Physical stores have the potential to become the most powerful media channel available to brands, but it requires that everything about the physical store, how it’s planned, located, designed, staffed, and measured must be re-engineered. Today we speak with futurist, author, businesses advisor, and the founder and president of Retail Prophet, Doug Stephens.
Melinda: Hi, I’m Melinda, and you’re listening to Think Retail.
Physical stores have the potential to become the most powerful media channel available to brands, but it requires that everything about the physical store, how it’s planned, located, designed, staffed, and measured must be re-engineered. Today we speak with futurist, author, businesses advisor, and the founder and president of Retail Prophet, Doug Stephens. Doug, thank you so much for joining us this morning.
Doug: My pleasure. Thanks for having me.
Melinda: Could you start us off by telling us a little bit about yourself and what you do?
Doug: Sure. I spent approximately 20-plus years in the retail sector, working in a number of different capacities in both Canada and the U.S. I finished my career in general management and it was around that time in 2008/2009 that I decided to venture off and do my own thing. And it was really the consequence, I suppose, of looking at the retail industry for so long and really recognizing the fact that the retail industry as an industry is just chronically shortsighted. And it seemed to me, in 2008/2009 as sort of the whole world was becoming unstitched and we were in the throws of the financial crisis, that there were a number of really deep-seated changes that were taking place in the retail economy. Everything from who the consumer was to how that consumer could be reached through media, how the media landscape was changing, and certainly, how technology was changing the entire consumer dynamic.
I really felt that there was a need for a narrative that looked out on a longer horizon. And so, with that, in 2009, I began researching and writing, doing a lot of speaking work, which by 2012, consummated with a book deal with Wiley to write The Retail Revival, which was my first book. And following that in 2017, I launched another book called Reengineering Retail: The Future of Selling in a Post-Digital World. I’ve also become a syndicated columnist for CBC Radio, which I’ve been doing for about the last five or six years. And so, in a nutshell, my focus is entirely on the future of retail and how that future is shaping up to change the dynamic between brands, retailers, and consumers.
Melinda: Wow. You’ve had quiet the career, that’s really excellent, and you’re very much talking about things that we talk about a lot as well. In your second book, Reengineering Retail, you present the idea that retail stores are transitioning from being a distribution channel for products to becoming a powerful media channel for branded experiences and stories. Can you elaborate on that for us?
Doug: Yeah, sure. If you sort of follow the premise that media, traditionally, has been effective wherever people gather in numbers. If we go back 1,000 years and we sort of ask ourselves, “Well, where did people gather in numbers a thousand years ago?” It was in the market. You know, typically, you went to the Agora, or the Placa, or the market bazaar to find out what was happening in your community, to find out which new products were being brought in and which new products were exciting. But it was a place of community. It was a gathering point. And then as we became industrialized, as the advent of the printing press came into conception, then all of a sudden, we gathered around print. It was books, it was newspapers, and then print was just sort of displaced by radio and then radio by television, and now we live in a digital world.
But the digital landscape itself is extremely crowded now. It’s incredibly difficult for brands to make their way to consumers with messages that are being received either fully or with a message that is really resonating with consumers. And so, as a consequence, we see things like just last year, spending on digital advertising was up 45 percent, but actual click-rate was only up 11 percent. So, we’re coming to a point of diminishing returns in terms of reaching consumers through digital media. However, and this is a big however, it’s turning out that physical spaces now are a very definable and actionable gathering point. For example, each week, Starbucks sees 98 million consumers cross their threshold.
Doug: Yeah. So that’s a big audience. And let’s contrast that to the Sunday distribution of The New York Times, which only reaches 2.5 million. Now, we know what it costs to be on a full-page ad in the Sunday edition of The New York Times, but I asked the question, which is the more powerful and effective media channel? Would you rather be in Starbucks in front of 98 million consumers or The New York Timesat 2.5 million? So, you know, I really believe now that we’ve come to a point where distribution of products is being handled very effectively online. If you just look at Singles Day, for example, in China, in the first hour of Singles Day, Alibaba.com transacted $10 billion worth of transactions.
Melinda: Holy smokes.
