The Future of Retail

by Eric Tobias - Partner
Yeti Store in Austin

A few months ago, I walked into the only Yeti Store, located in Austin, TX. Out front, there were a bunch of local beers on sale for $2 each — all served in a Yeti cooler and many of the customers were just sitting there enjoying the summer day without any pressure to go in to buy any products. Inside is where the real experience was. The store was around 50,000 square feet or about as large as a comprehensive supermarket. Out of those 50,000 square feet, only around 10% of the store actually had Yeti products. Instead the majority of the space was used for seemingly random activities like a fly fishing area, a stage for a band to play, and an area to explore “The Tundra.” The entire store was a highly-curated experience.

Now, this might be something that seems to be unique to this seemingly young and hipster brand, but I’d argue that this is the future of retail. As more stores start to fade away from traditional brick and mortar (Marsh and GAP are examples), traditional retail is dying in favor of “experiential spaces” instead of “commerce environments.” We’ve seen the first evolution of this with Starbucks — coffee shops were converted from simple storefronts to buy coffee to meeting places and gathering spots that became deeply ingrained in the communities they were created in.

These experiential spaces are more about the environment around the products rather than the products themselves. These experiences are carefully cultivated and are built around personalization and product use-cases. For Yeti, there are deep in-store customization with some exclusive material and items. Beyond this, there’s this constant feedback loop with the porch concerts, the film screenings, and such that decrease the time between customer visits, which also drives up the efficacy of the store and the model itself.

As the next evolution happens, the new up-and-comers are going to start buying up all the open space that’s opening up in order to push forward the innovation. As retailers become tech companies, more and more are going to try to reinvent the retail formula in the next five years, which is going to massively shift the landscape — and I’ll bet it looks like Yeti. Stores will no longer be built around multiple brands like at BestBuy, but will start to focus on single brands — some of the best stores have moved this way (Apple, Starbucks, Yeti, and more). These single-brand stores offer more bespoke and engaging experiences than the seemingly random hodgepodge of brands of vastly different qualities and styles. At the same time, it allows the stores to control much more of their experience.

Recently, Apple discussed their slight modification of their Retail store experience (something that only single-brand retail experiences can do). They recently renamed their stores from the “Apple Store” to “Apple” store and now finally to Apple Town Centers. They’re including a Genius Grove (previously Genius Bar), and are starting to shift products around the seasons. They’ve also pivoted some of their space in stores to allow meetings in board rooms, coding workshops, events, and more. Ultimately during the event, they called Apple Retail to be “Apple’s largest product.”

We already see this shift happening — a large regional grocer here in Indianapolis recently shut down its stores. This space is now up for grabs, and you can bet that this will continue to happen over time.

No industry is safe from this trend either — with Amazon’s recent purchase of Whole Foods, the experiences we have for buying food, or any other products will be changing into something that’s unlike anything we’ve ever seen. Consumer expectations are only going to accelerate this change — people are expecting personalized products with high convenience — and you can see the market reacting with more products becoming more personalized like Warby Parker with their in-store customization experience or moving toward a subscription model like Quip with oral care.

The state of retail has been under tremendous pressure over the past 18–24 months with most people associating this pressure to Amazon’s meteoric rise. I think the challenges retailers are facing today have less to do with Amazon and more to do with their own challenges evolving the customer experience. The successful retailers of today and tomorrow, including Amazon, are hyper obsessed with re-making the customer experience. The retailers that aren’t taking meaningful steps forward in this area will eventually die. Game on.

I think the challenges retailers are facing today have less to do with Amazon and more to do with their own challenges evolving the customer experience.