After the pandemic halted its brick-and-mortar plans, ThirdLove is once again plotting its expansion offline.

Coming off a busy year launching into new categories like activewear and loungewear, introducing a new online fit quiz and debuting new branding, a key focus for the DTC intimates brand in 2022 is opening physical stores.

"Last year was a big year of a lot of new things for us. Launching new categories — wireless, sleep and active," Heidi Zak, co-founder and CEO of ThirdLove, said. "This year is really more about amplifying some of those hero products that have come to the forefront," which Zak said includes ThirdLove's kinetic sports bra. "And then, of course, we have more of a focus this year on launching physical retail stores."

ThirdLove opened its first store back in July of 2019 in New York City, and it was set to stay open through the end of that year. Given the initial success from that pop-up, the founders were planning to renew the lease for another six months, but as the coronavirus continued its spread throughout the world, they decided to close the store.

Now, two years later, the brand is ready to re-enter physical retail, applying learnings from its New York store to the design, merchandising strategy and experience of its new locations, Zak said.

"What's become evident to us through survey work both qualitative and quantitative of our customer base and our potential customers is that there are some women out there that need that physical interaction and try-on with a bra, to make that first purchase in particular," Zak said. "As we think about growing and scaling the brand, having those try-on experiences available is really, really important. A store is a billboard and it is an advertisement for your brand. It showcases your brand and product in real life."

In its New York store, the brand leaned heavily into tech, with iPads present and about 60% of the store dedicated to its fitting rooms, which brought its Fit Finder tech to life.

"It was less about showcasing the product and more about helping them get into their size," Zak said. "What we quickly learned was that's not how women wanted to interact in a physical environment. And in fact, it was kind of the opposite. A woman coming into our store many times has actually done the fitting room, and she might know her recommended size and she wants to try it on."

The new stores, Zak said, put the product in focus and offer a "clean, modern, uncluttered" shopping experience. A bra hanging wall showcasing every style the brand has, for example, is a fixture in the store.

ThirdLove opened its first West Coast store at Orange County's Fashion Island Mall and another on Abbot Kinney Boulevard in downtown Venice, California. The company plans to open between six and 10 stores by the end of 2022, with two San Francisco stores slated to open in the coming weeks.

And while the brand is eager to further expand its presence offline, it views its slower entrance into physical retail as an advantage.

"We are just now getting into retail. We don't have hundreds of stores and lower performing stores," Zak said. "We can be really precise about the markets that we go into, the products that we put into those markets, how much inventory we carry in the store. And we have that really great e-commerce experience to support the retail experience."

For growth, ThirdLove revisits its past

As a company selling a product many of its customers will wear every day, ensuring proper fit is critical and making consumers feel confident in making that purchase online has been a priority for ThirdLove.

"We have to create a really exceptional online service for customers," Ra'el Cohen, co-founder and chief creative officer, said. "Making sure that we have super highly trained fit stylists who can help customers on the phone or over chat, get into the right size [and] help them with returns and exchanges."

And to help match customers with the right size and style the first time, the company introduced its online 3D fit quiz early last year. Dubbed "The Fitting Room," the tool used data from more than 17 million consumers who used the brand's original Fit Finder quiz. The tool uses 3D rendering and animation to help consumers identify "trouble areas" with their current bra to match them with the right size and style of a ThirdLove bra.

While the brand is making a big push into physical retail now to allow customers to touch and feel the product before making a purchase, Cohen said that part of its customer base has actually preferred shopping online.

"You don't have to go into a store and get measured and go through that uncomfortable experience," Cohen said. "We have a lot of busy moms in our demographic and we have to provide a level of service and convenience that fits her life. So when you think about wanting to do a bra fitting at 11 o'clock at night after you've had a glass of wine — yeah, you can do that, which is great."

And if a product a consumer receives ends up not fitting quite right, that consumer is able to access support from the brand's styling team to work on getting a product that works for them.

"That just really provides that extra layer and level of comfort to the consumer," Cohen said. "And while it doesn't replace brick and mortar — brick and mortar is an important facet of it for some women — it certainly has helped us kind of set ourselves apart from the pack."

As ThirdLove looks to future growth, the brand is revisiting its past to find areas where it can innovate and improve.

Among those "hero products" the brand is focusing on this year is the kinetic sports bra, which it introduced in September 2021.

"We don't just launch products and then launch another product, and just keep going and never go back and revisit," Cohen said, adding that the brand aims to "continue to build and rebuild [products] in a thoughtful way. These next six months, we're analyzing the Kinetic Bra, the sizes that we carry, how we can make this fit better, how it might have to be slightly different for smaller sizes versus bigger sizes. We're always learning from our customers and we listen to her."

ThirdLove in 2021 also took a look at its brand identity and thought about how it could evolve with its customer base.

"When we came on the scene, it really was dominated by a couple of key players and obviously very much under the male gaze," Zak said. "It was important for us to create a space that women could see themselves in, that they could feel supported and comfortable shopping … and where they can see themselves reflected in the brand."

When the brand launched about a decade ago, it leaned into blush and neutral tones. "I'm proud to say in some ways the industry really followed and now that major player, Victoria's Secret, is doing the same thing," Zak said, adding that many in the industry have shifted, now catering to the female gaze versus the male gaze. "We're proud to have been part of that movement."

The new branding, which was introduced last August, takes a turn from the soft hues it initially launched with, now highlighting sexiness and empowerment in the lingerie space through brighter colors and a "powerful tone."

"We really wanted to, again, differentiate and raise the bar of what a woman should expect from brands that she supports," Zak said. "We wanted to be bold, we wanted to be us, we wanted that real talk — it was really important for us. Buying bras and underwear should be a fun experience."

NEW YORK — Target wants the retail industry to know it’s brought its “Targét" touch to grocery and omnichannel. 

Ease, joy and affordability are the pillars of the retailer’s framework for differentiating itself to customers, Chief Growth Officer Christina Hennington and Chief Food and Beverage Officer Rick Gomez said during the National Retail Federation’s conference in New York earlier this week.

Like other mass retailers, Target has benefited from the initial pandemic years prompting one-stop shopping, as well as recent months-long high inflation placing a renewed focus on value — leading to mass retailers attracting more grocery shoppers and posing bigger competition to traditional supermarkets. 

While Target a few years ago lagged other large national retailers in areas such as grocery assortment and having a loyalty program, the Minneapolis-based retailer has not only worked to catch up, but now, according to Gomez, sees its innovation in food and beverage and omnichannel as providing competitive advantages over traditional grocers and other mass retailers. 

