Why Services is One of the Next Big Retail Trends
If you have noticed nail salons popping up everywhere you are not imaging things. The amount of mall square footage dedicated to services has increased over time. In 2002 retail tenants selling goods comprised 53.2% of retail space in the U.S. now service tenants take up 52.6% while those selling products (i.e. Gap or a Victoria Secret) comprise 47.4% of space.
One of the reasons services have gained in popularity is because they provide us with memorable experiences. According to Dr. Thomas Gilovich, a professor at Cornell University who has studied the link between money and happiness there is a fairly simple reason for why we love experiences: “our experiences are a bigger part of ourselves than our material goods.” “You can really like your material stuff. You can even think that part of your identity is connected to those things, but nonetheless they remain separate from you. In contrast, your experiences really are part of you. We are the sum total of our experiences.”
Another reason for the shift towards services has to do with how we spend our money. In 1920 Americans spent 38% of their income on food and 17% on clothing. Today Americans only spend 10% of their income on food. U.S. consumers spend even less on clothing now, just a paltry 2.4%. Morgan Stanley has said that the apparel market has “hit a ceiling” and is “going into structural decline.” All of this means that more money than ever is spent on restaurants and other types of services.
The trend towards more services has not gone unnoticed. Retailers like Best Buy, Nordstrom and Walmart are all looking at services as their next wave of growth.
1. Best Buy
Best Buy launched a subscription service in April of 2018 called Total Tech Support. The service costs $199.99 per year and allows customers to receive unlimited Geek Squad support across several touch points including online, in-store, over the phone and through Best Buy’s app. Service is available 24/7. Through this service Best Buy also provides support for all of the tech within a customer’s home even if the product was purchased outside of Best Buy. The program has gained more than two million subscribers in less than two years.
Best Buy also has an In-Home-Advisory service where customers can get advice for free on which technology products to buy and how they should be installed. Over 700 advisors across the US travel to customers’ homes to provide the service. These customers end up generating higher revenues and higher gross profit than other types of Best Buy customers.
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2. Walmart
In September of last year Walmart opened its first Walmart Health a “prototype” health centre in Dallas Georgia. The clinic provides a number of services including primary care, dental services, counselling sessions, laboratory work, X-rays and audiology. The centre is not located inside of a Walmart store but in a space adjacent to the store. Past attempts at healthcare clinics have not worked out for Walmart but the retailer hopes that it has gotten it right this time.
Speaking about the centre a spokesperson for Walmart said: “Walmart is committed to making healthcare more affordable and accessible for customers in the communities we serve.” “The new Walmart Health centre in our Dallas, Georgia, store will provide low, transparent pricing for key health services for local customers.” Walmart plans to extend its low-price strategy to Walmart Health with a primary care appointment costing only $40 and a dental appointment costing only $25.
3. Nordstrom
Retailers like Nordstrom are experimenting with different types of services to see exactly what will resonate with customers. For example Nordstrom Local, Nordstrom's smaller store format has started accepting returns of online orders not only from its own customers but also from competitors such as Kohl’s and Macy’s. In addition to accepting returns Nordstrom Local stores offer services such as pick up of eCommerce orders (including curbside pickup), shoe repair, charity drop-offs for used items, stroller cleanings, personal stylists, free of charge, salon services such as manicures, gift wrapping and alternations. These stores have proved to be successful, with Nordstrom Local customers spending 2.5 times more than average.
4. Mall operators
American Dream mall, which opened last year, exemplifies the shift towards services. With an entertainment to retail split of 55% to 45%, the majority of the mall’s space is designated for experiences. Some of these experiences include an indoor ski park where snow falls from the ceiling and the temperature is set at 28 degrees, an NHL sized skating rink, a Nickelodeon Universe theme park complete with a roller coaster, and a DreamWorks water park.
American Dream is not the only mall jumping on this trend. In Salinas, California, Northridge Mall was redeveloped a few years ago to contain an “experiential venue” that includes a bowling alley, karaoke booths, arcade games, billiards and a restaurant. The venue also serves, beer, wine and alcohol.
Burlington Mall in Massachusetts recently repurposed space that was once occupied by a Sears into a Lifestyle Centre that houses Gyu-Kaku, a Japanese BBQ restaurant; Modern Acupuncture, a wellness center; Caffe Nero, a European-style coffee house; Relax The Back which provides solutions to neck and back pain issues; and Stretch Lab which offers one-on-one assisted stretching and flexibility training classes.
Both retailers and mall operators are working hard to provide experiences that shoppers cannot find online.