Get Ready for Retail’s Remodel Rush

In-store experience took a backseat to basic clicks-to-bricks functionality as online sales skyrocketed and store visits declined in the heat of the pandemic. Now, retailers are determined to give their bricks some dedicated love as store traffic roars back. Waves of remodels, retrofits, and refinements are set to hit retail and a multitude of stakeholders will benefit. In this episode, Carol Spieckerman highlights the motivations behind retailers’ renovations and how the results will transform shopper experience, brand partnerships, and retail support opportunities.

In this episode you’ll learn:

·      Why retailer revamps may change D2C brands’ priorities

·      Which categories will take center stage as new concepts debut

·      Why flagship stores may begin to flag

·      How frenemy hookups impact modernizing momentum

EPISODE TRANSCRIPT:

Hey everyone. It's Carol and welcome to Spieckerman Speaks Retail, where we navigate retail from now to next by tracking my latest retail trajectories and through interviews with experts who help us chart the course – always with tactics and takeaways for wherever you play in retail.

I think we all know by now that despite predictions to the contrary brick and mortar is by no means dead. It's just going to be different than it has been in the past. And those differences are set to become a lot more glaring because a big shift is underway. Prior to the pandemic, retailers were still immersed in the digital space. Some were just playing catch-up, others were pushing aggressively into next-level capabilities, and still others were monetizing the massive investments they've made in their digital platforms by opening or expanding their online marketplaces and rolling out the red carpet to third-party sellers.

All of that carried forward, but then came the pandemic. Online sales skyrocketed and retailers and brands invested even more in their digital capabilities, but they also started to acknowledge the need to further integrate their clicks and bricks. They realize that even though what motivates shoppers’ decisions to shop online or in stores would continue to shift, the capabilities that retailers needed to have in place were basically the same. Because it doesn't matter whether shoppers are super concerned about safety or if they're all about convenience. Either way, it means that retailers have to have an arsenal of options at the ready. It's all about providing choices, and that means easy to navigate stores and websites, curbside pickup, home delivery, and so on. A slew of last-mile, enablers have grabbed onto the opportunity and now retailers are calibrating the ideal mix of owned capabilities, partner, hookups, and acquisitions, to make sure that it all comes together. Otherwise known as buy, build, or bridge, one of my favorite trajectories that I can't stop talking about! But for the most part, retailers have been cutting and pasting solutions together for brick and mortar. The stores have gotten musty because aesthetics have had to take a back seat to block and tackle functionality. It's been a reactive more than a proactive approach for the most part.

All of that is set to change. Retailers are swinging their attention back to their bricks and the remodel rush is on. Walmart's a mega example of this shift. Walmart's been tweaking and adjusting their stores to accommodate digital opportunities. Now stores are set to get some dedicated love from Walmart. In January, Walmart unveiled what it called a “new signature experience” under the Time Well Spent moniker.

As the name suggests the overall focus is on increasing dwell time because the longer shoppers hang out, the more they buy. Right now, the concept's being executed in one incubator store in Springdale, Arkansas, but as with most things Walmart, whatever works will be deconstructed and parlayed to other stores.

In fact, that's already happening. Phase one of the Time Well Spent was all about improving sightlines and navigation. Now those upgrades have already hit a thousand more stores. The rest of the improvements for later stages are all about dynamic displays, using QR codes in some artful new ways, touch-and-feel product vignettes, and drawing attention to services and solutions.

And surely it's no coincidence that Walmart laid all the groundwork for this in advance of its recent private brand revamps in apparel. Those are set to hit the spotlight this spring, but this one store is going to serve as a launchpad for waves of remodels and updates across Walmart’s store fleet.

In a presentation just a little over a week ago, Macy's CFO said “repositioning and optimizing the physical footprint is a must-win initiative for Macy's to be relevant over the next 10 years.”

Notice he didn't say digital. He was talking about stores, and Macy's big focus is on perfecting its smaller format stores. So, there's a “rethinking and shrinking” dynamic at work with many retailers, like Macy's and also DSW. Here's another retailer that's come roaring back in the wake of the pandemic with store traffic up 47% in Q4 of last year.