That innovation ties into Target positioning itself at the intersection of affordability, one-stop shopping and experiential retail, both in-store and online, with “affordable joy,” Gomez noted. 

“At Target, we think about building a shopping experience that's differentiated on multiple dimensions. But it's really about creating an emotional connection to that consumer,” Hennington said in a one-on-one session with Kantar with a packed audience on the last day of the conference. 

Here’s what Hennington and Gomez, who are also both executive vice presidents for the retailer, shared in separate NRF sessions Tuesday about how Target is innovating with grocery and omnichannel.  

Taking a ‘holistic’ approach to value

With the challenging economic environment and the looming threat of recession, Gomez said Target is tapping into different components of value to appeal to consumers. 

“Value is top of mind, but we have to think about value more holistically than just price,” Gomez said, noting consumers also want quality, ease and convenience. 

Gomez highlighted Target’s private brands as a prime example: Good & Gather, which launched in 2019 and is now a $3 billion brand, offers high-quality, better-for-you options at an affordable price while Favorite Day, which debuted in 2021 and is growing by double digits, focuses on indulgence.

“We call them ‘own brands’ and not ‘private label’ because we put as much care and attention into the research, the design, the packaging, the quality as any great brand,” Hennington said.

To provide value through ease, Gomez spotlighted Target’s dinner solution meal bags, which cost around $15 and include the ingredients needed to make family-favorite recipes: “It’s been a huge success.”

Using assortment as a differentiator

Target’s multi-category offerings provide one-stop shopping that people can’t get at most grocery stores, Gomez said: “We’re a $20 billion grocery business. It's a big business for us — bigger than a lot of regional grocers — but it's only 20% of our mix.”

Hennington said Target is looking to provide inspiration with its assortment. 

Drilling further into assortment advantages, Target has a three-pronged approach to its food and beverage business that sets it apart from conventional grocers: own brands; national partners who can offer exclusive, limited-time items; and small, emerging brands often from BIPOC founders and women, Gomez said.

Target is growing its private brands portfolio. “Our own brand portfolio is actually growing 2X [compared to] national brands, and I think that's our guests saying, ‘We are looking for value during these tough times,’” Gomez said.

The retailer introduced a new private label line of pre-mixed cocktails called Casa Cantina last year and in 2021 added a plant-based line under its Good & Gather brand. Target’s Favorite Day is one of the top fastest-growing private label brands by household penetration in the second quarter of 2022, according to findings from Numerator. 

Target’s over $30 billion worth of own brands is a large part of its “secret sauce,” Hennington said.

Gomez noted that Target supports emerging brands to help them scale their business at Target “and beyond.” For example, the retailer worked with the McBride Sisters wine brand to launch varietals: “They've gone on to other retailers and they're selling in other places, but we're really proud that we were able to partner with them in the beginning,” Gomez said, adding that the brand’s Black Girl Magic wine has been “hugely successful” with Target shoppers. 

Hennington also pointed to the commitment Target made in 2021 to invest more than $2 billion in Black-owned businesses by 2025, which the retailer said in May it’s on track to achieve.

While Target, like many other food retailers, has had to stay focused on supply chain availability for the last couple of years, increased innovation in food and beverage that provides “newness” is an area Gomez is especially excited about. Health and wellness, in particular, is one area where Target customers are leading edge and interested in trying new things, Gomez said, pointing to its vegan, plant-based line launched with Tabitha Brown at the start of this year. 

“[It’s] very approachable, very affordable and it has done incredibly well,” Gomez said about the exclusive line.

Experimenting with store formats

Target has completed over 1,000 remodels to date and is rolling out different store formats to meet different markets, Gomez said.   

In March 2021, the retailer promised to invest $4 billion annually in remodels, new stores and online fulfillment enhancements. Last year alone, Target pledged $5 billion to scale its operations in 2022 with work on its digital, fulfillment and distribution capabilities.

For example, the retailer has dozens of small-format locations, which it heavily leaned into in recent years, in Manhattan and paired with college campuses, Gomez said. 

Last spring, Target unveiled its first net zero energy store, which is located in Vista, California, around the same time Amazon announced its pursuit of a net zero carbon certification for a new Amazon Fresh in Seattle.

Now, Target is seeing opportunities to also open larger stores, such as the nearly 150,000-square-foot location it opened in the fall in Katy, Texas. Leveraging different store formats is all about meeting the needs of individual markets, Gomez said.

“We want to show up in a way that's appropriate for that community” regardless of store size, Gomez said.

Boosting omnichannel services

Target has long had a strong reputation for its in-store shopping experience, but the retailer is positioning itself as an omnichannel retailer that blends in-store and digital, Gomez said, noting customers are intertwining different shopping methods. 

“They may start digital and end up in stores or start in stores and end up in digital. They may be in stores and they're on their app at the same time,” Gomez said. “So we need to build both and we need to have the best of both. ... One of the things that we're doing is we recognize that the store experience is just as important as digital.”

The pandemic prompted Target to transform its business overnight, Gomez said, by expanding same-day services and allowing shoppers to get dry and frozen grocery, alcohol, fresh produce and more in a four-minute drive-up pickup. Target has also brought its widely popular in-store Starbucks cafes into its curbside pickup service and has also expanded its pickup and same-day delivery options for alcohol. 

After testing Starbucks drive-up orders in about a dozen stores, Target has now rolled the option out to approximately 250 locations.

“We’re not advertising [the Starbucks drive-up option]. We’re not marketing it. Quite frankly, we don’t need to because the social media alone is driving a ton of trial,” Gomez said. “And our guests, they love it.”

It’s a prime example of how Target is turning to innovation to bring “a little bit of happiness to people’s everyday moments,” Gomez noted. 

Creating a customer-focused loyalty program

Collecting data is important but Target learned the hard way it needed to build a customer-first loyalty program in order to successfully glean shopper insights.

When Target first tried to launch a loyalty program about four years ago, its initial offering was “transactional” by rewarding spending with points, said Gomez, who admitted that Target was lagging other major mass players in offering loyalty programs. 

After roughly a year and not getting the desired results, Target pulled the program: “We lost sight of what we do, what we believe in, which is: data is in service of our relationship,” Gomez said.  

In its next attempt to create what is now Target Circle, the retailer made personalization the centerpiece, allowing members to unlock offerings that are tailored and relevant to them and also letting them vote for which local charities in their communities they want Target to make donations to. With more than 120 million members currently, the program is one of the largest and fastest-growing loyalty programs in the U.S., the Target executives noted. 

