Why Experiential Shopping Is the Next Frontier in Retail

Continuing our discussion of Nordstrom's (NYSE: JWN) new "Nordstrom Local" concept store, we dive into other examples of experiential shopping, some of which may surprise you. Who knew that do-it-yourself retailer Lowe's (NYSE: LOW), for example, was at the forefront of this movement? For this and other examples of a trend consumer goods investors should follow closely, check out the video below.

A full transcript follows the video.

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This video was recorded on Sept. 12, 2017.

Vincent Shen: The Industry Focus team, we recently recorded a special Industry Focus 101 episode. The trend that I talked about in the consumer retail space was experiential retail. It just happened be really good timing before this Nordstrom Local announcement. But there are many, many more examples out there. Asit, before the show, you shared with me some very cool examples from the home improvement world and also with an apparel brand. And the big thing that jumped out to me was, virtual reality is potentially becoming part of the shopping experience? Can you tell us a little bit more about what's going on with Lowe's and Vans?

Asit Sharma: Lowe's. Surprisingly, your do-it-yourself hardware store is on the forefront of experiential shopping. If you live in Massachusetts, maybe near Framingham, they have a store in which there's a dedicated room to virtual reality do-it-yourself learning. You go into the room, put on a pair of goggles, and you're handed a controller. And with that experience, you can actually work through an entire do-it-yourself project. Myself, I'm not a very mechanical guy, and I hesitate to do some mid-level projects around the house because I'm scared I'll mess them up, and it'll end up costing more money, end up costing my wife grief. So I think if I had this opportunity locally to go into a store, put on a headset, virtual reality goggles with a controller and then work through a retiling project, and everything that I'm messing up is virtual, that would give me the confidence to go through with the project. You can see how ingenious this is on Lowe's part. If they can get these threshold-level people like me to become do-it-yourself-ers, they have increased that lifelong sale per customer and found a new base of revenue. So I'm very intrigued by that idea. Have you seen one of these by any chance? I think they just got one on the East Coast.

Shen: No, I have not been able to visit a store with this. But I definitely see what you mean, in terms of increasing lifetime value of a customer. I can imagine, I'm probably similar to you, in terms of my experience with home improvement projects and things like that. I'm not going to pursue something too big. But if I were to go to a store like this, have this experience with this kind of virtual reality simulation, get a much better idea of what it entails, and then I decide, I'm going to give this a shot, and all of the sudden I'm buying all the supplies at Lowe's, and then I might need special tools to finish the project, and I'm getting those at Lowe's as well. And all of the sudden, what was a tentative thing that might go to a contractor instead becomes a huge purchase with the company.

Sharma: Sure. One more quick note on that, you can bet that Lowe's is also collecting data, just as Nordstrom is going to collect data. If they see that both Vince and Asit are trying to learn how to install windows, they're going to push those do-it-yourself workshops in their stores and make money off of that. I think it's a very bright idea.

Shen: Sure.

Sharma: The next example that I was interested in discussing today is House of Vans. I myself am a Chuck Taylor guy. I love to wear Converse. But Vans is a similar brand that's been around for a long time and has a second wave of cachet with the younger folks, the skateboard, BMX crowd. And so Vans is interesting in that its reach is primarily through large retailers. We've seen some of those going bankrupt. How do you sell in a world like this? Again, it's forging a relationship with the customer. So Vans' retail concept is called House of Vans. It's got a really beautiful flagship store in London, and it has several across the world. There's one in Chicago, Brooklyn has a House of Vans store. And the idea is to take 30,000 to 40,000 square feet and on a multi-level store, have a different experience on each level, sometimes very tenuously related to the actual product. House of Vans in London has one floor that's for art installations, it has an event space, it has several bars and cafes spread through the area. It has a level, and they call these tunnels, there's a tunnel of just concrete for skateboarding and sporting events. So I haven't physically been to this store, but from what I can see looking at the pictures on the web, there's very little physical product there at all. Here again, if you have these experiences, you feel more loyal to a certain brand. Personally, and I know a lot of our listeners are like this, I find a brand I like and I tend to be fairly loyal if it's well priced. So Vans will plant that impulse for you to have a great time at one of these House of Vans, and then later buy online, or maybe walk into a physical store and buy their product.

Shen: Sure. I want to bring this back a little bit to Nordstrom and draw some parallels from those examples that you provided with Lowe's and Vans, and some of the specific services that they're offering. The company's press release includes a comprehensive list of what customers can do at this Nordstrom Local. For example, we already mentioned the personal stylists, the manicures, the tailoring services. Also, you can buy online and pick-up in store, and customers can pick up the same day at Nordstrom Local if they order before 2:00PM, which is pretty impressive. There's curbside pickup, so your tailored outfit or your in-store pickup order can be brought out to you as you wait in your car. They also do easy returns. Basically anything you buy online or at a full-line Nordstrom store can go directly to Nordstrom Local and sent for a return. The last thing I'll mention is their style board. This is more of a tech-focused service that basically allows stylists to put together a digital catalog or look-book with items personalized for a customer, and then the customer can purchase items from that style board and also communicate with stylists through that app.

I list out all these specific services, because they remind me so much of initiatives that physical retailers are testing and implementing and expanding all over the country to differentiate their stores. You think about, for example, the first one. In-store pickup is available now at most major retailers, and not-so-major ones as well. It's just all part of the omni-channel strategy. Curbside grocery service was a big push for Wal-Mart and even Amazon when they were testing some of their retail concepts. And technology has been a huge lever for apparel companies like Urban Outfitters, and they have stores that are similar to the House of Vans. And technology is growing super quickly in terms of applications and usage in the restaurant sector, too.

In the past couple of years on Industry Focus , we've discussed on multiple occasions other companies experimenting with some of these ideas like Nordstrom, like Lowe's, and even the focus on small format stores has been seen with Whole Foods and Target and a lot of other of the larger retailers. What you mentioned in terms of the connection that it offers and the loyalty that it helps drive with customers, I think that's a big driving force behind all of this. You create a unique, fulfilling experience that will be enough to convince shoppers to make the trip and see it for themselves, and even if they don't buy anything at the store -- like in the case of Nordstrom Local, they're not going to carry much inventory, if any at all, that won't move the needle for this company. Nordstrom had $15 billion in revenue in the past year. But the connection that the company hopes to forge with you means that when you're ready to buy, whether you're on mobile or online or in store or wherever it may be, hopefully it's enough of an impression that they can count on you as a customer.

Asit Sharma has no position in any of the stocks mentioned. Vincent Shen has no position in any of the stocks mentioned. The Motley Fool recommends Lowe's and Nordstrom. The Motley Fool has a disclosure policy.