Doug: In a single hour, right? Yeah. So, you know, we are very, very able now to turn virtually any media touchpoint, particularly digital media, into a store. In other words, and I think consumers are at a point now when they first get the notion to buy something, increasingly, they are going not to a physical store, but they’re going online. So, in essence, media has become the store. But the flip side of that is that stores, physical stores are becoming an extremely powerful and effective media channel.
Melinda: What would that look like? Explain to me what you mean by a media channel. Are you suggesting that Starbucks would advertise for other brands? Or are you suggesting that Starbucks needs to use their physical space more to empower their own brand?
Doug: Well, I think that any physical retailer needs to begin to look at their physical stores through the lens of them being a media channel. And once you begin to do that, things begin to look very different. Traditionally, the retail industry has obsessed over product, and when you look at the amount of energy that goes into selecting products, buying them in, warehousing them, distributing them to your stores, merchandising them, pricing them, marking them down, inventorying them, a tremendous amount of organizational energy goes into the maintenance of product. But if you begin to look at the store more as a media channel, a channel through which you can really tell a story about your brand, you can stage experiences for consumers to have true interactions with products, places where they can go to learn, to be inspired and ultimately, to galvanize a relationship with that consumer that transcends that single visit and ultimately forms a relationship with them over the course of time. Once you start looking at stores in that light, you start to say, “Look, maybe we shouldn’t be investing as much time and effort and square footage in products, perhaps what we should be doing is making a greater effort to stage remarkable and memorable experiences in the space.”
And so, it really applies to virtually every category. If you’re a grocery retailer, can you develop and stage more experiences around food, around cooking, around nutrition, around health? If you’re an apparel retailer, can you stage more experiences in the store around personal style, around the curation of a wardrobe, around what new looks are coming up for the coming year? If you’re an automotive parts retailer, can you invest more time in staging experiences around how to repair a car or the joys of working on a car? In fact, there’s more info here if you want to tackle about cars. Every category has its story, and once you start to adopt the idea that these physical spaces are important media channel points, then you can begin to stage those kinds of experiences that are memorable.
Melinda: What role do you see frontline staff playing in this experience? Because I think there’s a bit of catch-up happening when it comes to how we’re staffing our stores.
Doug: Yeah, I agree with that. And, again, we’ve come out of a very sort of industrialized era of retail. The primary function of staff, particularly over the last 30 to 40 years has really just been to maintain stock, to check inventory, to look up the odd price here and there for a customer, to know a little bit about the product, at least a little bit more than the customer might know about the product. But today, the stakes are so much higher. Now the consumer coming into the store in almost 50 percent of cases, according to research, suggests that they know as much or more about the product that they’re buying than the person that’s selling it to them in the store. Almost 70 percent of the time, they feel like they’re getting false information, that the person that’s serving them is actually not telling them the truth about products that they’re buying.
So, we now have come to a point where a lot of the rudimentary, repetitive, redundant functions that have traditionally been performed by staff are now moving over to technology. But the demands of the human interaction that we have at retail are much, much greater now. We don’t want someone who just took, you know, kind of the appended training program and knows a little bit more, perhaps, than we do about product. We want to deal with true experts that are inspired by the products that they sell and by virtue of their excitement, they inspire us to want to learn more and engage more in the category. So, in a weird sort of way, we’re really kind of rehumanizing retail. As much as technology is now coming into the category in terms of artificial intelligence, and robotics, and machine learning, the demands that are being placed on human beings in the environment are also much greater. And so, organizations, again, have to rethink, who are we hiring? What really is the role here? Are we looking for, low-level people to move products from one place to another and push buttons at cash registers? Or are we looking for people who can truly be brand ambassadors and add tremendous value to the consumer experience?
Melinda: If the focus in the store is to be more of an experience to be a media channel, how do retailers then translate that into sales?
Doug: Yeah, and that’s a great question. Traditionally, retailers have looked at it very transactionally. Things like conversion rates have really played on the minds of retailers. So, you know, what is our rate of closing sales compared to the amount of traffic that we’re getting in our stores? What are our per square foot sales this year versus last year? What does our comp growth look like? In a very absolute sense, we’re coming to a point where you can no longer measure the productivity of a store on that basis. It really doesn’t apply anymore, right? If a consumer can come into a store on Monday, have a wonderful experience, and on Friday, decide to go to that retailer’s website and make a purchase, you’re not currently connecting those two events in a meaningful way. But nonetheless, there is a media value that we have to start attributing to stores.