Hennington said that Target is connecting its loyalty program data with its retail media network, Roundel, to further boost its customer experience and also deepen its vendor relationships.

“You have to put the consumer at the center ... The point of innovation is to make sure that you are either addressing their pain point or providing the delight that your guest is looking for. I think innovation comes big and small. It's in products and services. And we focus a lot of innovation on ease, providing the joy [and] providing affordability,” Gomez said. 

Hair care brand Living Proof is the latest company to join the metaverse and debut a virtual store. Through e-commerce platform ByondXR, the interactive showroom features four unique rooms. Rooms in the virtual store take shoppers through product testimonials, an AI-powered quiz for a customizable hair care routine, a virtual Living Proof salon and a room dedicated to the brand's sustainability efforts. As customers navigate through the virtual space they have chances to win free samples of Living Proof products upon finding 3D Fortifying Tech easter eggs.

In the Living Proof metaverse space, customers can participate in an AI-generated quiz about their hair routine and submit a selfie to detect hair type, volume, curl shape and color, powered by digital beauty experience creator Revieve. Upon an assessment, the program will recommend a routine of Living Proof products to achieve the desired results.

"Living Proof has always used cutting edge technology to solve real world hair problems," Living Proof CEO Zach Rieken said in a press release. "This new digital experience is the perfect vehicle to further immerse Living Proof's community in our brand and to learn more about how our innovations are continuing to push the boundaries of hair care."

Personalized beauty is a newer trend in the retail space, but there are several other startups pursuing the strategy as well. Another beauty company known for its quiz-based selling strategy is hair and skin care brand Function of Beauty.

This activation by Living Proof builds on the current interest in extended reality, a recent innovation in retail tech and a trend followed by many. Experimenting with the metaverse and virtual stores has gained widespread popularity, with the latest to do so being Alo Yoga, Saxx, Tatcha and others.

Sustainability is also at the forefront of Living Proof’s activation. The last room in the virtual space teaches users how to recycle their hair care products through the brand’s partnership with TerraCycle.

Petco's on a roll.

The specialty pet retailer in 2022 alone has introduced new store formats in underserved markets, partnered with home improvement retailer Lowe's for shop-in-shop concepts and reported record revenue and profits, all while continuing to lean into its promise of being a health and wellness destination for pets.

But things haven't always been so rosy for Petco. In 2020, the pet retailer had a Caa1 rating and negative outlook from Moody's, making it a high risk of defaulting on debt. 

And over the years, Petco underwent a number of private equity buyouts, and it entered — and exited — the public markets several times. 

But now, the retailer appears to be on a different path.

"It's really a reconceived strategy around services and around the importance of omnichannel. Those are the two big changes to this company under CEO Ron Coughlin," Wedbush analyst Seth Basham told Retail Dive.

Coughlin joined Petco in 2018 and in the years since has helped reshape the retailer into a health and wellness destination for pet parents, adding vet hospitals and introducing healthier food brands to its shelves, among other things.

The retailer has introduced a number of initiatives to secure its place in the sector and in 2021 re-entered the public markets for the third time. Is Petco now positioned for long-term growth?

Prioritizing health and wellness

Petco in 2020 announced it was repositioning itself as a health and wellness company for pets. The move coincided with a growing trend around the humanization of pets. More and more, pet owners have viewed their animals as extensions of their family and have begun to treat them as such, including by seeking out better-for-you options when it comes to foods.

"Pet owners put more effort and investment into the care for their fur babies, and pet owners are prepared to spend extra on the special food category for their animal," Inna Kuznetsova, CEO of 1010data, said. "We see Petco recognizing and addressing" those needs, she added. 

The retailer in 2018 announced it would no longer sell products on its shelves that were made with artificial ingredients, and made good on that promise the following year. Petco has put an emphasis on more fresh and frozen foods, even opening a Just Food For Dogs kitchen in its New York City flagship in 2019.

But Petco hasn't just addressed more health-conscious consumers through the products it sells, but also through the services it has introduced over the years.

The retailer runs thousands of mobile vet clinics and has some 200 vet hospitals, opening 24 in the fourth quarter of 2021 alone. In March 2022, Petco announced it purchased the remaining stake in its pet hospital joint venture with Thrive Pet Healthcare, which operates around 100 vet hospitals in Petco stores under the Thrive name. The companies initially formed the strategic joint venture in May 2017.

"The pet hospital rollout — 60 to 70 per year — that's going to give them a boost to comparable store sales of anywhere from 200 to 300 basis points in the next few years, as we see that ramp continue to build," Basham said. 

Petco in 2020 introduced Vital Care, a paid annual membership program that gives pet owners access to services like unlimited vet exams, nail trims and teeth brushing, as well as a rewards program. The company in March 2022 announced it enhanced the program, including by creating a program tailored to cats.

"It's a recognition of where they're taking the company and it's not just selling pet food and supplies, but being a one-stop shop for all pet care needs," Basham said. "The health and wellness of pets — driven not just through food supplies, but also grooming, training and of course veterinarian care — I think are key aspects of how they want consumers to view their company."

The focus on wellness complements Petco's other services, including grooming, training and boarding, which executives recently said have been reinvigorated.

Providing services in stores "helps, certainly, create some stickiness, more reason for the consumer to come back to the store or the pet hospital on a regular basis," Basham said. "Then to wrap it in with subscription programs like Vital Care, I think is also very valuable to hold on to that customer that they may have gained during the pandemic."

But, as Basham notes, these building blocks were in place well before the pandemic took hold, putting Petco in a good position when demand suddenly spiked in 2020.

The pandemic helped accelerate Petco's growth. The pet sector as a whole experienced a boost as more consumers adopted pets to provide a sense of comfort and relief during a time when much of everyday life seemed uncertain.

Petco in particular experienced an 11% net sales increase during 2020 and an 18% year over year increase on top of that in 2021. The retailer also swung to a profit in 2021, of $159.8 million, after years of losses.

"Petco has well capitalized on the overall growth of the pet food space online during the pandemic," Kuznetsova said. "They created very good visibility, and presence, and sales, and marketing that led to them growing higher than the market."

The total online pet food market in 2020 grew 42.3% year over year, according to 1010data. But Petco far outpaced that, growing 110.3% during the same period. While growth slowed in the category in 2021, the retailer continued to outperform the market, growing 27.7% year over year compared to the total market's 15.9% growth.

The competitive advantage

As demand for pet products grows, so has the competition specialty pet retailers face, namely from mass merchants.

