How Retail Stores Are Beginning To Adapt

This article previously appeared on Forbes.com. If you're interested in mergers and acquisitions, we should talk.

In its most recent catalog, Restoration Hardware’s chairman and CEO wrote, “we believe history will demonstrate that…[stores are] the most compelling and cost effective way to engage and inspire customers in a physical world.” The problem is, stores today do not fulfill their potential and they need to change. It doesn’t help that landlords have been slow to recognize that they need to lower their prices to account for how the world has changed or that they still want the same long-term commitments that aren’t what the market will bear anymore. The country is overstored and it’s taking a long time for retailers to adjust.

Tom Patterson, the CEO and Founder of the brand Tommy John, told me last week, "we're in the middle of a grand experiment." We are starting to see some small, micro hints of the creativity and experimentation required that will inevitably happen on a large scale. One cluster of such hints is a multi-block retail renaissance poised to occur on Bleecker Street in Greenwich Village (in Manhattan). One of the stores jumpstarting the effort is Naadam, whose hero product is cashmere sweaters. Naadam pays herders in remote areas of Mongolia an above-market price for their wool and then makes the wool into sweaters that it sells direct to consumers. By eliminating many steps in the distribution process, Naadam can sell its high-quality cashmere sweaters for less even though it pays the herders more. The store features a virtual-reality headset inside a cloud of cashmere fiber hanging from the ceiling that consumers can use to view the region where the wool is sourced. The emphasis is on the ethics of the brand and where it’s sourced.

About 50 yards away from Naadam is another store opening November 1 called Lingua Franca that also sells sweaters made by Naadam. The difference is that Lingua Franca embroiders the sweaters with left-leaning political statements like “believe survivors,” “i miss barack” and “the revolution will not be tweeted.” The proximity of the Naadam store to the Lingua Franca store is worth noting. The two stores sell the same product but one is about an ethical, sustainable supply chain and the other is about a social and political message. The underlying product is identical but the appeal is to two different customers.

The Lingua Franca store is also interesting because of how it came about. A company called Skylight, which calls itself a provider of creative solutions for real estate, was approached to solve a problem for a division of one of the largest real estate companies in the world, Brookfield Asset Management. In an era when building big malls is a bad idea, Brookfield wanted to experiment. Brookfield acquired empty stores on Bleecker Street and sought advice on how to use its skills and financial strength to offer flexible rents and create interesting shops that would attract high-end consumers. Skylight developed a strategy that incubates young brands, mashes up art installations, creates events and sells products, giving consumers multiple reasons to come in. They went to the existing stores in the neighborhood and made them part of the effort, creating a community and a coherent story through the street. If it works, it’s a way for Brookfield to continue to expand in a world where malls aren’t needed.

They called the project, “Love, Bleecker” and aside from Lingua Franca it includes:

• Slightly Alabama, A men’s leather accessories business with a studio to make its products in the Bleecker Street store. The store also carries unique products from other manufacturers. The space also has a site-specific installation by artist Chelsea Hrynick Browne and programming in partnership with Rolling Stone and a local music school.
• Bonberi & Fleurotica. These are two retailers, one selling food and one selling flowers, in one shared space. Bonberi offers plant-based nutrition and Fleurotica sells floral designs and bouquets. The artist Signe Pierce designed a window installation for the shared space.
• Prabal Gurung, a high-end designer fashion store and the first retail space given only to this collection. There is also a lounge space for programming and an art installation by Edward Ross of Eyesight Group.

All of these brands came with their own social media following before the stores opened and did not have to pay influencers to create an audience. Their collective one million followers increase the chances that the newly-developed street will succeed.

Where This Is Going

If the experiment on Bleecker Street succeeds it can be important for landlords and retailers. In the past, a retail store was selected based on the likely foot traffic. Now the very definition of traffic is being redefined to include engagement through social media. Sales are also being redefined to include revenue from a variety of platforms and when you put all of that together it’s a new strategy to build loyalty. Art, music, film, food, events and entertainment are no longer novel ideas, they’re foundational and without them a retail environment is behind the times. Brookfield’s approach of creating a coherent street presentation rather than curating a one-off store may be a way to increase a store’s chances for success.

Bleecker Street isn’t the only place this is happening. In California, the recently-opened Pacific Palisades brings unique, first-to-market stores like Carbon 38, Jennifer Meyer Jewelry and Tamara Mellon Shoes in an environment that includes entertainment and housing in more of a street-grid environment.

These projects are templates for mall developers to stretch their imaginations beyond traditional mall structures. It’s too soon to tell whether the Bleecker Street stores will make money and be successful. We are only at the beginning and we are only starting to see how stores are going to adapt to all the changes we have seen. The future will benefit from knowing if these experiments have worked and the changes will accelerate as stores have more going on inside them than ever before.

My firm, Triangle Capital LLC, does mergers, acquisitions and capital-raising for consumer-related businesses. If you're interested in that we should talk.