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Welcome to the Experience Economy

Welcome to the ‘Experience Economy’: a very retail revolution

Twenty years ago, two professors argued that the US was entering a new stage of development. In ‘Welcome to the Experience Economy’, Joseph Pine and James Gilmore argued for a fourth stage in the economy’s evolution, and that ‘from now on, leading-edge companies…will find that the competitive battleground lies in staging experiences.’ Fast forward to today, and Pine and Gilmore’s idea of the experience economy has become central to how many retailers and brands think about their businesses, with far reaching implications for how we shop.

While the influence of the experience economy reaches out to the whole economy, retailers are at the vanguard of change. Leading retailers are no longer sitting back expecting people to come to them and spend money instore. Instead, they are competing to attract shoppers through experiences, whether that’s directly staging an event, or focusing on how a customer interacts with them.

With the rise of the experience economy, the traditional distinction between online retailers and bricks and mortar stores is being blurred, with many chains seeking to be ‘omni-channel’. This is where customers can interact with their favourite shops or brands instore, online, and on social media. Luxury fashion houses are changing their preference for high-end real estate, department stores are cutting the number of clothing lines they sell, and new businesses offering sensory experiences are being created. But perhaps the most visible impact of the experience economy is physical, with the changing nature of the High Street.

From store to stage

For many retailers, the experience economy is changing the way they think about their stores. While how much you sell per square foot is still very important, retailers are also looking at how they can creatively use space to provide an enjoyable experience. Debenhams’ recently unveiled new concept store, for example, includes a gin bar, Blo hair and beauty salon, and industrial-themed beauty hall. Beauty is an area Debenhams is trying to capitalise on in particular, with data from the British Retail Consortium showing that spending in salons is rising at a faster rate than for the economy as a whole, and the department store widely recognised for its beauty selection. Will this strategy work? Only time will tell.

Others have gone further. John Lewis has held gin masterclasses, cinema screenings and even offered overnight stays in temporary luxury apartments based in its Oxford Street store in London. Its ‘Residence’ experience was entirely put together with furnishings from John Lewis, and guests were also able to enjoy an after-hours shopping experience with their own personal shopper.

The ultimate aim of these experiences is to help the bottom line. John Lewis enjoyed a bonanza of press coverage with their offer of an overnight stay, and the idea behind many experiences is to encourage people out of the home and into the store. This strategy hasn’t worked for John Lewis so far – it recently announced a profits warning – and Debenhams is still expected to announce further store closures in the New Year. But other retailers have sought to play on the idea of being experts in their field. Dixons Carphone and Currys PC World, for example, have both run advertising campaigns emphasising the product knowledge of their staff. As part of your research into buying a laptop or white good, you might now do some initial research online, before going into a store for help with any follow-up questions. You might then buy instore, or go home and conduct further research.

While there’s nothing to then stop you buying from the cheapest online retailer, bricks and mortar retailers hope that the instore experience helps to redress the balance between online convenience and physical shopping. Positioning themselves as instore experts also allows them to upsell more easily – retailers today will talk to you about creating your own personal media room, rather than simply encouraging you to buy a more expensive television. And it means  Dixons Carphone leverage their market leading position and ability to upscale, providing crucial encouragement to manufacturers to provide them with lower prices so they remain competitively priced against other retailers.

No longer just online vs. the real world

Offering an experience is partly about countering the rise of online shopping, which offers a level of convenience few bricks and mortar retailers can match. While traditional retailers have fought back with tactics like ‘Click and Collect’, the high level strategy is to adopt an ‘omni-channel’ approach, where customers can interact with you instore, online, or on social media sites like Instagram.

Having an online presence is increasingly important for a whole host of retailers and brands, and not just digital ones. Data is the new weapon for many retailers, with online fashion companies like ASOS knowing their customers’ basic information like name, age, and sex, but also their overall tastes, such as what they like on Facebook, and who they follow on Instagram.

Creativity, creativity, creativity

The internet is also changing how brands talk about themselves. In a recent update to investors, Kering, the owner of a number of luxury fashion houses including Gucci, outlined how success depended on its ability to offer bold creative positions. Whereas luxury marques were once surrounded by an air of mystique, the focus nowadays is more on originality and authenticity.  

This has resulted in important changes at Gucci in particular. Three years ago, the company brought in a new creative director, Alessandro Michele. Sales have risen significantly since his appointment, with Michele directly responsible for this. Michele has relaxed guidelines around how Gucci’s brand can be used, pioneering collaborations with street artists like GucciGhost for fashion collections. Gucci’s social media team has also worked with artists more broadly around Instagram campaigns like #guccigram, helping to position the brand more creatively and give it a more artistic feel compared to other luxury brands.

This is having spill-over effects in the real world. Gucci would have traditionally limited their stores to higher end neighbourhoods, like Fifth Avenue in New York or the Champs-Élysées in Paris. But these areas carry institutional connotations with them, the opposite of the creativity and experimentalism which Gucci wants to project.

Gucci’s appetite for less traditional locations is limited – they are more focused on increasing their sales density – but its new creative ethos is markedly changing the look and feel of some its new sites. Its Wooster Street store in downtown New York, for example, looks almost purposely designed as a contrast to the traditional Gucci store, with bare brick walls, stage lighting and zany floor patterns. The company is refurbishing more than 500 stores to reflect this more creative look, with this taking another two to three years to complete.

Are we about to see a High St renaissance?

While ‘experiences’ may offer a road back for the High Street, it’s too early to call for a renaissance just yet. Many of the things retailers are trying are experimental, and it’s not yet clear what will be embraced permanently. There are natural areas companies can focus on – Debenhams and beauty for example – but other experiments will inevitably fail. Many retailers are still learning from their peers. Companies like Inditex (owner of Zara, Massimo Dutti, and Bershka, amongst others) are commonly seen as examples of how to blend online and physical operations. Yet although the gap between Inditex and its rivals has closed, until several years ago, the company was still happy to let competitor management teams visit its warehouses, safe in the knowledge that they were so far ahead of their competition that it didn’t matter if people tried to copy them.

High Street retailers also face challenges when trying to transition to an omni-channel approach. Online retailers typically have lower profit margins than those which bricks and mortar retailers have traditionally enjoyed. In the race to develop an omni-channel offering, retailers must therefore make the unpalatable decision to accept lower margins, or otherwise lose business altogether.

Beyond the online-offline distinction

As retailers ‘go omni-channel’, and focus on the experience people have when shopping with them, the lines between online shopping and physical shopping are becoming increasingly blurred. For the most advanced retailers, there isn’t a distinction between their online and offline offering anymore, it’s about the experience as a whole.

This attitude naturally extends into how chains view their physical estate. McKinsey research suggests that the contribution a physical store makes to a company’s online sales can account for 20-40% of its total economic value. Considering that even online behemoths like Amazon have physical stores, the benefit of a physical presence should not be discounted entirely.

Although Pine and Gilmore successfully identified the rise of the experience economy, it would have been hard for them to imagine the landscape that many retailers and brands find themselves adapting to 20 years later. While most people look to the rise of online shopping as the cause of the retail sector’s current woes, the success of companies like Next, or the way which brands like Gucci have repositioned themselves, shows that the internet is not the only dominating factor. The experience economy may be less than 20 years old, but for much of the High Street, the revolution is yet to come.

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