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The Store is Dead, Long Live the Store!

Retailers from Macy's to Gucci are building immersive experiences into their stores as they fight with Amazon and other online competitors for customers' attention. But will the investment pay off?
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Gucci’s newest store in Soho looks different than their nearest existing outpost, about a mile away near the World Trade Center. Instead of the white walls and neat rows of handbags that have defined the in-store luxury shopping experience for the last couple decades, shoppers entering the Gucci shop on Wooster Street will find different product categories mixed together in a “world of discovery,” with “cast members” serving as their guides. Perhaps they won’t be shoppers at all; the new space includes a screening room showing a Wu Tsang-directed documentary about New York house music.
Welcome to the world of “experiential” retail. Facing a growing threat from Amazon.com and other competitors for consumers’ time and money, retailers are betting big on spectacle to draw in customers. This week alone, Macy’s acquired Story, a Chelsea store that undergoes a complete makeover every month or so, and named founder Rachel Shechtman the department store chain’s first brand experience officer. And on Thursday, Ssense, best known for selling luxury streetwear online, opened a five-storey ode to Montréal that features a cafe, bookshop, art installations — and the occasional item for sale. In an Economist Intelligence Unit survey of 256 retail executives last fall, 80 percent said they offered in-store events or product demonstrations, or planned to do so in the next three years.
The concept is simple in theory: design stores around aspects of the retail experience that aren't easily replicated online. Can’t match the selection offered by online shops? Then ditch the endless racks of clothes for a few curated selections, peppered with must-have items that can only be purchased in store. Foot traffic down because everyone’s shopping from home? Lure them out with in-store events. Customers like the ease of making purchases with a few mouse clicks? Give salespeople mobile payment systems. Shoppers don’t want to deal with salespeople, period? Rebrand them as “stylists” (Ssense) or “connectors” (Gucci).
Ssense and Gucci are going a step further and tailoring their in-store experiences to their new locations. They’re trying to reach shoppers bored by cookie-cutter boutiques, including wealthy tourists who might opt to spend time in a concept store even if they can buy the same products closer to home. Ssense’s concrete interiors are meant to evoke the brutalist architecture that defined Montréal’s heyday, but with a modern warmth intended to entice the company's young customers to hang out. Gucci’s new store evokes Soho in its gritty 1970s and 1980s glory — back when many luxury brands wouldn’t come near the neighborhood. The brand even went so far as to reprint a December 1985 issue of Andy Warhol’s Interview magazine, featuring Madonna.
So does experiential retail work? Some signs point to yes. Luxury brands are racking up huge sales with exclusive product drops, a precursor to the in-store experience model. Investors are snapping up shares in mass-market chains like Macy’s and Target, a vote of confidence in those companies’ efforts to fend off Amazon by modernising their stores, The Wall Street Journal reported Thursday. And the new store concepts seem to be a hit with younger consumers: a National Retail Federation survey found last year that 49 percent of millennial and Gen Z shoppers visited stores more often than they did a year earlier, compared with 17 percent who made fewer visits.
This strategy isn’t without risks. Gucci’s Soho store’s interactive LED walls don’t come cheap. It’s also not clear that wowing shoppers with art installations and ever-changing decor convinces them to spend more. The same NRF survey found over 40 percent of shoppers felt in-store displays and tablet-wielding employees had “no impact” on their shopping experience. About 10 percent said these technologies actually made their trip to the store worse.
By contrast, about two-thirds of respondents liked the option to pick up online purchases in store and the ability to make mobile payments. To these customers, a seamless shopping experience is more important than an entertaining one.
Many luxury retailers, which are used to dealing with demanding customers, are integrating convenient features like in-store pickup and seamless checkout into even their most high-concept stores. Farfetch wants to use customer data and a suite of apps to help retailers treat their best customers like regulars, whether they’re visiting an outpost in Dubai or Denmark. Gucci is using its new store to test out 3D films and other technologies it may later roll out to other locations. Ssense customers can select items online and have the clothes waiting in the store to try on within an hour. 
As more retailers hop on the experiential bandwagon, the pressure to continually upgrade store displays and technology will only grow. Technologies that once seemed futuristic, like digital display mirrors, start to elicit yawns when every store in the mall has them. Even the best-designed stores won’t help if customers don’t like the product. Costs are likely to rise as dozens of chains compete to offer the most memorable experiences, leading some brands to open fewer but more expensive stores. Customers may also grow tired of being bombarded with “experiences” every time they need a new pair of jeans.
In the end, experiential retail might not be the solution to brands’ online problems. But they can’t afford to sit this trend out. Consumers have made it clear that they still want to go into stores, but it’s up to the brands to make sure they have a reason to do so.

THE NEWS IN BRIEF

BUSINESS AND THE ECONOMY

Source: Kate Spade Source: Kate Spade

Source: Kate Spade

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Tapestry sinks amid struggles at Kate Spade, Stuart Weitzman. The company reported a drop in third-quarter margins, sending its shares down 14 percent, the biggest intraday decline since August. Kate Spade same-store sales fell 9 percent, a much bigger drop than analysts had projected. Sales of Coach handbags and accessories, however, were a bright spot in the quarter — rising nearly 6 percent on the back of a 3 percent rise in global same-store sales.

Hermès‎ boosted by strong Chinese sales. Revenue rose 11 percent on a constant currency-basis from a year ago in the first quarter, an uptick from the previous three months and more than analysts had forecast, thanks to thriving demand in China. The drag from currency fluctuations, which hit sales by €104 million ($125 million) in the quarter, should ease later in the year, said chief executive Axel Dumas. On a reported basis, Hermès‎' sales were up 3 percent to €1.34 billion between January and March.

