Experiential Retail: What You Need to Know in 2020

February 3, 2020

Featured Investment National NewsMoreRetail

How can immersive experiences breathe new life into obsolete shopping centers and what are the cash-flow considerations for such projects? Martin Zurauskas, managing director for nFusion, has some ideas.

Martin Zurauskas, Managing Director, nFusion. Image courtesy of nFusion

In the context of a fierce competition from online alternatives, retail’s future is experiential. Studies have shown that owners utilizing experiential tactics are driving repeat purchases faster than traditional retail. Emerging smart technologies can now help retailers create engaging, educational and enjoyable experiences for their customers.

Martin Zurauskas, managing director for nFusion, shares his views on the best practices that owners and developers can make use of to create a successful experiential retail strategy that stimulates foot traffic and guest satisfaction for the long term. Zurauskas, who has more than three decades of experience in the business, also touches on the key points for a successful themed development.

How can owners reposition older retail centers through entertainment and experiential retail?

Zurauskas: When executed correctly, exciting and immersive experiences can breathe new life into retail centers that are stale or reaching obsolescence. Owners are diving into opportunities to diversify far beyond shopping, dining and even traditional entertainment tenants such as movie theaters and bowling alleys, in order to draw in traffic for both the short term and long term.

Experiential tenants—including pop-up, semi-permanent and permanent activations—might make up a small portion of a center’s overall mix, but have the potential to attract shoppers and families to all of its retailers through offering accessible, convenient and cost-effective forms of entertainment that they can only enjoy outside the home.

Is experiential retail working? Could you give us an example of such a project?

Zurauskas: According to a recent report from Forrester and Adobe, brands defined as ‘experience-driven’ are seeing an average growth rate of 19 percent per year, compared to 13 percent for other types of retailers. That study also found that retailers utilizing experiential tactics are driving repeat purchases at rates nearly twice those of traditional retail.

Popular concepts include virtual reality experiences such as The VOID, which engages all five senses, interactive art experiences like Meow Wolf and edutainment concepts like KidZania, who we’ve worked with, where children enter a miniature ‘city’ with its own currency and economy.

Another trend is existing retailers who are using creative installations in their permanent stores and pop-ups to drive brand awareness and sales. Recently, we worked with a major cosmetics brand to develop innovative tech-driven product interactive displays.

What are the costs and cash flow considerations owners should keep in mind with such projects?

Zurauskas: Innovative retail experiences—especially those featuring advanced technology and/or strongly immersive components—require high capital costs to develop. This can create a challenge, especially since owners will naturally want these tenants in place and generating revenue quickly. Without taking the time to perform a comprehensive evaluation of local demographics, economics and consumer demand, there is a strong risk that even an excellent idea might not survive the execution.

For example, not all virtual reality endeavors are going to be able to realistically afford top-tier intellectual property partnerships like The VOID. These IPs contribute significantly to the appeal of these experiences, so if securing one is not feasible, a strategic unique and localized alternative must be identified or it might be time to explore other options.

Another critical cash-flow consideration is a particular experience’s ability to sustain foot traffic outside of peak days and hours. This is why we’re seeing experiences like KidZania can do very well—in addition to attracting families on the weekend, KidZania’s educational components attract school groups during the week.

How do you bring new retail experiences to life?

Zurauskas: The first step in planning and managing the development of new retail experiences is the same as any retail undertaking: A thorough understanding of customer demand drivers. Owners must approach these projects with the understanding that there is nothing resembling a ‘one-size-fits-all’ strategy for either the process of redeveloping their centers or determining which interesting new concepts are a fit for the local market demands. A proactive curation of the tenant mix must ensure it is relevant to market demographics and the center’s positioning in the community.

In addition to meeting these demands, what are often larger-than-life visions must be carefully developed to meet the realities of height- and capacity-constrained real estate, especially in the case of older malls being repositioned.

When building out space for an experiential tenant, developers must factor in height and noise restrictions, additional utilities, and many other variables that they might not have needed to consider with more traditional tenants and centers.

What are the keys to a successful themed development? Can you discuss the details of such a project?

Zurauskas: Over our team’s decades of working in the themed destinations industry, we’ve observed many, many successes as well as, naturally, some failures.

All of these experiences have resulted in our fine-tuning a strategy that involves asking—and answering—the following questions at critical points in the development or redevelopment process:

Is it feasible? Does the concept align with the economics?
Is it deliverable? Does the plan fit within the scope of the location and budget?
Is it buildable? Is the design aligned with the necessary planning to implement the build?
Is it operable? Is the project completely integrated and ready to open?

As retail developments become more and more complex in light of experiential tenants and new formats, we’ve found that the Four-Gate process outlined above, which we traditionally applied to theme parks, could also help facilitate the successful management of retail projects.

Through taking steps to understand customer demand drivers, identifying the experiences consumers want, finding the right retail experiences for each center, and following a roadmap to success, today’s retail owners and developers can make the best use of their capital investment and create experiences that will stimulate foot traffic and guest satisfaction for many years to come.

Why do you think experiential marketing is so powerful?

Zurauskas: As the Millennial demographic came of age, there was a cultural shift toward valuing experiences over ‘stuff.’ This is demonstrated by recent statistics, which found that more than three quarters of Millennials prefer to spend money on experiences than things and they spend far less money on luxury products than previous generations of consumers.

With the demographic now ranging from their mid-20s to nearly 40, and many having families with young children, they are an essential demographic for retail owners and developers to consider—in addition to their younger, even more tech-and-socials-savvy Gen Z counterparts.

Combined with the increased ease of online shopping and rapid growth of alternative, in-home and mobile entertainment options, it is absolutely critical that retailers and retail center owners continuously evaluate how to stand out and drive consumers to their centers. Today’s consumers desire more than simply goods, as experiences, and the memories and bragging rights that come with them—as well as content for their Instagram feed—are just as important.

What are your expectations regarding the evolution of experiential retail in 2020 and beyond?

Zurauskas: We anticipate that emerging smart technologies will lead to increasingly creative and immersive retail options. This will include apps that allow guests to participate and interact with the experiences on their smart phones more than ever before, both while they are at the experience and after they leave.

We’ll continue to see huge successes and some misses as retail space continues to evolve. It will be of the utmost importance that the experiences delivered at particular locations are just the right fit for those demographics and bring something unique to the table.