Photo courtesy of Netflix
Experiential retail has long been promoted as a way to inspire online shoppers to visit stores, but it’s not without risks.
Experiential retailing has become a broad term that may include free samples at grocery stores or beauty departments, but some narrow the definition to investing in “destination stores” that can increase dwell time, encourage repeat visits, and build loyalty.
Examples include Dick’s Sporting Goods’ House of Sport concepts that feature climbing walls, ice rinks and golf simulators, Glossier’s opulent stores that create “Instagrammable moments,” or Netflix House's two planned locations which will play host to a slew of immersive attractions — in addition to themed food and merch options.
Experiential Retail Often Costs More Money Than Traditional Stores To Deploy
On that basis, McKinsey senior partner Colleen Baum noted in a blog entry last year that experiential formats tend to be more capital intensive than traditional stores, often not achieving profitability from in-stores sales for three to five years.
Real estate owners and operators may also face high upfront costs, lengthy build-outs, and challenges finding prominent placement to maximize the traffic benefit, according to McKinsey. Baum said, “You can’t put an experiential retailer just anywhere. They need highly trafficked locations that are highly visible, are on a ground floor, and have lots of windows.”
On the positive side, McKinsey’s Baum noted that experiential formats boost customer acquisition efforts and pack a notable omnichannel benefit, with a typical lift in the range of 15% to 25%.
She said, “People who stopped by didn’t necessarily buy at the store, but they bought online later on.”
Mixed Reactions to Experiential Concepts Could Muddy the Waters
Researchers at Cornell University analyzing the impact of experiential retailing concluded that “hands-on experiences and personalized interactions in a retail environment can significantly influence customer preferences,” particularly in “tactile” categories such as skincare, cosmetics, luxury watches, and gourmet foods.
However, their study showed only a small group of shoppers, particularly lapsed customers, exhibited “significant positive changes” in customer spend as a result of experiential retail. Brands considering experiential stores were advised to focus on customer segmentation and targeting. The researchers stated, “Without this, the return on investment could be limited, as many customers may visit these stores without any significant changes in their purchase patterns.”
Gregg Katz — former head of product, innovation, and marketing for RetailStat — noted in a recent LinkedIn post that experiential retail aspects “may detract from the core shopping experience if it becomes too immersive or complex,” frustrating customers seeking convenience.
He also said the experiences often have to be refreshed from time to time. He wrote, “There are only so many times people will axe throw, play neon putt-putt, or visit an immersive attraction. Thus, these become destinations with somewhat limited shelf lives, causing the concepts to morph, the experience to become jumbled and ultimately become a detraction versus an attraction.”