Amazon in 2018 launched its Wag private label. Walmart in 2019 announced plans to open 100 in-store vet clinics as well as carry prescriptions for dogs, cats, horses and livestock from over 300 brands at WalmartPetRx.com. And Target in 2021 rolled out a private label pet food brand, dubbed Kindfull.

But despite these efforts, Wedbush's Basham still thinks there's a place in the market for specialty pet retailers. Petco has "a lot of brands that are still exclusive to the specialty pet bricks-and-mortar channel. They have some differentiated private label brands — Reddy being first and foremost — that helped from a merchandising standpoint, and then you layer on the services," he said. "They have so many options that make it attractive to certain segments of customers."

Petco appears to be making a big bet on its Reddy brand, which features high-quality, functional and sustainably made products. The retailer in October 2021 opened a flagship dedicated to the brand in New York City's SoHo neighborhood.

"It's more about attracting new customers, showcasing what they have — high-end private label pet care products — and seeing the kind of interest there is from that type of high-end consumer that's shopping in SoHo. It's potentially an opportunity for them," Basham said, noting that while the Reddy store may not become a widespread concept for the retailer, it serves as a testing ground for new products to see what resonates well with consumers. 

The store, which is situated down the street from high-end brands like Loewe, Marc Jacobs and Ted Baker, appears to be going after a more affluent urban consumer.

"The Reddy brand is focused. It has a purpose. It's in downtown New York City in a really fashionable area, and it serves a purpose in that particular location," Stefan Kahandaliyanage, Moody's vice president and senior analyst, said.

Petco earlier in 2022 also announced a partnership with Lowe's in which the retailer would open branded shop-in-shops within the home improvement stores. The tie-up will place a curated selection of pet nutrition and supplies from Petco's private labels, as well as national brands, in designated areas of Lowe's stores and provide customers access to Petco services including vaccination clinics, microchipping, prescription pest prevention and mobile grooming. The companies initially launched the concept in 15 stores across Texas, North Carolina and South Carolina.

Some analysts, however, are skeptical on the long-term value it will provide to Petco. 

"I don't think it means a lot to the investment case for [Petco]. We have seen pet supplies and food in a limited basis, trialed in home centers many years ago without success," Basham said. "I don't think that it's going to become a major channel for Petco, so I'm not putting much faith into it."

But 1010data's Kuznetsova points to other partnerships retailers have formed, like Ulta with Target and Sephora with Kohl's, as an indication that a partnership between Petco and Lowe's may end up being a smart play.

"Any kind of convenience … while visiting other stores and grabbing a pack of food or litter for the pet is really helpful and clearly benefits the customer," she said.

And to expand its reach even further, and tap into new markets, Petco at its investor day in March 2022 announced a new store concept catered to rural consumers.

"The storefront is the look and feel of a Tractor Supply. They talked a lot about feedstock in addition to pet dog houses — no one in New York City puts their dog in a doghouse," Kahandaliyanage said. "But there's a real market out there that they're going to hit with this new concept."

But just because the market's there, doesn't mean it's an automatic "slam dunk" for Petco, according to Kahandaliyanage. Retailers operating in this sector — Tractor Supply and upper midwest retailer Fleet Farm, in particular — have loyal customer bases that Petco will need to compete to win over.

"These are highly competitive" retailers, he said. "But [Petco] has a distinct approach to pet care and that may stick."

The pandemic-induced trend of residents moving from metropolitan centers to suburbs and even rural areas of the country also expanded the target customers in these regions, Kahandaliyanage added.

"People have country homes in Vermont or the Hudson Valley or the Catskills. People are spending more time in these places because of the work-from-home culture that the pandemic has ushered in," he said. "Rural markets are actually changing, especially rural markets that are around metropolitan hubs."

But beyond the new store concepts Petco has introduced over the last several months to attract new customers, the retailer has leaned on its stores to serve as fulfillment points for online orders, giving it an advantage over one of its biggest competitors: Chewy.

Petco's stores "enable consumers to pick up a product on an immediate basis, get advice from a person live — being a sales associate — versus somebody over the phone at Chewy, and being able to offer some of those services like the pet hospital services in the stores, as well as grooming and training in some cases," Basham said. "You have a more comprehensive set of services than you could get through Chewy. And when we compare it to other bricks-and-mortar pet retailers, a lot of the same things can be said: Most don't offer all those services in addition to selling the products. Putting those together as a one-stop shop is very appealing to a certain demographic of pet parents."

And while the digital channel for Petco still remains relatively small, it's "growing rapidly and provides an advantage with same-day delivery and buy online, pick up in store … They've come to the conclusion that there's certain customers who really want to shop that way, but not all want to be fulfilled through two-day delivery," Basham added. "The services element at Petco and the competitive advantage relative to other bricks-and-mortar competitors really gives them an ability to grow faster than the market, so they'll be taking market share."

In-store fulfillment options can ultimately lead to cost savings for Petco, especially given how the price of fuel has skyrocketed recently.

"When we think about what's happened to gas prices — the cost of the last mile — it's tremendous savings directly passed on across stakeholders, customers, providers of capital," Kahandaliyanage said.

But those sky-high gas prices, coupled with inflation and the possibility of an economic recession, may cause consumers to think twice about certain purchases. But experts don't anticipate pet retailers to be highly impacted.

Retailers in the sector have historically been hailed as recession-proof because many of the products sold could be considered non-discretionary, as opposed to a category like apparel, Kahandaliyanage said.

"The proposition with Petco is, 'We're going to be competitive on price within the market.' And people are going to use their services," he said. "Healthcare is pretty non-discretionary."

Amazon in January 2022 announced the launch of its first physical clothing store, dubbed Amazon Style, according to information sent to Retail Dive. The store will open later in the year at The Americana at Brand in Los Angeles and will feature women's and men's apparel, shoes and accessories. 

Customers can use the Amazon Shopping app to scan a product's QR code to access information including sizes, colors and ratings. Items can then be sent to a fitting room or directly to the pickup counter. 

The company will use its fulfillment centers to frequently update store merchandise, and customers can shop "millions" of apparel items on Amazon's website to be delivered directly to the Amazon Style store.

By merging online and offline operations through the company's latest store concept, Amazon apparel shoppers won't have to guess about fit. 

Amazon Style brings technology to the forefront, primarily by using its app to allow customers to direct a personalized shopping experience. The app allows users to access products, send items to a fitting room and provide personal information that allows for real-time recommendations and in-store deals. 

Moreover, items that are scanned in the store will be saved in the shopping app so customers can revisit their selections and make purchases at a later time. 

