine customer needs and wants, it becomes irrelevant and most often gets orphaned shortly after execution.”
New technology should make it easier to purchase something. For instance, at some Nike stores, guests can schedule kerbside pickup through the NikePlus app. While the sportswear giant does not break out success metrics for individual initiatives, Nike Direct general manager Adam Sussman told BoF that it takes a "test and learn" approach to consumer-facing products. “We're not just building things because our gut tells us to build them,” he said. “We have an incredibly disciplined approach that is very data-driven and metrics-driven.”
For many retailers, layering memorable experiences on top of services — like an in-store styling session — is a good place to start. You can also go for pure entertainment, like French label Sézane, which operates a coffee shop, library and cinema within its Paris flagship, dubbed "L'appartement." The outpost, the company's single largest driver of sales, saw purchases increase in 2018 by 44 percent from a year earlier. While the private company does not share figures, a spokesperson said that store activations have played a "large" part in both increased foot traffic and revenue.
But L'appartement is a single success story. Most fashion brands have been unable to create the emotional resonance needed to make these sorts of investments worthwhile. Pine likes the idea of apparel brands charging for experiences because it creates a sense of belonging and attaches a value to something other than the product itself.
Staging experiences beyond the retail space can also be incredibly effective — with the right investment and execution, of course. Pine cites Bulgari hotels and resorts, developed in partnership with Marriott International, as a successful example of charging for experiences that also drive sales of product.
At its locations in major cities including London and Milan, guests are exposed to Bulgari skincare and fragrances throughout their stay, creating new paths to purchasing the LVMH-owned jeweller’s other products. (There are currently six Bulgari hotels, with plans to open in Paris, Moscow and Tokyo over the next three years.)
A spokesperson for Bulgari said that while hotel guests often become Bulgari jewellery clients — three out of six of the stores have boutiques on site — many jewellery clients are also converted into hotel guests. Many top-client events are held at the hotels, and clients who stay are offered special deals.
“Most of the failures I've seen with experiential retail had nothing to do with the retailer going too far,” Stephens said. “Just the contrary. Most often failure comes because leadership lacked the courage to go far enough.”