Over the past few years, the rise of e-commerce and mass migration to digital channels by traditional retailers has been interpreted as marking the end of brick-and-mortar stores. In reality, as the forces of disruption continue to press forward, we can see that the digital is not replacing but rather adding a dimension to traditional retail by which existing elements acquire new meaning and functionality. There is still a place for traditional stores. In fact, as this report shows, the in-store experience is returning as an essential touchpoint with customers – one which augments its digital counterparts.
The store is no longer a beginning and end point, but rather a gateway to a brand’s entire ecosystem.
In a drastic change of narrative, the industry now considers traditional retail adopting digital channels and pure-play online brands opening brick-and-mortar stores as two movements that together drive a single retail revolution. The expectations of the modern connected consumer have fundamentally changed the game to the point where captivating customer loyalty requires brands to deliver a single, seamless and immersive experience across all channels.
The siloed approach of digital versus physical is no longer relevant, as it is only through functional integration that either one can be effective
As a global platform connecting young and established brands to commercial real-estate providers, we have witnessed firsthand how the retail landscape has shifted and how pop-up stores have become increasingly valued as a tool for the industry to navigate the unknown: experimenting with products, locations, tenant-mixes and commercial agreements.
As a result, the pop-up is now considered to play a central role in leading the retail revolution offering different benefits to brands and real estate providers working towards the same vision.
In our commitment to connecting the community to share the future of retail, this report reflects on key trends and technologies impacting the industry, shines a spotlight on how some brands play into these trends and pinpoints how pop-up stores function as a strategic tool for both brands and landlords to capitalize on these developments.
Mohamed Haouache - CEO at Storefront
Retail Trends & the Rise of Pop-Up Stores
The future looks bright…
27.73 trillion USD projected global retail sales in 2020, up from 24.86 USD in 2018. *
Vacancy Rates are trending down in the US *, Europe * and Asia * * leading to cautious optimism.
Global consumers are very confident about the coming years’ economy. Asian territories tend to be the most optimistic. *
Experience is a vital ingredient…
43% of consumers are likely to spend more with a retailer who offers a meaningful in-store experience. *
46% identify environment as a key element of a meaningful shopping experience. *
66% are more inclined to shop at places that house cafes, bars or restaurants. *
In the past three years the global number of weekly brick-and-mortar shoppers has risen from 40% in 2015 to 44% in 2018.
There is no retail apocalypse, but a blending of worlds…
40% of US male millennials would 'ideally buy everything online, compared to 33% of females. *
62% of permanent clicks-to-bricks stores have opened in the same city where they opened their first pop-up shop. *
90% of worldwide retail sales are still done in physical stores. *
74% of clicks-to-bricks retailers are apparel and accessory brands. *
Consumers want to know what their peers think: social media is the #1 choice to get inspiration for purchases online. *
By 2020, the demand for an omnichannel customer experience will be amplified by the need for near perfect execution. *
Key technologies transforming retail
Artificial Intelligence (AI)
Brands are further exploring AI-powered retail applications that can identify patterns and actionable information about customer behavior and inventory optimization. Equipped with AI capabilities, businesses can improve the customer experience by timing promotional discounts right, offering exactly what customers need at the right price, optimizing layout for items in the store and placing products frequently bought together next to each other. The same technology can be used to make more accurate inventory forecasts based on historic purchasing patterns and prevent stock from building up.
Internet of Things (IoT)
IoT is moving beyond hype and into real-world applications, with malls and retailers alike embedding their omnichannel strategy with seamless device integration. With IoT, customers visiting a mall can access the floor plan using a mobile app that offers the suggested walking route and notifies them of relevant sales on the way. Connected to inventory management systems, the same app will be able to tell the customer if the favored store has the item in stock or suggest an alternative store instead. Using beacons, mall operators can analyze foot traffic hotspots and optimize the layout of the retail mix and event spaces.
Augmented & Virtual Reality (AR & VR)
With AR and VR increasingly available, retailers are integrating technologies with the customer journey to create specialized and intensely immersive in-store experiences. Either using their own device or an interactive smart mirror, customers can preview wearing a product, changing size and color to experiment with convenience while receiving personalized recommendations and on-demand product information. VR offers an even more immersive experience, lending itself perfectly to bringing products to life in the environment they will be used. Wearing a headset, a customer can take a car for a scenic test drive, or wear hiking gear standing on top of a mountain.
