Changing Retail Cha-Ching one Click at a Time

Scenario: You’re sitting at home, watching the latest “House of Cards” episode on your five-year-old, 30-inch TV. You’re happy with the set up you have, but you think you could do better.

To complete your upgrade, you probably aren’t going rush out to your local electronics retail store, lay down the $300 or more it takes to buy the television, and take it home to set up the same night. Instead, you use the big-box store to take a test drive of sorts, check out your options, shop the competition and settle on a brand you like best.

“Young pre-teen girls are hanging out on their mobile devices and their social channels, not hanging out at the mall anymore."

- Ron Klein, PwC retail and consumer practice director

You’re not alone. And the way you shop is increasingly the way many Americans are choosing to make purchases both big and small, across all segments from electronics to beauty.

In a world where the Internet is everything, every year, more and more consumers are turning to the vast network to make their purchases. And as with all things that change, the retail landscape is not immune to the reality it must adapt in order to serve customers better.

From E-Commerce to Bricks-and-Mortar

Birchbox is the latest company to not only come to grips with the evolved consumer, but embrace it and continue to forge its own niche in this rapidly expanding, ever-changing economy.

Launched four years ago, the brand, led by two Harvard business school graduates flung open the doors of its brand new bricks-and-mortar store just two weeks ago in New York’s SoHo neighborhood. Though the company’s focus on providing a better beauty-shopping experience remains the same, the method to reaching its consumers is changing.

“All people were doing online (in 2010) was for replenishment, so using the Internet as convenience. We realized it could also be about discovery. And we wanted to create a beauty-shopping experience that was inspiring around discovery…we thought if we’ve created something special online, what if we can take that feeling, that sentiment, and create something offline to speak to those consumers as well,” Birchbox co-founder Katia Beauchap said.

Stepping into the Birchbox store in New York’s SoHo neighborhood is like stepping into the brand’s website. The look and feel is exactly the same: The same pink chevron design that often lines its boxes is on the wall, the same products you see in online rows are brought to life on store shelves, and the user descriptions customers can parse through when making a decision to purchase online are still available in-store via an iPad right next to the product category. The only difference is stepping into the physical store means stepping into a laboratory where potential buyers can test fragrances, feel textures and sample color palates. An advantage online-only stores can’t offer.

“I’m really excited about Try Bar,” Beauchamp said. “It’s something so unique to Birchbox. You can walk up and see what our editors and merchants think are interesting trends, and you can just try them yourself…kind of get your hands dirty, literally.”

Though the transition from online to offline might seem seamless, it posed many challenges for the brand along the way. Beauchamp noted it’s almost like a completely different business because it takes nearly an entirely different business model to achieve the same goal.

“We definitely took that seriously,” she said. Adding that they sought advice before ever deciding to invest in a physical space. “We have a lot of friends in the New York start-up community that are similar to us…like Warby Parker, Bonobos, and we definitely spoke to them extensively about the decisions they made, about the capital investments, and what they were looking for in terms of key performance indicators that kept them deciding to open more doors.”

What the decision comes down to is more than just the brand’s bottom line. Ron Klein, Pricewaterhousecoopers retail and consumer practice director, said in many cases, a move to the physical space from the world wide web is about giving consumers what they want in a way they didn’t know they wanted.

“Some online retailers might move into a retail store for purely brand marketing purposes, especially if you’re talking about high-traffic, high visibility in New York City,” he said. “Traditional retail companies have a hard time making profit in those areas because of the high rents and they really do it for brand marketing exposure, as well as their consumers who expect them to be there.”

With more than 800,000 subscribers, Beauchamp is open about the reason for molding Birchbox into an online and physical-retail concept, saying the goal has been to always build a business that makes sense.

“The path to profitability was something that Hayley and I thought of from the very beginning,” she said. “We’re still growing very quickly and investing in that growth. But the whole idea is to be independent and allow ourselves to exist forever, so that means we have to be careful and with a path to profitability always on our minds.”

Adapting to the Changing Consumer Mindset

The U.S. consumer’s needs have changed drastically in the last decade as he or she has had to deal with the biggest downturn in the American economy since the Great Depression -- finding ways to pinch pennies while still living a comfortable lifestyle. Perhaps the most poignant example is the drastic decline in shopping malls across the country. And Klein says shopping patterns are definitely in flux.

“Young pre-teen girls are hanging out on their mobile devices and their social channels, not hanging out at the mall anymore,” he said. “Traditional anchor stores that drove a lot of traffic to the mall don’t have the same appeal they once did, and all the other tenants next to them are suffering because of that lack of traffic.”

So retailers have essentially said: If you can’t beat ‘em, join ‘em, and they’re rethinking the purpose of real estate, asking the tough questions: It it to not only attract customers, but to retain them, and if there’s no money to be made on transactions, how can value be added in other ways?

“They’re adapting to it with experimentation and really relying on a lot of analytics and insights into trying to figure out what the demands are of their customers,” Klein said.

And that’s where retailers like Birchbox come into play.

“We really wanted the experience (of the store) to leverage all the things we think we’re great at, and a lot of that is the technology experience of Birchbox,” Beauchamp said. “So, we can take your profile and your behavior and we use that to put the right sample in your monthly box…in the store, you can check out the product matchmaker where you can fill out a very quick profile and see the products that match your profile.”

She said merging the two Birchbox concepts is all a matter of effectively blurring the lines heavily between online and in-store.

“You can shop this month’s box, you can shop the top (products), you can build your own Birchbox in the back, and what was really imprortant to us was the other element of learning which is through services downstairs where you can get your hair, makeup, and nails done. And we’ll be having classes, too,” Beauchamp added.

To that point, Klein said about 70% of all shopping trips start online as consumers turn to the web to research purchases before a final transaction. How often and how many purchases are actually made in-store versus online depends on the retail segment. He said for the entertainment, media, electronics segments, the research and transaction both take place online, but a touch-and-feel experience is likely to happen in the middle stages before a final purchasing decision is made. For other segments like apparel or sporting goods, some research might begin on line, but 2/3 of the purchases are completed in-store.

“It really depends on the product’s category and how much a consumer feels like they need to touch it and try it on in the physical world verses relying  on the descriptions they might see online or reviews they might see from their friends,” Klein said.

Another byproduct of the changing landscape is significant downscaling for physical retailers who will begin to slash their footprints in bricks-and-mortar world.

“A lot of customers don’t need the product that day, they want to try it on or check it out, and they’re happy to receive it next day via the mail. We’ll see many retailers resize the number of stores they need…because so many transactions have moved online, the role of the store has definitely changed and will continue to change,” he said.

It’s the smaller, more scrappy-like startups that will be able to better compete in this environment because they’re able to maintain flexibility while providing customers the experiences they want.

Klein noted in this day and age it’s relatively inexpensive for a brand to set up an online presence and a mobile app to give the company the scale they wouldn’t have had 10-15 years ago.

“They’re becoming much stronger competitors,” he said of the smaller retailers. “There are a lot of brands that just blow up in one or two years while in the old days, it would take them 10 or 20 years to achieve that scale. So, in a way, it’s changing the game.”

But for those who fear the days of a rainy Sunday spent at the mall are completely out of the question, Klein says relax: The Internet isn't killing bricks-and-mortars, it’s just changing the way shoppers think about their interactions with the brands they’ve come to love.