In the experience economy, retailers are selling much more than goods
Jonathan O’Connell covers development and commercial real estate in Washington for The Washington Post’s Capital Business. Follow him on Twitter: @oconnellpostbiz.
For a storefront to survive, just selling things isn’t going to cut it anymore.
Sure, people still buy stuff, but many of them do so online. Internet sales on Black Friday, for example, topped $1 billion for the first time and are expected to rise 17 percent this holiday season. So if consumers are going to shop in person, they want the experience to be a memorable one. They want to do something unique while shopping — something with a story they can tell later. Something they can share on Twitter.
Retailers know this, so they are selling experiences in addition to goods. Cooking classes at Sur La Table, rock-climbing walls at REIand golf-swing simulators at Dick’s Sporting Goods are all part of this experience economy — gimmicks to get consumers into stores. And even if shoppers go home empty-handed and buy online, more stores are charging for their special attractions in an attempt to make up for the fact that serving bowls and stationery aren’t flying off the shelves. It’s something of an unofficial tax on showrooming, a tendency for customers to just browse in stores but buy online.
“The people who are just filling boxes are in big trouble in the long run,” says Jodie W. McLean, president of Edens, the developer of Union Market, a new foodie getaway in Northeast Washington.
Now that the experience economy is here to stay, retailers are competing not just through their goods but through the shopping experiences they offer. If customers are willing to pay for an experience, then there’s an opportunity to turn every service worth paying for into something worth paying more for, whether it’s buying a doorknob, having your pants hemmed or getting your hair blow-dried.
Joseph Pine and James Gilmore were among the first to identify this phenomenon in their 1999 book, “The Experience Economy: Work Is Theatre & Every Business a Stage,” in which they warned that big-name stores could be in trouble. More than a decade later, Borders, Circuit City, KB Toys, Linens ’n Things and Ritz Camera have filed for bankruptcy or liquidated.
“I would say the experience economy was emerging back then,” Pine told me recently. “Now it’s here.”
The question now is: Where is it going?
For a guide, Pine raised one of the most-discussed examples when it comes to the future of retail: Best Buy, which remains the country’s dominant electronics store but whose stock has lost two-thirds of its value in three years. Best Buy is considered to be on life support in part because of showrooming.
Pine thinks the most valuable part of Best Buy is not its hundreds of stores but the Geek Squad service it acquired — because people are willing to pay extra for computer repairs if the technician arrives at their house dressed in a dorky outfit and driving a Volkswagen Beetle to match. There were fewer than a dozen Geek Squad agents when Pine and Gilmore first published their book. There were 24,000 when they updated it 12 years later.
“Geek Squad was originally stand-alone, and you can still imagine the Geek Squad stand-alone if Best Buy goes away,” Pine said.
Bookstores were among the first types of shops to run into trouble with showrooming. But some local outfits have found a way to sell books without depending on them to pay the rent. Kramerbooks & Afterwords Cafe in Dupont Circle and Busboys and Poets off U Street, for example, offer book sections that serve in part as decor and ambiance for restaurant and event businesses. People can sip their drinks among the books and maybe stumble upon a few that would make good gifts — even if they aren’t going to buy any until they get home.
Showrooming threatens other kinds of stores as well. Eight in 10 retailers are concerned about how the trend will affect their sales this holiday season, according to a recent survey, with respondents saying sales of electronics, appliances, sporting goods, home goods, furniture and apparel are all at risk.
If people aren’t buying many things in stores, what is going to fill the shops?
McLean, of Edens, filled Union Market with concepts — a baker, a cheese shop, oyster shuckers — that harken back to the days before grocery stores, when stocking your pantry required going to several specialty shops. Located at Fifth Street and Neal Place NE in the middle of a patchy wholesale district where few shoppers have tread for a generation, getting there is part of the adventure.
McLean thinks people are willing to pay extra for the story they can tell about exploring an industrial district of Northeast Washington in search of a foodie paradise. In the three months it’s been open, she has expanded Union Market from three to five days a week, with attractions such as handmade $5 sodas at Buffalo & Bergen, founded by mixtress Gina Chersevani.
A five-dollar soda?! McLean said the value is in the experience of drinking it at the counter. “The difference is between a great, great soda sitting on the coach by yourself at home and sitting on the stool at the counter and sharing that experience,” she said. “There is no other place in D.C. where you can have that adventure.”
Marc Ratner is also trying to find concepts that reinvent experiences long considered necessary but not enjoyable. His company, Bethesda-basedStreetsense, has chosen locations and designed hundreds of stores for chains such as Starbucks, Chipotle, Express and Victoria’s Secret, many of which scaled back or shelved plans for expansion after the 2008 recession arrived.
Now Ratner and his partners are intrigued by concepts like Earnest Sewn in New York, where customers can choose the denim, studs, buttons, pockets and cut of their jeans and have them made to order. No more slogging through the racks and then to the tailor to get a pair to fit just right. Though for a price, of course — in this case, sometimes as high as $1,000.
Then there is Floyd’s 99 Barbershop, which bills itself online as “the original rock & roll barbershop,” has its own radio station and is decorated like a concert venue. Floyd’s is to Hair Cuttery what Build-a-Bear Workshops were to KB Toys: the same offering, but served up with a memorable experience. It has locations in Baltimore, Ellicott City and Annapolis and is expanding.
Already, the Washington area has gyms that become nightclubs after hours. And in October, the first two local blow-dry parlors from California-based Drybar opened, in Bethesda and Georgetown, and started booking $40 blowouts with mimosas on the side. Co-founder Michael Landautold a Washington Post Capital Business reporter that ladies race in for morning appointments every day rather than doing their hair at home. “That 7 o’clock appointment has become a coveted spot,” he said.
Not every major retailer will suffer as a result of the experience economy, and some have already evolved.
Some chains, including Best Buy, are slimming the size of their brick-and-mortar stores and trying to grow online. Wal-Mart, Staples and Office Depot have shrunk some store designs as well.
Some retailers will focus on the most interactive, service-oriented part of their businesses. Dandelion Patch, a chain of local stationery stores, now draws more than half of its revenue from its sessions in which customers design their own invitations, thank-you notes and event programs, according to founder Heidi Kallett. Gift sales from the shelves are flat. “What we are really doing is helping people build a personal brand,” Kallett said. That’s becoming a strong part of Dandelion’s brand as well.
Pine thinks more retailers need to find ways to charge for the experiences they provide. REI, for instance, now makes nonmembers pay to climb the rock walls it has at some of its locations. Others are launching mobile and tablet apps to locate customers and offer targeted deals or product suggestions while they are in stores.
Ultimately, if an experience is what consumers are coming for, Pine argues, the most successful concepts will be the ones they are willing to pay for. Amid all the new bells and whistles, a great product next to a so-so experience isn’t likely to stand out, he said.
“Any product that you don’t need to experience yourself is in danger,” he said.