Understanding fit while shopping for apparel online has been an e-commerce friction point, and that has become especially apparent as returns continue to be costly for retailers. According to Coresight Research survey findings, clothing made up 46.5% of returns. Bracketing, where shoppers buy multiple sizes, colors or styles of an item, knowing they will return some of what was purchased, has become a common purchasing strategy for consumers.

And those costs add up. A report in January 2022 from RetailMeNot said that 38% of shoppers planned to return holiday gifts, and UPS announced it anticipated handling more than 60 million return packages during its peak shipping season (Nov. 14 through Jan. 22), an all-time high for the company. 

But, Amazon's apparel store concept allows customers the benefit of the e-retailer's deep inventory, again by using tech. 

"Amazon Style uses the same technologies and processes as Amazon's fulfillment centers to store more items that can be delivered from back-of-house to customer within minutes," the company said in a FAQ about the store concept. Other tech used at the physical location includes inventory management systems, customer service technology and Amazon One for checkout. 

Through Amazon Style, the e-commerce giant will be testing a variety of innovations, which could challenge department stores and other mid-market retailers, according to Neil Saunders, managing director of GlobalData. That includes, he says, examining if it can become more well known in fashion, widening its customer base and gleaning knowledge about shopper behavior. 

"It will also give Amazon more data and insights which may elevate its efforts in the apparel space," Saunders said. 

Back in 2018, Ulta exec Monica Arnaudo pointed Retail Dive to real estate as one of a few key differentiators between itself and Sephora. Ulta was located predominantly in strip centers, while Sephora could be found mostly at the mall. That, along with a slightly different focus at each retailer in terms of assortment and experiential offerings, made the two less directly competitive.

That may have been the case in 2018, but things have drastically changed since then. Sephora ended its shop-in-shop deal with J.C. Penney in favor of a partnership with Kohl's — a strip center fixture — and the beauty retailer has been looking beyond the mall for the next wave of its stand-alone locations as well. Initially, Sephora planned to open 100 stores in 2020 that were aimed at off-mall spots, but the pandemic interrupted those plans. In 2021, the company planned 60 to 70 stand-alone Sephora stores in addition to the Kohl's openings.

Ulta, for its part, doubled down further on its off-mall positioning through a partnership to open Ulta shops within Target stores. The two deals are shifting the battleground for the beauty consumer — and it's coming to a strip mall parking lot near you.

"There's this kind of head-on collision happening in real time, but it's in slow motion," Steph Wissink, managing director at Jefferies, said. 

During Ulta's great expansion over the past few years, the beauty retailer found the best co-tenants for its business were Target, Kohl's and T.J. Maxx, according to Wissink. Why? Because they had a lot of foot traffic and not a lot of beauty sales. Now, Target is partnering with Ulta to expand its beauty assortment and Kohl's is about to have its entire beauty section built out by Sephora.

"The question is: How many of the Kohl's shoppers who didn't have access to beauty inside of Kohl's walked four doors down to the Ulta store in the same strip-center, parked in the same parking lot? How many of the Target customers shopped at that Ulta store? So some of that analytics work is still being done and we don't know yet what the fallout is going to be," Wissink said.

Will Ulta's Target shop-in-shops and Sephora at Kohl's both steal market share from Ulta's stand-alone stores? Will Target end up pushing consumers to Ulta? There are many possibilities for how the deals will impact Sephora and Ulta.

"We don't know yet where the resolution is going to be," Wissink said. "All we know right now is that it's all colliding in the strip center. And at the end of the day, who wins? Well, who wins are the brands because the brands now just gained all this incremental distribution — and they get to sit back and watch the battle."

The new beauty store isn't a store

There's only so much growth Ulta and Sephora can achieve by expanding their own physical footprints, according to observers, especially as both are now decades old. At the end of 2020, Ulta already had over 1,200 stores after multiple years of about 100 net openings per year. The retailer has said before that it plans for a final footprint of some 1,500 to 1,700. 

In LVMH's 2020 annual report, the conglomerate talked of further expansion in China and North America for Sephora, but touted the opportunities in the Kohl's partnership more than Sephora's own physical strategy. As such, the Kohl's and Target deals for both beauty retailers represent a new approach to growth in the space — and one that relies on the operations of others.

At their core, both Sephora and Ulta's deals are about acquiring new customers and better serving current ones. Whereas Sephora's J.C. Penney partnership was a doubling down on mall locations, Kohl's offers Sephora a presence outside of its mall-based stores with a different customer demographic than its usual shoppers. For Ulta, the Target deal allows it to reach even more of its core consumer and offer a convenient alternative to shopping at Ulta's full-line stores.

According to Larissa Jensen, vice president and beauty industry adviser at the NPD Group, the consumer that shops at Ulta and the consumer that shops at Target are "nearly identical."

"It just fits like a glove," Jensen said of the partnership.

Kohl's, on the other hand, has an older shopper demographic than Sephora, which ideally means that Kohl's would acquire more young shoppers via Sephora and Sephora would acquire more older shoppers thanks to being in Kohl's. Sephora also has the benefit of being Kohl's only beauty offering, while Ulta operates in addition to Target's current beauty assortment. In both cases, however, the beauty specialists are providing their larger deal partners with access to brands they may not have otherwise been able to work with.

"Target didn't do the deal with Ulta out of desperation, their beauty business is actually quite strong, it still is quite strong. Target was establishing itself as a real desirable location to shop mass beauty," Wissink said, citing the company's introduction of brands like E.l.f Cosmetics, Winky Lux and Revolution. Rather, Ulta offers Target the ability to establish itself as a more prestige location as well. "This concept started around well, 'What if Ulta becomes the broker to the brands?' So instead of Target having to go and knock on Estée Lauder's door day after day after day and say, 'Hey, would you think about doing it with us?' Instead, we can just partner with Ulta and we can get access to all 50 of these brands at one time."

The main question mark for Sephora and Ulta is how these partnerships will impact their stand-alone stores, and their competition with each other. If Ulta's customer count starts declining, it will be cause for concern, but it still likely won't be clear if it's Target or Sephora's Kohl's stores that are stealing share from Ulta, according to Wissink.

Ulta's shops in Target are small enough that the beauty retailer might be protected from "supreme cannibalization," Lauren Bitar, head of insights at RetailNext, said. And Sephora and Ulta have both built up compelling in-store experiences to shield them from customers abandoning their stand-alone stores.

"They're not going to have their full assortment in those spaces, their footprints are smaller than their full-line store. The other thing is Ulta has hair salons in their stores. You're not going to necessarily get that in Target obviously," Jensen said. "So the full store experience versus the store-within-store I think are different enough."