So there’s really, I guess, two points to this. First of all, I think retailers need to make a much greater effort to try and connect the store experience to whatever action takes place downstream of that. That might be someone going to Instagram and posting something that’s very favorable for the brand. It might be for them going online and making a purchase. It may be that they come back to the store two weeks later and buy a whole bunch of stuff. So retailers have to start really trying to connect those dots. And one way that I’ve been a proponent of doing that is to try to discover some means of creating a membership program of some kind so that there’s a sort of a self-identification then that takes place. When we walk into Costco, we show our membership card. When we log on to Amazon, we log in with our Prime membership. All of a sudden, now, I become very easily identifiable as a consumer, in part, because I want to be identified as a member. So, I think membership is a great key to understanding that consumer persona across channels, that’s number one.
But number two is we have to stop looking at the productivity of a physical store in such a restricted way. I’ll give you an example. I was doing a presentation for a major cosmetics retailer and I was talking to their chief marketing officer, and I just asked casually how many people per week visited this particular brand’s physical retail assets, just kind of ballpark. And he estimated that it was approaching almost 100 million people a week, would be sort of in contact with their physical assets in the market. Now, I asked him, “If you were to go to an ad agency, say you walked up to a Madison Avenue ad agency and said, “We’d like to connect with 100 million consumers a week in a prolonged, meaningful, and memorable way and we want only really consumers who we regard as our target market, how much would that cost?” And he said, “Well, it would be incalculable.” It’s unsustainable to try and launch a campaign that could achieve those kinds of results. But the point is it’s already happening. A hundred million people are getting a media experience from that brand and nobody is really measuring the value of that.
So I’m an advocate of the idea that at the end of the year, yes, of course, you have to look at top-line revenue and you have to look at profitability, but you also have to look at the media value contribution of a particular store in the market. And assuming that they’re delivering at least a neutral or better experience, you have to acknowledge that there is a value to the brand impressions that are created in that space, and that should be added back into the productivity of that location. So, I see some brands kind of go through their P&L statements every year and they lop off the lowest performing 50 stores. And I think to myself, it’s a huge mistake because while those stores on paper may look less productive than prior years, in part, because more and more sales are going online, we cannot cut off our nose to spite our face because each of those stores is also a media beacon in the marketplace that adds value.
Melina: That’s a really interesting point. I’ve never heard it described that way before, but it’s a very interesting perspective and I really hear you.
So outside of the sort of viewing the store as an asset in that regard, are there any other trends or threats that you think will disrupt the retail industry over the next decade?
Doug: Well, I mean, right now, we sit sort of on the frontier of a new evolution of online retail. If we’re honest about it, Amazon has been wildly successful. That is true. Other brands like Alibaba.com, of course, have also been behemoths in the online category. But the fact of the matter is, the way we shop online is still very sort of, Web 2.0. We’re still fundamentally pointing and clicking at static pictures. It is not an immersive activity. It’s certainly not social. It’s not interactive. And for the most part, it’s not fun. We know that Amazon is very effective when people know what they want. I think the last stat I saw was that in 76 percent of cases where the consumer knows precisely what they’re looking for, they go to Amazon to search for it, which is a pretty overwhelming statistic. But what we also know is that when a consumer is just looking to discover new products, they’re not going to Amazon. They’re not going to Alibaba. So there is room for an entirely different kind and certainly a more engaging kind of online experience.
I look at technologies like, of course, the Internet of Things. I believe that more and more of our consumption is just going to simply be managed for us by the devices that surround us, whether that’s by connected appliances, whether it’s connected packaging that the product actually comes in, or whether it’s a subscription service that I sign up to that simply replenishes my cosmetics or apparel items. I also look at technologies like mixed reality or augmented reality, which are still very much in their infant stages. And I believe that it’s very conceivable that within a decade, we are going to shop in a much more tactile and immersive way, probably by virtue of technologies like those. One company, in particular, that I’m watching very closely is Magic Leap, a startup that right now has $2.3 billion worth of funding and they are just now starting to explore what the retail experience looks like through their technology through mixed reality.