Smart purchasing & inventory systems
Shoppers increasingly browse on one channel, buy through another and potentially visit a third channel. Smart purchasing systems track the customer journey and provide a seamless process that allows for multi-step, multi-channel purchasing, and accommodates various payment methods including cash, card, contactless and mobile. Leveraging key inventory partnerships, stores can tap into a larger network which relieves them from carrying their own inventory and allows for smaller store formats where staff is more focused on creating an exclusive experience for the shopper. In a distributed inventory system, items will no longer be ‘in stock’ but rather ‘in network’.
Data collection & analytics
Retailers are ramping up their data collection and analytics capabilities. Data tracking is the backbone for meaningful customization of products and personalization of services. Facial recognition allows brands to recognize opted-in customers when they walk into the store, and mobile syncing makes browsing and conversion behavior available to staff to help deliver a tailored service – further synchronizing in-store purchasing and browsing behavior with the customer’s digital profile aligned across all channels.
Conversational commerce
Natural language interfaces such as chatbots are playing an increasingly important part in removing friction from the checkout process and boosting online conversions. Customer service is a key element of the in-store experience and can be difficult to replicate in the digital world. Sophisticated chatbots help bridge the gap by providing a level of customer service that truly adds value and streamlining “click-and-collect” models by, for example, booking a ride share to the store after an online purchase.
Trend 1: Omnichannel
Online and offline channels are merging to satisfy consumers’ desire for a single channel
What’s happening?
With giant e-commerce businesses on the rise, some have questioned the future of traditional retail. However, what we are witnessing is not a retail apocalypse but a brick-and-mortar renaissance instead. At opposite ends, traditional retail stands for the physical experience of a product, personal service and trust, while digital shopping is about convenience, easy payment solutions and a widening range of options at a customer’s fingertips. The habits of browsing are changing consumer demands, but the perks of brick-and-mortar shopping remain vitally important. In fact, more than half of consumers use not one, but multiple channels in search of new products. * This is why both start-ups and well-established brands are abandoning the false choice between online and offline shopping, seeking ways to combine them in an integrated, holistic and innovative way.
Use case
One company leading the way towards integration is Alibaba. Far from seeking to replace traditional retail, in coining the term ‘New Retail’, this e-commerce giant aims to transform the retail industry by infusing physical shopping with digital solutions. Alibaba’s Hema, a cashless fine-dining supermarket chain which is sweeping across China, serves as a case in point. Combining e-commerce, restaurant, supermarket and distribution center, customers can stroll around the store, smartphone in hand, select products of choice and have them conveniently delivered in half an hour within a 3-mile radius. Another example showcasing Alibaba’s embrace of brick-and-mortar takes place in the period leading up to Singles’ Day on the 11th of November each year. Opening up dozens of pop-up stores and more than a 100,000 smart stores around the country, consumers are able to try out clothes, watches, cosmetics and other popular products, interact with state-of-the-art technology for customization and payment and organize delivery at their convenience. It’s an online shopping extravaganza gone offline. This year, at a 27% increase compared to last year, Singles’ Day yielded a staggering $20.8 billion USD in sales.
Pop-up stores in action
By nature, pop-up stores hover between online and offline worlds. They open the door to experiment with creative integrative solutions. E-commerce businesses can use pop-ups to boost sales during key commercial moments or reach new customers. Traditional retailers can likewise use pop-up stores to further integrate customers into online channels and gather valuable data for increased customization.
Trend 2: Experience
More than anything, retail is about the experience
What’s happening?
Beyond diversifying touchpoints and upgrading to omnichannel, brands are recognizing that there is no replacement for the experience physical stores can offer, and that they are vital in satisfying consumers’ demands. The need for experience is linked to happiness, a quest for ‘likes’ and a fear of missing out. To capitalize on this trend and secure relevance, brick-and-mortar stores are embracing the experience economy wholeheartedly. In this regard, it is important to understand that the experience factor is not just a tactic to drive sales, but that if it is delivered in an authentic, valuable and relevant way, it is a means to create a bond with customers and generate enthusiasm. On the one hand, experiential retailing is a way to integrate with consumers’ everyday lives. On the other hand, by offering something special and exclusive it sets retail apart from the usual and offers an escape. In this story, it’s not money, but time that is the currency. The product is a souvenir of how that time was spent.