Both Sephora and Ulta have been careful to integrate their loyalty programs with their new real estate partners as well to ensure they aren't punishing customers for shopping at the shop-in-shops and are keeping current customers connected to their ecosystem in the process. While there are still risks in pursuing these deals, it guarantees Ulta and Sephora access to the foot traffic Kohl's and Target drive, and creates space for the impulse purchases their specialty stores don't get as much of.

"Everyone will say, 'I went into Target and I went to get like five things and then I spent $100 or $200,'" Bitar said. "Now Ulta can cash in on that and Target's ability to inspire consumers to do that."

'Distribution no longer defines what is prestige or mass'

On a broader scale, Sephora and Ulta's latest growth strategies are a sign of a changing beauty landscape. Both retailers were disruptors to the traditional department store experience that separated beauty shopping into specific branded kiosks versus allowing customers to easily shop across brands. But now, department stores have begun to recognize their mistakes and make changes accordingly, and even drugstores have made upgrades to try and establish themselves as beauty destinations.

Then there's the threat from the beauty brands themselves, which, like many others in the retail space, are coming to realize that customers are more than willing to buy products directly from them instead of through an intermediary. All of that puts pressure on Sephora and Ulta to not just continue expanding their core businesses, but also to find new paths to growth.

"Right now, the competition in beauty in general is as crazy as it's ever been. You've even got department stores that are testing out new concepts and really removing that traditional beauty counter type thing, making it more open-sell. So they're mimicking the Sephora's and Ulta's," Bitar said. "It's just really a fight for: Where are you going to find your customers? And this is another avenue."

Macy's bought Bluemercury in 2015 and has been diversifying its beauty assortment. J.C. Penney introduced a new beauty offering to replace its deal with Sephora, which includes teaming up with beauty startup Thirteen Lune, a Black-founded company focused on promoting beauty brands created by founders of color. And others are testing out tweaks to their current beauty operations to make the experience more compelling. 

Nordstrom is one of those, both Jensen and Wissink said. The department store is adding many more brands to its assortment, and Wissink said a remodeled Nordstrom store now has about 65 brands compared to around six before. There were also more service elements and a different feel to a renovated beauty department Jensen visited.

"It was very different and fresh from a department store perspective," Jensen said of the beauty department at Nordstrom's New York store. "You can potentially see this template for what the future could look like because it cuts some of the department store ethic while elevating some of these other things — the experience."

Those kinds of changes are likely to continue apace as the beauty world continues to shift. When department stores designed their beauty departments, there were only a handful of main brands that dominated the industry, but then the distribution of market share went "from 10 mega brands into 200 micro brands," Wissink said. 

That's when the model of Ulta and Sephora began to make more sense than the department store model.

"What they should have done is they should have recognized this was happening, they should have broken down those inherent co-op models and they should have turned those beauty departments into Sephora stores, right?" Wissink said. "But it was very difficult to break those models and they're just starting to do it now, after all these years." 

In part as a result of department stores' decline over the past decade, beauty brands have already begun looking beyond those doors for their growth prospects. First that meant selling through Sephora and Ulta, and now by extension it also means getting comfortable selling products through more mass merchant or discount channels.

"The lines have blurred between this whole concept of prestige and mass for a while now. It's not a concept that's necessarily new, it's just very new to the U.S. If you go into Canada, you can go into a Shoppers Drug Mart and buy Chanel, and then in the next aisle over get toilet paper and nobody bats an eyelash," Jensen said, adding that the U.S. has always had much starker lines between high-end and low-end brands. "Distribution no longer defines what is prestige or mass anymore and I think that this is only driving that further."

Beauty brands are increasingly open to following their consumer, whether that means selling through Sephora at Kohl's or prioritizing their own stores and e-commerce to connect with shoppers. Wissink estimates in general that DTC companies are selling about 70% through their own channels and 30% through retailers, and the reverse is true of traditional retailers. Both are moving toward the middle as the benefits of a hybrid strategy lure companies to diversify.

For beauty retailers, that could be a threat moving forward, especially when conglomerates like Estée Lauder can sell "half as much volume and get to the same revenue" by selling DTC, Wissink said. If they start taking more advantage of that direct relationship with shoppers, it could spell trouble for Sephora and Ulta, as well as department stores, and it could further change the calculus on who succeeds in beauty moving forward.

"When are we going to know? I think it's going to be a couple of years before we know," Wissink said of who will be the winners and losers of Sephora and Ulta's recent partnerships. "[Brands selling DTC] inserts another dynamic into this whole equation, which is: she makes her first purchase at Ulta at Target, she decides she likes the product. What prevents her from going to Esteelauder.com, Clinique.com, Tarte.com, Pattern.com and becoming a .com customer of that product? … The most profitable purchase in beauty is the repeat purchase, not the initial purchase."

2020 was not a banner year for launching new retail concepts. Many in the industry put their efforts into building out their e-commerce and omnichannel capabilities as the pandemic raged across the country. 

Dollar General was among the small, hardy group that launched new store concepts in 2020. Its first store under the Popshelf banner opened in Tennessee that October, and didn't get many visits from media or financial analysts. The first analyst who did take a look at the store in person called it the best new concept he has seen in nearly two decades. 

"I walked in there and went, 'Wow, like, this is something special,'" Scott Mushkin, CEO of R5 Capital, said in an interview. "The only other one that made such a significant impression on me was Five Below back in 2005."

Dollar General has long been courting customers in higher income ranges than its traditional base. Popshelf is an entire concept devoted to a market outside of Dollar General's core. As such, it is a first not just for Dollar General, which opened its first store in 1955, but in many ways a first for the entire sector.

"From Dollar General's perspective, they saw an opportunity in the market that's being underserved," said Joseph Feldman, retail analyst and assistant director of research with Telsey Advisory Group. "I hear this a lot from the dollar stores or value-oriented retailers, that there's a number of great products out there if you could go upscale a little bit, higher than what you normally do in your core store." 

Between October and May, Dollar General opened its first eight Popshelf stores, which are around 9,000-square-feet each. The performance of those stores "far exceeded our expectations," Chief Operating Officer Jeff Owen said in Dollar General's most recent earnings call. 

Annualized sales as of May 2021 stood at $1.7 million to $2 million per store, compared to $1.4 million in first-year sales for a traditional Dollar General. Gross margin rate at Popshelf stores is roughly 40%, eight percentage points higher than at Dollar General stores, according to Owen.