L'Oréal acquires South Korean firm Nanda. L'Oréal did not disclose how much it was paying for the company, detailing only that Nanda, known for its fashion business Stylenanda and 3CE cosmetics brand, had a turnover of €127 million (£111.67 million) in 2017. The acquisition could be worth around 400 billion won (£273.05 million), Korean media previously reported when L'Oréal was picked as the preferred bidder.

Estée Lauder tops estimates. The cosmetics maker's net earnings rose to $372 million or 99 cents per share in the third quarter ended March 31, from $298 million or 80 cents per share a year earlier. Sales rose 18 percent to $3.37 billion. The company raised its yearly forecast and now expects full-year adjusted earnings of of $4.38 to $4.42 per share, compared with an earlier forecast of $4.27 to $4.32 per share.

Luxottica's first-quarter sales slump. Sales at the world's biggest eyewear group fell 11 percent in January to March from a year earlier. Wholesale revenue fell 4.2 percent annually at constant currencies in the first quarter and retail sales fell 0.6 percent on a comparable-store basis. Luxottica expects to conclude in May a planned merger with lens maker Essilor to create a 50 billion euro eyewear giant as competition stiffens.

Under Armour picks up momentum overseas. Net revenue rose 5.9 percent to $1.19 billion. The Baltimore-based company has been sharpening its focus on its international operations, particularly in China, as the North America business — responsible for some 73 percent of overall revenue — is cooling down after years of double-digit growth (North America sales had fallen in the previous two quarters and Under Armour's share price sunk 18 percent in the past 12 months.)

Hugo Boss sales helped by rebound in China and US. The German fashion house reported first-quarter sales of €650 million ($780 million), with a currency-adjusted rise of 12 percent in Asia-Pacific and 7 percent in the Americas. Operating profit also increased slightly, allowing it to confirm its 2018 outlook. After a string of profit warnings, the brand has been focused on going more upmarket and expanding in womenswear, as well as refocusing on premium men's clothing.

PEOPLE

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Kanye West | Source: Shutterstock Kanye West | Source: Shutterstock

Kanye West | Source: Shutterstock

Adidas sticking with Kanye West after slavery remarks. The German sportswear firm will not drop the rapper as a designer, despite that he sparked outrage on social media with his comments on slavery and politics. West designs Yeezy models that Adidas only offers in limited runs, often raffling them off or selling them only at specific stores. Adidas chief executive Kasper Rorsted said Yeezy provides a limited financial contribution but is important for "brand heat." The sportswear firm just reported better-than-expected first-quarter net profit.

At Nike, revolt led by women lead to exodus of male executives. Complaints about bad behaviour by men and a lack of advancement for women long went ignored, but now change seems to be afoot, thanks to a group of women inside Nike, who started a behind-the-scenes survey that eventually ended up on Nike chief executive Mark Parker's desk. Their findings set off an upheaval in the executive ranks of the world's largest sports footwear and apparel company.

Balenciaga apologises after claims of discrimination against Chinese shoppers. A video documenting the rough treatment of a Chinese male shopper at a Balenciaga store in Paris went viral, reaching 4 million views a day on Weibo after it was posted. Balenciaga issued a first apology the day after, but it did not identify the customers to whom it offered the apology as Chinese, prompting further scorn among some Chinese social media users. Shortly after, the fashion house issued a second, longer apology, announcing that it would introduce a new system for product launches to shorten waiting times and improve the shopping experience.

Molly Goddard wins the BFC/Vogue designer fashion fund. The 29-year-old designer, known for her smocked mini dresses and voluminous gowns, took home the top prize of £200,000 and a year-long mentoring scheme, impressing judges with her sharp focus and strong work ethic. She competed with Marta Marques and Paulo Almeida of Marques Almeida, Huishan Zhang, Rejina Pyo, Samantha McCoach of Le Kilt, and David Koma.

MEDIA & TECHNOLOGY

Flipkart said to approve $15 billion deal with Walmart. That deal would seal the retailer a triumph over Amazon, which has been trying to take control of Flipkart with a competing offer. Flipkart's board has approved to sell about 75 percent of the company to Walmart for approximately $15 billion, according to sources. Under the proposed deal, SoftBank Group is said to sell all of the 20-plus percent stake it holds in Flipkart through an investment fund at a valuation of roughly $20 billion. A final close is expected within 10 days, though terms could still change, sources said.

Birchbox sold majority ownership to Viking Global Investors. The subscription beauty commerce company had been looking for a buyer since last summer and has reportedly sold to one of its current investors. The hedge fund Viking Global Investors agreed to invest an addition $15 million of cash into the business, and chief executive and co-founder Katia Beauchamp will remain in charge of the company, which reportedly has tens of millions of dollars of debt.

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Stadium Goods joins Farfetch. Stadium Goods' collector sneakers will be part of a new Farfetch sneaker hub, presented alongside the e-commerce site's other prominent luxury brands. In February, LVMH Luxury Ventures, an arm of luxury conglomerate LVMH established a year ago to invest in small fashion, cosmetics and accessories companies, invested an undisclosed amount in the sneaker and apparel marketplace. Before that, Stadium Goods had raised $5.6 million to date.

Tencent-backed Little Red Book seeks $200 million in funding. The Chinese e-commerce start-up is in early talks to raise over $2.5 billion to quicken its expansion in a heated e-commerce space, according to people familiar with the matter. It is seeking to more than double its valuation since its last round of funding more than two years ago, and competes with titans like Alibaba Group as well as up-and-comers like Pinduoduo and Meilishuo.

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