How retailers are banking on options and experiences to draw in shoppers
JUDY WOODRUFF: Now, the second of a two-part look at the transformation and troubles of retail. The Federal Trade Commission has cleared the way today for Amazon to take over Whole Foods starting next week. Meanwhile, Sears announced it plans to close even more of the K-mart stores that it owns. While each company has its particular story, there's no question the retail sector is going through a major transformation.
Our economics correspondent, Paul Solman, reports on how companies are trying to reboot and adapt to a most challenging environment. It's part of our weekly series, "Making Sense."
PAUL SOLMAN: More store closings this year than any since the Great Recession, retailers filing for bankruptcy at a record pace, countless others teetering on the brink. And so, the obvious question:
Is this Armageddon for retail?
MARK COHEN, Columbia Business School: The retail industry is fine but the legacy players are facing Armageddon.
PAUL SOLMAN: Columbia University retail professor Mark Cohen.
MARK COHEN: You know, back in the day if you wanted almost anything you could think of, you had to go to a department store. Now what's happening, the Internet is hollowing out the great American shopping mall.
PAUL SOLMAN: Amazon founder Jeff Bezos predicted as much to me almost 20 years ago: unless brick-and-mortar stores do something different, they're toast.
JEFF BEZOS, Amazon Founder: To put it in the extremes, the category that's most threatened is the strip mall —
PAUL SOLMAN: Because?
JEFF BEZOS: — because that's no fun.
PAUL SOLMAN: This outside a Borders Bookstore which, of course, went bankrupt 12 years later.
So, what's a retailer to do now?
MARK COHEN: The traditional retailers that survive this paradigm shift are going to have to create a physical presence that's far more attractive and engaging than what they've got.
PAUL SOLMAN: More engaging or else. Earlier this summer, Hudson's Bay, which owns Lord & Taylor and Saks Fifth Avenue, slashed 2,000 jobs. Now, an activist investor is pushing the company to sell its stores for the real estate. The Saks flagship in Manhattan alone is reportedly worth $3.7 billion. To Hudson's Bay CEO Jerry Storch the challenge is clear:
GERALD STORCH, CEO, Hudson's Bay Company: How do we give the customer that extra reason, beyond simply consummating a transaction to buy some merchandise to come to a store.
PAUL SOLMAN: Lord & Taylor's answer: The Dress Address. At 30,000 square feet, it's the largest dress floor in the country, with a rotating pop-up space that spotlights a new designer every eight weeks, a restaurant and shopping suites with space for you and a bevy of buddies.
LIZ RODBELL, Lord & Taylor: I bet this is going to be a bestseller. And I love —
PAUL SOLMAN: Lord & Taylor's Liz Rodbell is betting on custom service, too.
LIZ RODBELL: We have a concierge on the floor that will help connect you with a stylist immediately to really put you together to look terrific.
PAUL SOLMAN: Lord & Taylor is also testing lifestyle shops curated by makeup maven Bobbi Brown.
At Saks Fifth Avenue, they're selling health and fitness.
GERALD STORCH: Think of as an amusement park for an adult, a reason to come to experience something new and different.
PAUL SOLMAN: Hudson's Bay CEO Storch met us at The Wellery. You can buy stuff here, or get a manicure, practice your golf swing, work out, sample dry salt therapy to improve lung function.
Saks president Marc Metrick.
MARC METRICK, President, Saks Firth Avenue: I think when people leave this area, leave this floor, and actually leave the store after visiting here, I want them to think, wow, that's not the Saks I thought. When they bump in to somebody, when they see someone a few weeks later and someone says, oh, what's going on in those department stores? Somebody could say, wow, have you been to Saks lately? There's a lot going on.
So, that's the goal.
DAVE GILBOA, Co-Founder, Warby Parker: We don't think retail's dead. We think mediocre retail is dead.
PAUL SOLMAN: Dave Gilboa is cofounder of eyewear monger Warby Parker, an e-retail success story. His answer to Armageddon is to combine online with brick-and-mortar.
DAVE GILBOA: We just want to give customers options. We like to say that we're experience focused, but medium agnostic.
PAUL SOLMAN: The online retailer had been in business three years when it opened its first store.
DAVE GILBOA: We found that there's still a lot of demand for people walking into physical stores.
PAUL SOLMAN: So, Warby Parker has opened 55 stores with plans to add 25 more this year.