With the banner performing well, the company has accelerated its build-out of the concept as it eyes thousands of locations across the U.S. While successful already, the concept is in its infancy. Dollar General will have to make calculated decisions about the brand along the way, and the retailer will have to scale a concept not quite like anything either it or its dollar store peers have ventured into before. 

Five Below for the over-20 set

In announcing the new format, Dollar General said that it targeted suburban female customers with household annual income ranging from $50,000 to $125,000. Popshelf is really the first dollar store to devote itself entirely to that demographic.

Comparisons with Five Below are perhaps inevitable — especially as Popshelf's target price is $5 or less for most items — but those comparisons are also not very accurate based on each format's target customer.

"There's nothing like it out there," Mushkin said. "It's very much on trend. The merchandise is insane. It's just a really fun format. In some ways, it's like Five Below all grown up. But that probably doesn't do it enough justice." 

To be sure, there are many discounters and value-based retailers vying for the dollars of the middle-class suburban shopper. Feldman named Big Lots, Ollie's, HomeGoods, even Bed Bath & Beyond, as well as other dollar stores. But none quite align with Popshelf's specific offer and merchandising.

Feldman also noted the inevitable but imperfect comparison to Five Below. "It wouldn't surprise me if Dollar General saw the success of Five Below, and sees the success of HomeGoods and others, and thought, 'Hey, you know, there's a niche for us in there too,' to cater to the adult community," Feldman said. "It's too simplistic to call a Popshelf just similar to Five Below. It's more like an adult version of Five Below."

For its part, the company told Retail Dive that Popshelf "is not an attempt to replicate or refine an existing retail format. It's a new and, we believe, unique store concept and new brand."

Key to the banner's proposition to its target customers is Popshelf's merchandising, which focuses on seasonal and home decor, health and beauty, cleaning supplies, party goods and other categories. 

With Popshelf led by Dollar General Chief Merchandising Officer Emily Taylor, the retailer is looking well beyond the household essentials and general fare at its traditional stores. Its goal is to trade in trendy brands and products and create a treasure hunt experience at the Popshelf stores. That effort includes combining continually refreshed merchandise with seasonal specials and limited-time offers.

The company already thinks the banner is having resonance with customers. CEO Todd Vasos in May cited promoter scores in the upper 80% and 90% range, which he described as "unheard of." Owen, on the same conference call, said customer satisfaction scores at Popshelf were "very high."

When Mushkin visited the store, the analyst thought, "Who the hell is merchandising this thing?" He saw party crafts, face mask bars, black cutlery, colored pens, pet treats, shampoo, and stations to build your own mops and design T-shirts, as well as healthy and organic snacks and other consumables. His firm estimates that at least 50% of a Popshelf's store sales are likely to come from higher margin categories. 

"You just really couldn't merchandise anything any better than they're doing," Mushkin said.

Popshelf opens doors for Dollar General to products and price points largely left out of its traditional stores. The banner allows the retailer to "leverage their strengths, which are clearly buying and sourcing," Feldman said. "It opens up this whole world in goods and items."

But it also means buying for a unit within the larger organization that has very different needs and makeup than the rest of Dollar General, which is much more focused on consumables and household essentials. However, the retailer has been working to grow sales of non-consumable products — an initiative that helped spawn Popshelf. In Feldman's view, while different in needs, Dollar General's existing sourcing infrastructure can help it stock Popshelf. 

"They already have the scale of Dollar General behind them," Feldman said. "To go in the market and then to be able to bring that heavy pencil to write those orders — you can get great pricing." 

Behind that "heavy pencil" is the financial firepower of a company that made $33.7 billion in annual revenue and $2.7 billion in net profit during a crisis year for the country. There is also a massive, mature buying organization that stocks Dollar General's more than 17,000 stores.

Within the organization, Popshelf has its own dedicated procurement team, which also tries "to leverage core competencies from DG to support pOpshelf, including collective buying power with vendors for the benefit of the customer," the company told Retail Dive in written comments. The company also sees opportunities for cross-learning in the respective merchandising of its core and Popshelf banners. "As much as DG can influence pOpshelf, we may see learnings from pOpshelf to integrate into DG stores," Dollar General said. 

Filling a niche

Opening during the pandemic does have its advantages. 

Asked about it in December 2020 by an analyst — who was "curious in terms of decision to launch the new concept right now during the pandemic" — Vasos said that the concept had been in the works for 18 months and was always slated to open when it did. "So we were very much right on track to our initial launch times," Vasos said, according to a Seeking Alpha transcript. 

The executive went on to note that "we didn't anticipate ...  the abundance of available real estate that would be out there, and that's been a real positive for us." That abundance came from the store closures in 2020, which hit nearly 9,000, and which created opportunities for a retailer that already accounts for nearly a fourth of all new store openings in 2021. 

Real estate vacated by retailers closing shop may have helped fuel Popshelf's expansion, along with its stellar sales performance.

In March 2021, Owen said the company was accelerating its plans for Popshelf this year. It now expects to open 50 stores under the banner, up from 30, and to additionally add the concept to 25 Dollar General stores during the year. Long-term, executives see room for 3,000 possible Popshelf stores in the U.S. 

Using Five Below as a proxy, Mushkin came to a similar estimate for possible Popshelf stores. As to where all those stores will go, and what fellow retailers they'll share strips with, that is not yet clear.

"I think they just like being in high traffic areas," Feldman said of the Dollar General organization. 

The concept's target demographic is large enough and its offer broad enough that it could go in a diverse set of shopping centers. "It's right down the middle," said Mushkin. "Bed Bath & Beyond, Kohl's — any of those ubiquitous strip centers across the United States that have middle-income retailers in it."

He added that Popshelf may be competing with Five Below for real estate, but in terms of consumer wallets, the two retailers aren't necessarily going head-to-head given the age difference in their target customers.

"You could almost say they could co-locate," Mushkin said of Popshelf and Five Below. That could allow for family shopping at the same strip, with parents going into Popshelf to shop while their teen and tween children shop at Five Below. 

Two stores or one?

Along with the opportunities of scaling Popshelf come big decisions, and some risks, for Dollar General. 

The signal from executives that they plan on adding the banner as a shop-in-shop inside its namesake formats raises some obvious questions. Are the two brands compatible, complementary? If so, to what extent and in which markets? If not, what's the downside of intermingling the two brands?

The company has not said how many shop-in-shops it will open or to what extent they may comprise Dollar General's target of 3,000 stores. 

In a March 2021 call, a Goldman Sachs analyst asked executives, "As you think about your core customer, what gives you confidence that the customers will not feel an alienation to the core banner with this double signage outside in a store-within-a-store concept?"

