Why The Future Of Brick-And-Mortar Isn’t About Sales

In 2014, it was hard to pick up any article about retail and not end up reading an obituary for the mall.

It was the peak of “the mall is dead, the physical store is over” narratives in American media, and the conventional wisdom among the forward-thinking was the future was digital commerce all the way down.

That conventional wisdom, b8ta founder and CEO Vibhu Norby told PYMNTS in a recent conversation, was misguided — something that think-piece writers started to realize by 2017 or so. The physical store wasn’t dead — at least not completely. Consumers weren’t done with physical retail; they just wanted something different.

But Norby said he and his co-founders got lucky because they were working for Nest in the early 2010s and saw something that other people didn’t. Nest, he noted, was one of the pioneers of direct-to-consumer (DTC) commerce that still had a toe in the old-school wholesale model of physical retail — which means it got to see data on sales and consumers from many channels.

“And as we were monitoring all of our sales and surveys coming out, we realized stores weren’t necessarily driving sales on the spot, but they were driving a tremendous number of customers to the website and to Amazon to purchase later,” Norby said. “We realized that stores were absolutely still our No. 1 awareness channel.”

The problem was the wholesale experience of working through stores, despite being a good awareness channel, wasn’t really optimized for Nest’s benefit. And, in talking with other up-and-coming DTC players in electronics, Nest found it wasn’t alone. Stores were useful in many regards, but they didn’t suit all DTC needs. Putting products on their shelves was viewed as a necessary evil at best, and as an evil to be just to be avoided at worst.

And so b8ta was born. It’s a retail center “designed around solving to provide everything that brands said they wanted and needed out of a physical store.” B8ta, in short, built a store, but one quite different from everything else in multi-brand physical retail as of 2013. Instead of making its money selling a brand’s goods to consumers, it sells the store itself to brands as a real-world discovery marketplace for consumers looking for a retail experience driven by education instead of conversion.

The concept even has a catchphrase — retail-as-a-service — with customer service and product presentation coming before revenue goals. Under this idea, a consumer can go to a store, learn about an item and try it out. And while it’s still an emerging idea as of 2019, according to Norby, within the next three or four decades, it is probably going to be the model under which nearly all multi-brand physical retail is done.

Retailing at Cross Purposes

The essential friction b8ta is designed to combat, according to Norby, is that in the present multi-brand retail wholesale model, brands and their physical retail partners in the era of the internet don’t have well-aligned goals.

The brand mostly wants the customer to interact with its product, play with it, engage with it, ask questions about it and ultimately buy it. But the location at which the customer buys is not as important to the brand. The brand might have a mild preference for its own site, but ultimately it wants the customer to be engaged enough to buy at some touchpoint.

“The store is primarily interested in driving sales, and quickly,” Norby said. “That means there is a fundamental disagreement about the purpose of the store, and since the internet, their goals just aren’t able to really co-exist.”

B8ta aligns its goals by approaching the purpose very differently. Instead of a massive space with hundreds of shelves stacked three or four items deep, b8ta locations are filled with displays that build a three-dimensional narrative for the brand. That means b8ta does thousands of product demos, hosts hundreds of events per year at its stores, and extensively trains its staff to be resident experts on the brands they sell.

More than a space, however, b8ta also offers data — how to place products, how to demonstrate products, what works in a launch and what doesn’t.

B8ta isn’t big in terms of footprint. The company has 20 locations as of today and plans to have 28 in total by the end of 2019 (plus its partnerships with other brands like Macy’s and Toys R Us). The largest electronics retailer in the U.S. has over 800 stores by comparison. But b8ta punches above its weight, Norby notes.

“We are winning every product launch in electronics, and we think pound for pound and value by square foot, our individual stores are seeing 15 times the levels of customer engagement that the big box stores see in 100 stores,” he said.

And ultimately, he said, he believes that the difference in value for brands is what is going to carry the day and make the b8ta model the coming replacement for the wholesale model of the past.

The Future of Multi-Brand Retail

The internet, and the showrooming phenomenon it created in commerce, Norby said, pretty much broke the wholesale model in physical retail — even if the entire world hasn’t quite caught on to that full reality yet.

“If you don’t believe me, go ask the million brands on Shopify if they want to do wholesale,” he said. “The answer is none of them do. None of them launch wholesale first anymore, and it’s been that way for 10 years. New firms are going to want different models for stores. We are seeing that today with the 5,500 brands on our platform.”

Change, he noted, takes time. The effects are already visible in places like department stores and specialty retailers, which are already feeling the pull and working to find ways to reset their models. For other areas — the really big general merchandise retailers — the changeover will be felt far more slowly, although Norby said he believes it is surely heading that way, too.

“I think when we are looking at areas like general merchandise and players that seem too big to fail, we could be talking about long product replacement cycles and 30 or 40 years before the changeover is fully visible there,” he said.

The future of retail won’t be about stores selling, but stores providing a service to brands and offering them shelf space to promote their goods. It can be hard to imagine such a fundamental change, he noted, because, for most of the history of commerce, the store has been about buying, not playing with the goods inside.

But the change, he said, is coming — and given how many big, physical retailers have lately gone from looking immortal and invincible to the verge of full collapse in the space of a single earnings report, it is probably coming much sooner than most people think.