DSW is closing stores. But at the same time, they're attempting to create what they're calling a store of the future. That'll be about 10,000 square feet smaller than their usual stores. At this point, most retailer’s plans for new store growth are still pretty modest, but they're being completely eclipsed by store remodels.

Target has announced plans to invest $5 billion in operations. 30 new store openings are baked into the plan, but 200 existing stores are slated for what Target’s calling “top to bottom renovations”. Target’s partnership with Ulta is reason enough for an overhaul. They're really bullish on this hookup, so popping 250 more Ulta shop-in-shops into existing target stores is part of the plan, but Target's also leaning into accelerating store fulfillment for online orders and curbside pickup. The remodels will focus on making these capabilities sing – there'll be broader lighting and more space dedicated to pickup areas.

One of my top retail trajectories a few years ago was the rise of the RTR or the acceleration in these retailer-to-retailer partnerships. It's cranking up again and going back to Ulta and target, remodels are now becoming part of this bigger intertwined dynamic.

It was pretty rough going for Ulta in 2020 as the pandemic slammed beauty sales, but they too have come back swinging with comp sales rising about 38% last year. The Target partnership is key to Ulta's future growth, but they're also having to take Target's lead and follow the remodeling cadence that Target is setting. It should be worth the wait though, because over 1 million shoppers have already linked their target and Ulta loyalty programs. In the meantime, Ulta's is taking charge with plans to remodel or relocate some of its locations for its mainline stores.

Ulta is still going head-to-head with Sephora, but now not just from a category perspective, but also through this same RTR business model. No sooner did Sephora and JC Penney part ways than Sephora hooked up with Kohl’s for shop-in-shops. In its recent presentation to investors, Kohl’s said that it's “pivoting from a department store to a focused lifestyle concept”. Now that might just sound like wordplay, but Kohl's is no stranger to making some big shifts. Some of my fellow retail history buffs might know that Kohl's actually started out as a grocer back in the 1940s. It didn't enter the department store arena until 1962.

By the time that the British American Tobacco Company’s US retail division bought a controlling interest in Kohl's in 1972, the company was operating 50 grocery stores, six department stores, three drug stores, and three liquor stores for good measure. The grocery stores were sold off in the 1980s. In any case, it's next evolution into focused-lifestyle-concept-land will include a much more aggressive beauty expansion with Sephora than Target even has planned with Ulta. By next year, Sephora’s Kohl’s shops will balloon from 200 to 850 locations with a goal of hitting $2 billion in sales. Along with that, Kohl’s remodels will focus on doubling down on active and athleisure merch with a big focus on recharging it's women's business, localizing assortments, and automating checkouts and returns.

Dollar stores have been a big exception to the less-is-more new store trajectory. Dollar General has added about 1,000 stores every year, since 2017 and it's planning over 1,100 this year, but like Target, remodels are where the action is. Dollar General has 1,750 remodels planned alongside the openings.

So, if other retailers are relying on digital to drive growth and accelerate their convenience capabilities, Dollar General is still killing on convenience through store locations, tens of thousands of them. Dollar General can’t afford to let it stores lag behind because stores are still the embodiment of everything Dollar General stands for. Dollar General’s DG Fresh initiative has officially rolled out chain-wide with a goal of taking its food business to the next level, and also taking more control over food distribution, and reducing costs in the process in stores. It's all about adding coolers, bigger coolers, coolers, coolers, everywhere to have a home for all those new groceries.

It's a great strategy because Dollar General tends to operate in communities that are just a little bit too small for other retailers. Dollar General gives shoppers a reason to stay closer to home. And now with Dollar General's grocery game on point, some shoppers will run out of excuses to travel those extra miles to get everything checked off the list.

And now travel centers are getting in on the remodel. Pilot, one of the big guys in this space, is kicking off a three-year project called New Horizons. That marks its biggest investment in bricks modernization ever. In this initiative, Pilot's going to fully remodel 400 Pilot and Flying J travel centers and implement upgrades to many more.

Pilot's taking a phased approach to incorporating some really big changes, including new branding, adding energy-efficient lighting inside and out, making enhancements to its fueling stations, including Evie charging, redesigning interiors, adding self-checkout, expanding lounging areas, and of course, a big focus on food upgrades.

