The reinvention of retail space

Bricks-and-mortar locations have been unfortunate victims of the pandemic, but some companies are fighting back with inventive business models to make high-value use of their physical stores.
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For businesses that have held onto their retail space, there's a risk it will end up being a financial liability. That's especially true post-pandemic: there was a 27% decrease in retail footfall between April 2019 and April 2021, according to analytics company RetailNext

Having a retail space in any industry requires a relatively large initial investment: there's the price of commercial property or rent, coupled with the cost of kitting the space out with equipment and sales technology, plus the cost of staffing. And if that wasn't enough, most businesses with a retail space will also be running an online operation alongside that. 

Still, retail spaces remain one of the most effective ways for online businesses to build their brand awareness with new audiences, get direct contact with and feedback from current customers, and even expand into new markets. A survey of 600 retailers by Storefront Magazine found that nearly two-thirds chose to host pop-up stores to increase customer connection, while just under half did so to get more eyes on a new product.  

The physical draw

And physical retail is becoming more popular with digital-first companies to raise their eminence with new target audiences. In April 2021, Amazon launched a tech-enabled hair salon in London. Misfit Markets, an online grocery store selling imperfect produce, invested in two IRL initiatives: a pop-up in collaboration with Urban Outfitters in Brooklyn, and a mobile truck that traveled around 18 cities in the US offering free membership to the platform. Meanwhile, online skincare giant Glossier opened two physical retail stores in Seattle and Los Angeles, helping to build a brand community with the goal of driving digital sales as well. 

But these are large companies with deep pockets. They're also well-known and recognized brands, which can pique the interest of passersby – a luxury not afforded to every brand. For small businesses, the cost of springing up a store – temporary or permanent – is significant, and they don't often have the security of a brand identity to fall back on. It's no surprise that we heard several stories of small businesses folding during the pandemic when they could no longer afford their rent. 

New income streams

To avoid that, businesses are starting to think up new business models that allow them to use their physical spaces in more creative and high-value ways, says retail strategist Christina Herbach, who runs retail newsletter Cream of the Shop

‘High streets are being reinvented. Where people are living, working and playing is shifting block by block, city by city,’ she says. ‘What do retail spaces look like if we get to reinvent them? If you can order anything from your couch, the question becomes why you should leave your house at all.’

Here are three ways that retailers are redefining how they use store space to open up new revenue streams. 

1. From products to services. ‘Department stores are giving up more floor space to facials, masseuses and makeup artists,’ Christina says. This indicates that retail owners are giving independent freelancers a space to carry out their own services and build their own brands, while also attaching a price tag to that floor space. These services – which also include window repairs, dinner parties and educational classes – must also correspond to the retailers' own brands to work well. 

2. Collaborative retail. Spreading the cost of a retail space out between multiple brands can both reduce the financial burden and open up a brand to new audiences. For example, in London, Mousetail Coffee, a specialty coffee roaster, shares a physical space with The Mills Fabrica, an innovation hub and co-working space. Sojo, an app that connects people to tailors and seamstresses, recently announced a partnership with fashion brand GANNI, which was accompanied by a two-day launch pop-up. 

3. Stores as fulfillment centers. Envisioning a ‘hub-and-spoke’ model, Christina describes how stores can become part of a brand's distribution strategy, and how stock can be directly shipped from stores to reduce the need for warehouse space elsewhere. ‘In-store tech tends to be the most powerful and transformative in the hands of store associates, giving visibility into stock levels [and] untethering them from the cash register,’ she adds. Take FREITAG's new store in Seoul, opened in September 2021: it combines a customer-facing shop with a warehouse to make the flow of goods much more efficient and transparent. 

This article was first published in Courier issue 43, October/November 2021. To purchase the issue or become a subscriber, head to our webshop.

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