The Retail Store Formats To Watch In 2023

The pandemic required a lot from retailers when it came to the in-store shopping experience. Stores did everything from shuttering fitting rooms to suddenly going as touchless as possible to rushing out curbside pickup. They completely transformed the in-store shopping experience, understandably to meet the ever changing society of living through rising inflation and a global pandemic.

And as more people return to an in-store shopping experience those changes will continue to evolve. One change that has slipped under the radar is store design. Outlets, pop-ups, and local or neighborhood stores are increasingly becoming a popular way many retailers are choosing to modernize themselves —shedding their pre-pandemic times feel of a mall store from the ‘80s throwback Stranger Things.

Retailers indicate they’re ready to make stores “more experiential” (whatever that means – a topic all on its own) and they’re ready to give over more floor space to omnichannel activities like order pickup. As they also try to balance location strategy given that workers have not really returned in force to downtown areas and overall the right number of stores given future expected growth, 2023 should see a nearly unprecedented level of experimentation around store format. What will you see in a neighborhood near you? Let’s take a look.

Local or Neighborhood Stores

First, you should actually expect to see more stores in your neighborhood. Retailers who typically focused on Tier I cities in terms of population and density are finding that there are only so many Tier I cities – and that a lot of those cities are seeing an exodus as workers, unleashed from offices (at least for now) move to cheaper Tier II or III cities, or even get lured to small towns.

Stores of size – big box or department stores, for example – struggle to find enough density in the demographics to justify the footprint outside of most tier one cities or A-level malls in smaller cities. The answer is a smaller store. But while retailers have experimented with the concept – both TargetTGT
and WalmartWMT
have made multiple attempts – the challenge is getting the right assortment in place.

NordstromJWN
was one of the first to break the mold with Nordstrom Local. While there is some assortment in play, the concept is almost more like a local fitting room. You say what you want, you go there and try it on, you buy what you like. Nordstrom always has the chance to send things that you didn’t ask for (based on what you did) in the hopes that they chose well and they entice you to add to the basket. What you don’t keep either stays in the store or goes back to the eCom DC.

I didn’t realize how many retailers are rolling out this concept in 2023 – Susan Reda at NRF does a good job rounding them all up as well as explaining the concept.

Outlets

Outlet malls have long had their moment, including a new life during the last economic downturn in 2007-08. Macy’s, Nordstrom, Saks have all been in the outlet business for a long time, and a lot of retailers and brands have jumped in. For retailers selling other companies’ brands it’s a great way to clear out inventory – a clearance store becomes a destination visit, with urgency and frequency driven by fresh new releases of incoming inventory.

For brands it can be more challenging. Brands have to balance against cannibalization. Yes, one objective is to clear out excess inventory, but outlet stores also attract aspirational customers who may eventually evolve into full-price customers down the road, or they bring in shoppers looking for deals who might otherwise have purchased at full price.

In 2022, everyone was worried about having too much of the wrong kind of inventory. Traditional off-price retailers like Ross and TJ Maxx definitely benefited from the mismatch between supply and demand. But don’t be surprised if more retailers move into the space. Dick’s Sporting Goods got into the fray last year and is looking to expand with their “Going Going Gone!” concept.

There aren’t a lot of national sporting goods retailers left, so it definitely seems like an opportunity. However, the other main challenge for retailers selling others’ brands is that those brands tend to take exception to seeing their product marked down significantly. NikeNKE
, for example, has been pretty aggressive about cutting back the number of retailers it works with on a wholesale basis.

But we also see more retailers getting into resale. ThredUp has seen so much activity that it has created a white label program so that brands can set up their own resale program using ThredUp’s platform. Outlets, if they get popular, run out of inventory fast and it’s not the type of inventory you really want a lot of – a well-stocked outlet store is a symptom of a retailers’ full price stores doing very badly. But matching outlet with resale could be a much more interesting way to keep inventory fresh, low-priced, and yet still profitable for the retailer.

Store-Within-A-Store

Sephora caused waves when it exited JC PenneyJCP
and moved to Kohl’s. Macy’s Toys R Us collaboration for the holidays seemed promising on paper. I’m skeptical that it will make it into holiday results reporting – it just didn’t look like it had the success that Macy’s expected. But retailers need to keep stores fresh as a way to entice customers back more frequently, and offering store-within-a-store concepts is a great way to do it. By no means new to 2023, I expect to see more of these, especially as DTC brands look for more opportunities to broaden their distribution.

Pop-Ups

Look for a lot more pop-ups in 2023, especially as in-person events come back to the fore. Pop-ups offer instant access without a lot of infrastructure, and they give retailers a chance to test locations or neighborhoods before fully committing.

A Contender: Fulfillment-Only Locations

I haven’t seen a lot of examples of fulfillment-only locations – I stumbled across an entire Macy’s department store that was given over to fulfillment and omnichannel curbside pickups only. But unlike pure eCommerce, omnichannel shopping behaviors have not fallen off as consumers have gone back to stores – turns out that while they may still want the in-person experience, they also want to be sure that anything on their list is actually in the store before they go. Retailers are trying to find the right balance of locations that are convenient to consumers, but without the full triple-net of a prime retail location. Expect to see more experiments here in 2023.

A Portfolio Approach

The most important thing to keep in mind in 2023 is that any new format is not going to be “one size fits all” and every retailer seems poised to accept that they must employ a portfolio approach to any geography where they place stores. In any one marketing zone, they may end up with one flagship store, two outlet stores, a fulfillment-only location and four neighborhood stores.

That’s harder to manage than a cookie-cutter approach – but may ultimately offer more flexibility and the ability to get closer to consumers, both figuratively and literally, than ever before. Let the innovation begin!