Here again though dwell time is a big driver. As travelers juice up, their EVs Pilot is giving them a reason to hang out and spend more money rather than hunkering down in the parking lot. These really are just a few examples of the remodel rush. You'll be hearing about so many more waves of remodels that will attack all kinds of opportunities.

Five points from a recent interview with a strategy director for a firm that helped Walmart with its latest revamp really jumped out at me because I think they got lost as everybody focused on the observable changes in the store. These points are directional and basically universal for all of retail's remodel rushes.

First off, she talked about “dialing up inspiration,” particularly in discretionary categories. In other words, showcasing the categories that drive profitability.

Secondly, she said that she expects shoppers to turn in-store inspiration into online purchases later on. That speaks to the important role that stores now play in driving awareness that translates into digital sales. And that includes all those third-party sellers on Walmart's marketplace that don't have a presence in stores.

She called out that shoppers will see that an elevated shopping experience and great value aren't mutually exclusive. More value-oriented retailers will be adding bells and whistles to brick and mortar.

And finally, she said that getting inspired and spending time doesn't necessarily mean spending a long time. It just has to be, going back to the name, “Time Well Spent.” That goes back to retailers’ focus on shoppers thinking of Walmart and other retailers as a one-stop shop.

I'll be tracking all of these dynamics, especially since this rush to remodels is colliding with so many of the trajectories that we've been talking about from the very beginning. Here's a quick recap:

I mentioned those RTRs, those retailer-to-retailer hookups that have been going on for years now. Some brand’s brick-and-mortar expansion aspirations will have to be tempered based on their existing partnerships, just like with Ulta and Target. The long-term results should be achieving greater reach so it’ll be worth the wait.

In the last episode, I took on how retailers have gone mad for ads. They're launching in-house media networks in droves and monetizing their access to first-party consumer data, turning brand partners into paying customers. These in-store enhancements play right into that strategy. Retailers will be grabbing more digital data from the store environment, which is going to add to the value proposition they can offer brands as they build out their in-house agency.

It ties into sustainability’s second act, where retailers are making bigger, longer-term commitments to sustainability. Most of these big remodel initiatives have some kind of next-stage sustainability element baked in, it's deliberate, whether it's new lighting, food coolers, or using sustainable building materials.

The remodels exemplify retail's phygital future and the digital rethinking of physical retail that we've been talking about since early this year. That's really what it's all about – taking the best of digital innovation and bringing it into the store environment. Remodels are also incorporating retailers’ shift to solutions and services. So many of these remodels will help showcase everything from health services, like pharmacies and in-store clinics, to dining options, and of course store pickups and returns.

So that's seven trajectories right there that are all directly tied into the remodel rush. It's going to be a boon for so many of you listening in. I've spoken at several events over the last couple of months, where, as usual, the attendees were really diverse in terms of where they play in retail. The remodel rush is one area that I can confidently say benefits most of them. Folks who actually do a lot of the installing for one, not to mention digital signage and display companies, in-store merchandising companies, print providers. Brands that participate in high-visibility categories like beauty and fashion will be able to show their stuff in their wholesale environments, maybe to the point where they won't even have to rely so much on opening their own flagship stores.

It'll take a while, but traditional retailers that make these investments now in improving store experience will be in a position to create flagship experiences for their brand partners. That'll encourage more brands to forge partnerships with retailers as a primary strategy which will drive newness for retailers and expansion for brands, particularly direct to consumer brands.

It benefits data analytics companies that partner with retailers because more and better data will be a natural outcome of the digital rethinking of brick and mortar. So, lots of positive ripple effects, all tied into the remodel rush.

Thanks, everyone for listening in today. I've got some great interview episodes up ahead. And in the meantime, I'd love to hear from you. If you have any questions, ideas, or stories to share, you can ping me at carol @spieckermanretail.com to check out more insights, subscribe to my updates, and get the latest on more events and other happenings. And if you like what you're hearing, please do like, share, and subscribe on your favorite podcast platform.

I'll see you next time!