Use case
One great example is provided by Sephora, who set the stage for experiential retail. It created Beauty Hubs, a virtual lookbook with thousands of options provided via iPad stations and interactive mirrors, where products can be virtually tried using Augmented Reality. Beauty recommendations like skincare diagnostics and tutorials are available, supplemented by advice of in-store makeup experts. Items tested on these new digital tools can be purchased either in-store or online. In addition, Sephora offers Beauty Classes with makeup lessons and workshops led by beauty professionals at the Beauty Hub. By allowing its customers to play with products in the store, Sephora offers something that far exceeds online possibilities. Its beauty services and tutorials, alongside its innovative use of cutting-edge technology, make for an unforgettable experience that gets customers talking, sharing and yearning for more. Leading the way, Sephora shows that a store is more than just a place to buy products, but instead a space where brands can engage their customers in a meaningful way.
Pop-up stores in action
There is something magical about pop-up stores. Whether in a mall or on the street, they are disruptive and never fail to capture people’s attention. They are temporary, vanish fast, and as such they capitalize on people’s fear of missing out. Pop-up stores embody a sense of exclusivity and are a powerful tool to boost brand exposure. Just as a nice dinner in a restaurant, or watching a movie in the cinema, a pop-up store that delivers a captivating experience concentrates attention and generates excitement that extends beyond the moment in the form of a memory.
Trend 3: Personalization
Personalization has become critical, and is now expected
What’s happening?
Brick-and-mortar stores are no longer places to conduct transactions, but to build relationships. Consumers value a personalized approach, sensitive to their particular needs. The digital revolution is one of the key reasons why this has become so important for customers: it is now expected. Everything we do online produces data which is captured to build a digital profile. This is what enables companies, services, advertising and applications to provide a personalized experience at all times. As we increasingly live our lives online and bring our devices everywhere we go, we expect the offline world to deliver that same level of personalization. Personalization is grounded in strategic data capturing and analyzing. The same data collected for online services is being used to create personalized in-store experiences in the offline world. The goal is to predict what each customer is looking for and present them with relevant products at the right time. Some of the technologies and tools to collect that data include POS data/purchase history, payment data, cookies/browser history, social listening, in-store device tracking and facial recognition. Personalization is critical in creating a seamless and single brand experience across every channel. It is the connecting thread between online browsing and offline shopping.
Use case
Burberry stands out as a luxury brand that is seamlessly integrating the physical and digital worlds with personalization as the key element. For in-store personalization, Burberry uses big data to offer product recommendations. When an identified customer enters a store, sales assistants use tablets to offer buying suggestions based on their customers’ purchase history as well as their social media activity. RFID tags communicating with customers’ phones provide styling tips on how items can be worn or combined based on “frequently bought together” data collected globally. Online, ‘Burberry Bespoke’ allows customers to design customized coats choosing styling details like buttons and lining. Both personalized worlds are connected through conversational commerce, where their chatbot provides customer service, browsing options and even the possibility to book an Uber ride to the store.
Pop-up stores in action
Pop-up stores are a great way to augment personalization with face-to-face interaction. While giving customers the chance to try on, touch, test and physically interact with products, brands have the opportunity to experiment with in-store personalization tactics. Staff equipped with devices can collect data to form the basis for further product development based on customer preferences.
Trend 4: Micro-retail
Brands are meeting customers in their own neighborhoods
What’s happening?
Micro-retailing is about moving away from large centralized stores towards smaller, demographically targeted stores focused on a strategic selection of popular products. Instead of waiting for customers to go out of their way to visit a store, micro-retailing entails brands meeting customers in their everyday journeys, supplemented by a variety of digital touchpoints. This trend can be seen across the board including the brands that are traditionally housed in outer city neighborhoods. In addition to aligning retail with customer journeys, brands are also seeking alignment in terms of lifestyle. Increasingly, stores are taking on the form of multi-purpose community centers, where besides browsing for products, customers can have a snack or take delight in freshly brewed coffee.
Use case
IKEA is among the established brands who are in the process of adopting a micro-retail strategy. Known for their giant physical stores, IKEA is now experimenting with micro-stores. In fact, the smallest IKEA-store in the world, which was recently launched, measures only 10.5x8.8 cm. Of course, that micro-store is only a digital banner, but it does point to IKEA’s commitment to saving space. By offering customers more of what they want and less of what they don’t want, IKEA makes the purchasing experience more efficient and makes it less likely to be left with surplus stock. Also, opening micro-stores across urban locations fits better with people’s busy lives and ever-growing urban populations. Due to their small size and localized nature, micro-stores allow for better customer service and by drawing on data they can more easily adapt to localized customer trends and needs. In addition, with micro-stores serving as delivery hubs, IKEA is able to optimize its delivery service. In the long run, strategically distributing brick-and-mortar retail touchpoints can benefit local, at times deprived areas, in terms of economic activity and employment.
