Physical Spaces

Build Your Cake and Eat It, Too: Why a Tiered Approach To Capital Allocation Is the Future of Retail

As we end Q1, brands and retailers are undoubtedly taking a more holistic look at their brick-and-mortar portfolios to create a more diversified approach to how they show up locally, nationally, and globally.

As 2020 forced companies to reassess capital allocation, a more tiered approach strategy began to emerge. The role of the flagship as a marquee destination was reimagined to serve as a multifunctional touchpoint, justified only where substantiated evidence proved a physical presence is critical twelve months a year.

Instead, flagship locations are being complemented with smaller format shops: specialty locations anchored around a specific purpose or localized effort, while pop-in shops are being launched via unexpected partnerships and helping brands expand in meaning.

 

Smaller format stores aren’t new, but they are proving to be a viable and critical touchpoint toward serving customers in a more pointed way

Earlier this year Nordstrom unveiled its “Closer to You” action plan: a strategy that will be supported by the expansion of Nordstrom Local stores, which are dedicated to a holistic approach of flexible fulfillment and complement their existing ecosystem of full-line and Rack stores.

 

 

Bloomingdale’s announced “Bloomies”, which is described as a smaller, highly edited, and service-driven location. The goal is for Bloomingdales to fill in locations in cities and suburbs that support their full-line department stores and to provide consumers with an alternative destination to shop, make returns, or pick up goods ordered online.

IKEA is leaning into its expansion of smaller, neighborhood-adjacent units rather than the flagship format in its dedication to get closer to where target customers live and work. And Nike is expanding their Nike Live store model to hundreds of locations with a focus on offering digitally-enabled services—including those that support BOPIS and curbside pick-up—that pair with the retailer’s membership app.

 

Small format stores and the increase of stores as a point of fulfillment won’t be the only push in 2021

Pop-up retail will also have a more robust strategy behind it, where pop-up stores will serve markets for a multitude of reasons, including offering a growing number of digitally native brands the opportunity to have a physical presence throughout specific times of the year.

For example, pop-ups are perfect for companies that require a limited-time location dedicated toward marketing new product launches, exclusive (and likely more surprising) partnership drops, seasonal campaigns, or new market tests.

At the end of 2020, we saw concrete evidence that consumers are still clamoring for experiential, limited-time engagements with brands, as seen with the success of the Gucci X The North Face pop-ups that took the social media airwaves by storm, offering consumers bespoke entertainment experiences in the US and Canada.

 

 

Another success story includes Kylie Jenner’s pop-up shop for her cosmetics brand in Los Angeles, stylized to look like the model and fashion icon’s pink bathroom.

Shop-in-shops and partnering with department stores or marketplace destinations such as Showfields or Neighborhood Goods will continue to be reimagined as brands and retailers restructure and reposition with a deeper dedication to dynamic retail opportunities.

Last fall’s announcement of Ulta’s shops-in-shops—1,000 square foot “customer-centric” experiences inside Target, complete with consultation areas and digital tools like their proprietary GlamLab virtual try-on—is illustrative of brands thinking differently about how they align their offerings with like-minded retailers.

The response to the forever-changed consumer will not be just from brands and retailers alone: shopping malls are also adjusting themselves to become multi-faceted commerce platforms, evolving from simply a piece of real estate within a brand’s portfolio.

 

Malls and shopping centers are working to optimize their logistics to support more complex physical environments

To succeed, malls will need to reorient themselves to support big-box anchor spaces that serve as distribution hubs and perhaps rethink how monthly rent has dual layers: one aimed at a percentage of sales, and one for industrial warehouse rates.

Startups like Fillogic—a group partnering with malls such as Brookfield Properties and Macerich to launch tech-enabled, micro-distribution hubs that help retailers improve service levels, reduce costs, and optimize asset utilization—are an example of how the industry is starting to think differently about their footprint.

With this shift, we see a growing understanding that physical locations need to be repositioned to support multichannel operations. We can also expect to see significant growth of companies like DeepNorthAI: SaaS that malls and shopping centers are making bigger investments into in an effort to document and analyze traffic patterns and dwell times.

With this data, they’re able to better optimize and merchandise locations into a “town center” experience, rather than a traditional “shopping center” experience – an innovative approach that investors like Caruso Group Properties in southern California have already seen success with.

To keep consumers engaged, happy, and healthy, brands and retailers will need to continue employing and investing in a tiered approach to their real estate.

By supplementing the traditional flagship spaces with fresh, experimental, yet highly personable small format experiences such as pop-ups, shop-in-shops, or service-driven variants of their full-line locations, companies will reach new targets, build brand loyalty, and emerge from 2021 victorious and adored in the eyes of the consumer.

 


 

Melissa Gonzalez

Continually pushing the boundaries of experiential retail, Melissa Gonzalez is an award-winning innovator, seasoned visionary, and brand storyteller.

She is the CEO of The Lion’esque Group, an MG2 company, pioneering the integration of physical environments and cutting-edge technologies to help companies such as Purple, Nordstrom, and Burrow foster foundational consumer engagement and evolve their offering.

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