When you also add in artificial intelligence into the mix and the idea that over the next decade or so, I believe anyway, that we are going to refer to artificial intelligence to help us solve consumer problems, just as we turn to Google Maps today to get our bodies from point A to point B. So the idea that we will subscribe to a service whereby essentially, it becomes our retail sherpa, it helps us choose the right insurance company, the right bank, which car to buy. I think the online experience is going to be dramatically altered and impacted over the next decade. In terms of the retail industry at large, I believe that we’re just on the edge of the fallout that we’re going to see over the next, say, 10 years or so. I mean, the truth is, and I’ll ask you, Melinda, out of all of the shopping experiences you had in the last month, were there any that you were so excited about, you felt like you had to run home and tell someone about it?
Melinda: No, I mean, it’s a really good point that it’s a rare experience to walk into a store and to feel like, “Wow, this was really special.” And when that happens, it is exciting, but it doesn’t happen very often.
Doug: Yeah. And I think that’s pretty typical. Most of the responses that I get from people when I ask the same question are identical. And what’s particularly odd is that if you go to retail industry conferences right now, everybody is talking about customer experience. Everybody is talking about the importance of customer experience, the need to invest in customer experience, the fact that we have to be rethinking the customer experience, and intellectually, everyone’s buying in. I mean, it’s very hard to find an executive in the retail industry that wouldn’t agree that customer experience is paramount. But the fact is you go to the average shopping center, the average store near where you live, and we don’t get really memorable, remarkable, standout experiences.
And so, when I was writing Reengineering Retail, I was really curious to understand why that gap exists. And I came across something that I thought was interesting at the time, it was a quote by Steve Jobs in which he was not talking about retail at all, he was talking about design. But he said, “Design’s a funny word because when most people think about the word design, they think about the way something looks.” But he said, “When you really think about it and dig deeper, great design is really about how something works, not just how it looks.” And so, I started putting that in kind of Apple terms. And I thought that is so true because the Apple Store, at first, looked very different than any other computer store, no question. But they didn’t stop there. They didn’t just say, “Okay, now we’ve created a beautiful store, let’s get back to business.” They began to change things.
So, they instituted the Genius Bar. I mean, let’s think about that Genius Bar for a second. They said, “Let’s take our most knowledgeable, arguably highest-paid employees and put them behind the desk where people come and ask them questions for free.” Somebody actually had the courage to suggest that. Someone else had the courage to suggest that they take all this incredibly expensive inventory out of its boxes and put it out on tables for consumers to play with, and arguably, break. Someone had the courage to recommend that. You know, someone had the courage to say, “Hey, what if there were no more lineups at cash registers? We sell technology, why couldn’t every employee just carry their own POS system in their pocket?” Someone had the courage to suggest that. So, each of those things is not simply an aesthetic treatment of customer experience, it’s a legitimate reengineering of how Apple did business, how they sold what they sold, and it became a model for other retailers to follow.
Melinda: I think that’s a great point to stop on. You left us with a lot of really great points, and I think the first time I’ve really heard this idea articulated so succinctly. So, thank you. I think our listeners are really going to enjoy this conversation.
Doug: My pleasure. It was great being with you.
Melinda: Figuring out how to measure a store’s value as an engagement tool rather than just relying on sales to determine productivity is a big hurdle to overcome, but what a great point. I know I’ve gone into a store and tried on items for size and then gone home and ordered things online, so how can brands track this? Here are a few key things to think about.
Like Doug mentioned, a rewards program can help brands track activity and link in-store experience to a later purchase. However, in order to get customers to buy-in to a rewards program, it needs to offer tangible benefits. There are some other technologies such as location extensions that are helping brands track things like Google searches for directions to a specific store. But looking at how bricks and mortar stores are working for you is going to require more than just a few Google extensions. It’s going to require rethinking the kind of value brands expect from a physical location. Remembering that everyone who walks through any one of your stores is a target audience should help frame your reference for the store experience as more than just an outlet of goods, but a message to your consumers. What is your store saying? That’s a great way to frame the conversation, I think.
- Doug Stephens is one of the world’s foremost retail industry futurists. His intellectual work and thinking have influenced many of the world’s best-known retailers, agencies and brands.
- Think Retail is a podcast where top designers, strategists, thought leaders and business people discuss what’s coming next. For more information, email firstname.lastname@example.org.