Pop-up stores in action
While micro-stores are physical stores of a more permanent nature, pop-up stores can be seen as a ‘soft form of micro-retailing’. Pop-up stores yield all of the same benefits as micro-stores but differ in that they are of a temporary nature. They are perfect to test new locations and demographics and provide a cost-effective way of adopting a micro-retail strategy for brands without immediately committing to long-term leases. Pop-up stores enable brands to flexibly migrate to places with high foot traffic, such as malls and popular neighborhoods and migrate again later to capitalize on key commercial moments elsewhere.
Trend 5: Authentic Values
Holding brands to a higher standard
What’s happening?
Brand authenticity is becoming increasingly important in customer decision-making processes about what to buy and where to shop. Simply talking about doing the right thing is no longer sufficient. Customers today have a much keener eye for authenticity versus mere marketing speak. They demand transparency as they take an increased interest in the ethical practices of the brands they buy from and by extension which brands they want to associate their identities with. In light of this growing trend, brands are being called to higher standards that need to be consistently reflected throughout the entire business from leadership through to frontline staff. In other words, consumers want to buy from an honest brand. Millennials in particular are driving the trend with a high willingness to spend more on a product if it comes from a sustainable brand. Brands are capitalizing on this trend by utilizing retail spaces to build communities around social interaction and a shared sense of values.
Use case
Brandless is a digital-first supermarket that explicitly stands for transparency, quality and community-driven values. It offers a wide variety of organic, non-toxic, hypo-allergenic products that haven’t been tested on animals at a flat fee of $3 USD. In their own words, they sell “better stuff at fewer dollars.” They are known for bringing their community together with exciting pop-ups where customers come in to see, touch, taste, and try a selection of 300+ products, which can be bought online and are shipped directly to their homes. With interactive tasting tables highlighting non-GMO and organic foods, to beauty demos using clean and cruelty-free personal care products, they invite their community to indulge in the ‘Brandless Lifestyle’.
Pop-up stores in action
Brands can meet the increased demand for authenticity by holding pop-up stores with a purpose. The strategy is to create a collection point for people who share the same values as the brand and build a community around that lifestyle. Additionally, the pop-up store demonstrates a natural value alignment for the sustainable business, as an affordable and convenient option of a temporary offline retail channel – using only what is necessary, when it is necessary.
The future of retail: consumers, brands & landlords
What consumers prefer…
● Seamless omnichannel experience and convenient payment solutions
● Face-to-face interaction with genuine staff to optimize decision-making processes
● Cutting-edge technologies that give a sense of excitement
● Meaningful shopping experience augmented by social spaces
● Personalized service and customizable products
● Value-driven brands that provide transparency
● Sense of pioneering
How brands create value…
● Providing customers with a memorable in-store experience
● Creating integrated touchpoints along consumers’ everyday lives
● Community building
● Knowledgeable and experienced in-store staff
● Strategic data collection and analysis to enhance personalization
● Consistency in service, product-quality and storytelling
● Connecting to a social cause
● Targeted store distribution - meeting customers in their own neighborhood
How landlords and mall operators provide support…
● Driving foot-traffic through dedicated pop-up spaces
● Diversifying brand mix to broaden appeal of shopping centers
● Flexible lease arrangements
● Including event and lifestyle spaces to make for a multi-purpose shopping experience
● Investing in technological infrastructure to gain insight into visitor behavior and facilitate innovative brands
● Dedicating retail spaces in off-beat locations to satisfy niche consumerism and open up neighborhoods to new commercial activity
About Storefront
Since its launch in 2014, Storefront has become the world’s largest marketplace for short-term retail spaces. Its mission: connecting brands, e-commerce businesses and artists with space owners for short- term rentals, creating pop-up stores and events around the world.
- A simple, three-step process: From looking for a commercial space to getting in touch with the landlord and completing the final booking, brands are in complete control of their bookings.
- More than 10,000 available spaces: Thanks to the different space types available from Storefront, brands from any industry can find their ideal space and make their short-term project happen, whatever their budget, positioning or requirements are.
- A global presence: Storefront is the one and only platform offering thousands of quality spaces all around the world. This advantage allows any brand to pop-up in any location, test new markets and even launch simultaneously in more than one location worldwide.
- A tailor-made care: Storefront’s team is made of passionate and professional people willing to guide brands through their ideal space quest.
Storefront has powered more than 100,000 brands - including Cartier, Ebay, Converse, Netflix and Etsy - in renting the perfect short-term retail spaces across the world’s largest cities from Paris to New York to Milan to London and Hong Kong.