DAVE GILBOA: There are certain customers that probably will never feel comfortable buying glasses online. There are other customers that even if we open up a store right next to their house, they'd prefer the experience of ordering online.
PAUL SOLMAN: Yes, e-commerce grew 16 percent last year, but most purchases are still made in person and Warby Parker wants a piece of that action.
So, its stores have photo booths for trying on glasses and sharing photos of them with friends. Not feeling the specs? You can buy or just read books here too.
And Gilboa says the company uses data it collects online to offer personalized service in its stores.
DAVE GILBOA: If you've bought a pair of sunglasses or prescription glasses from us online, and you walk into our store, any of our retail advisors could pull up your customer record. They could see your preferences. You could even go on your phone or on our Website and create a list of favorites and then come into our store and one of our advisors can help you find those frames.
PAUL SOLMAN: Indeed more and more e-commerce players are merging technology with physical retail.
Case in point: Amazon's recent ventures in grocery stores, and actual bookstores, where your Amazon Prime account gets you an automatic discount.
Meanwhile, other retailers are re-conceiving the store entirely. Story in Manhattan's Chelsea district creates retail narratives — themes that change every three to eight weeks, like a magazine. The theme when we visited was fresh story — founder Rachel Shechtman's 37th completely different narrative.
RACHEL SHECHTMAN, Founder, STORY: If a magazine tells stories by writing articles, and taking pictures, we tell stories through merchandise and events. And then, magazines have advertisers, and we have sponsors.
PAUL SOLMAN: The sponsor of fresh story, Jet.com, an e-commerce upstart bought by Walmart that ventured into grocery delivery last year.
RACHEL SHECHTMAN: We created a wall out of jet boxes since and we're telling a story about them shipping fresh groceries, and so, this is a stasher and it's a storage bag that's, you know, plastic-free and reusable. We're really using merchandise as a narrative storytelling tool.
PAUL SOLMAN: Story has two revenue streams sponsors like jet.com pay to promote. In this case, fresh produce and their delivery of it.
RACHEL SHECHTMAN: Would you like a banana to eat?
PAUL SOLMAN: I would. I haven't had my banana today yet, actually.
The other revenue stream: sales, here of fresh-food themed merchandise.
RACHEL SHECHTMAN: That's a flask.
PAUL SOLMAN:A banana hip flask!
RACHEL SHECHTMAN: Yes.
PAUL SOLMAN: Now, admittedly, some items were more fresh than others.
But still have the vegetable theme here. I strategically placed the salts.
RACHEL SHECHTMAN: Yes, you did.
PAUL SOLMAN: So, this is public television.
RACHEL SHECHTMAN: It is public television.
PAUL SOLMAN: But unlike traditional retailers, Shechtman doesn't worry much about sales per square foot.
RACHEL SHECHTMAN: What we're focused on is experience per square foot. Frankly, if there's subscription retail and you have all these new business models online, why the heck is no one reinventing the business model offline?
PAUL SOLMAN: This is offline?
RACHEL SHECHTMAN: We are offline. We are in a physical world.
PAUL SOLMAN: I never thought of that. My life is offline.
RACHEL SHECHTMAN: Your life is offline.
PAUL SOLMAN: Shechtman believes retailers must pay more attention to offline experience, because that's what human beings still want. To that end, every story has themed events — classes, workshops, panel discussions. And at fresh story, fresh-baked cookies.
RACHEL SHECHTMAN: Someone doesn't just need to go to a store to buy something, right? So, here you can taste something, you can learn something, you can do something with a friend. And so, it's not just commerce, it's content and community.
PAUL SOLMAN: That's also true at Warby Parker, says Gilboa.
DAVE GILBOA: Humans are social animals and are always gonna value face to face interactions. So, I don't think that's going away.
PAUL SOLMAN: It's a view shared by the CEO of stores like Lord & Taylor, Saks, and others.
GERALD STORCH: There will always be physical stores. Until they invent the transporter, like on "Star Trek", there will be a reason for stores. It's still the only way you can touch merchandise instantly, feel it, try it on.
PAUL SOLMAN: Very nice.
Or, for that matter, eat it.
RACHEL SHECHTMAN: I'm breaking my diet for you.
PAUL SOLMAN: I'm breaking my diet for you!
For the PBS NewsHour, this is ever expansive economics correspondent Paul Solman, reporting from New York.