Vasos replied that those areas where it might put a Popshelf inside a Dollar General are those where incomes are higher than the retailer's traditional core customer. Vasos also noted strong sales when there has been "cross-pollination of items" — that is, products sold in Popshelf also sold within a Dollar General, sans any Popshelf signage.

Mushkin is skeptical of the shop-in-shop plans, and said he has even flatly told company executives he doesn't think the strategy is a good idea. 

"The upside of co-mingling is maybe in some of your DGSs you can put a Popshelf and you can enhance returns a certain amount, and that's good," Mushkin said. "What's the downside? The downside is you freaking tarnish the Popshelf brand and you never get the results. The downside is significant because you can screw up something that's just amazing."

He added: "It's not like you can't do it ever, but you protect the brand and grow it independently. To me, that's more important."

Along with the differences in assortment, the higher price points — with 95% of products $5 or under — are one reason to demarcate Popshelf as its own banner. "I don't know that you could simply drop in some of this stuff" into Dollar General stores, Feldman said. That could send the wrong message to customers about the Dollar General banner. 

Mushkin thinks the banner could eventually be spun off or sold. "Dollar General is something that is a completely different animal in my mind," he said. For one is the value potential in Popshelf, which he thinks could add more than $50 to the retailer's stock price.

There are also operating differences between the two models. Popshelf's constant merchandise refreshment requires different training and labor structure than Dollar General stores. As for labor, Popshelf stores are being launched with spots for 15 workers, compared to 6 to 10 new jobs slotted for traditional Dollar General stores, according to the company.

"I think they can scale it, but it's different running 15 to 20 stores than it is 3,000," Mushkin said. 

With Popshelf still in its early stages, there is no hint from the company as to whether it might one day spin off the banner. For now, it is rapidly moving from experiment to an actual store chain. One way or another, Dollar General is betting that Popshelf's higher prices and higher margins will be a money-maker for the company. 

Amazon is shifting its brick-and-mortar focus. 

Amazon is closing all of its 4-star, Books and Pop Up stores, a spokesperson for the company confirmed in an email to Retail Dive. The company will focus instead on its Amazon Fresh, Whole Foods Market, Amazon Go, Amazon Style stores and Just Walk Out technology.

The company is working with impacted employees to identify new roles within Amazon, including placement in other stores. Employees who choose to leave the company will be given severance.

"We remain committed to building great, long-term physical retail experiences and technologies," a spokesperson for the company said.

The company's first physical location opened in 2015 with a book store in its hometown of Seattle, Washington. 

It went on to open its 4-star concept, where everything for sale was rated 4 stars or better, in September 2018. It carried a variety of items including games, kitchen appliances and electronics. While stores were open to all customers, Prime members were able to purchase items listed for what they were listed for on Amazon's website. 

The e-commerce giant also introduced its Pop Up stores, which featured a rotating experience of themes and brands. 

Now all those locations are set to shutter so focus can shift to its grocery and fashion ventures.

Two big advancements in those arenas happened recently, with Amazon opening its first Whole Foods Market with cashierless technology in the Washington, D.C., neighborhood of Glover Park in February 2022. The month prior the company launched its first physical clothing store, dubbed Amazon Style, which features women's and men's apparel, shoes and accessories and utilizes technology to merge online and offline operations.

Amazon's decision to close these physical stores comes as a surprise, according to GlobalData Managing Director Neil Saunders, who added that while the company's non-food stores had great standards, they "lacked a real purpose."

"While it is unusual for most retailers to abandon concepts in a wholesale fashion — especially outside of bankruptcy — Amazon is not a typical retailer," Saunders said in emailed comments. "It tries and tests ... new things, often committing reasonable levels of investment, only to move on if it doesn't see forward potential."

A pandemic helped retailers realize something vital to the industry: All stores, in one way or another, are convenience stores.

That is, the demand for consumers to obtain products in a fast, streamlined way via their preferred channel went from being a retailer differentiator to an absolute necessity. Companies that hunkered down to improve operations were rewarded with increased sales. Those that didn't are getting left behind.

Traditional c-stores have been going through their own accelerated transformation because the needs of their customer base changed. No longer were they simply a place to get coffee before going to work — because a chunk of the population was suddenly making their own coffee from their at-home offices. Shoppers also didn't need to get gas on a regular basis because their commute disappeared and travel slowed.

Instead, shoppers needed basics. They were looking for paper products, cleaning supplies and grocery items, according to a report by the National Association of Convenience Stores. Total inside sales for c-stores increased 1.5% in 2020 to a record $255.6 billion, and average basket size increased more than 18% year over year as the segment helped fill basic product needs during a time of unsteady supply chain and panic buying.

With over 150,000 c-stores in the United States and over half of U.S. consumers saying they frequent convenience stores once a month or more, the retail segment is showing signs of advancing in a myriad of ways to continue to meet consumer needs.

"Convenience stores have become the cool kids," said Jeff Lenard, vice president of strategic industry initiatives for the NACS. "C-store doesn't necessarily stand for cool store, it still stands for convenience, because you have to sell speed of service. And speed of service is however the customer defines it." 

Go back to (delivery) basics

The origin story of many convenience stores is based on one product: dairy. Milk delivery was introduced in 1785 in Vermont via milkmen who traveled through neighborhoods to sell their product, according to NACS's magazine. By 1964, Wood Brothers dairy company needed a distribution point for its milk and introduced its first convenience store — now known as Wawa.

So, while the pandemic may have changed consumer shopping habits, in many ways, the c-store industry leaned heavily on systems that defined what set it apart from the beginning. Meaning, the ability to reach their customer where they were, either through home delivery or by easy to reach brick-and-mortar locations. 

The pandemic sped up those revived options, with retailers like 7-Eleven partnering with Instacart by offering delivery of milk, bread, eggs, alcohol and other staples in about 30 minutes. Foxtrot Market was founded in Chicago as a delivery-only convenience store, then moved to open a number of neighborhood-focused brick-and-mortar locations while still offering about 1,000 SKUs for delivery within an hour. And Gopuff, which launched retail sites in New York City in the fall of 2021, delivered products "in just minutes ... for immediate everyday needs" through micro-fulfillment centers.

"This next generation — Gen Z and Gen Alpha and Gen Beta — they didn't ever have to wait for the tape to rewind," Anne Mezzenga, co-founder of Omni Talk, said in an interview. "They are so used to streaming their music, their TV, getting delivery in 15 minutes. And that's not going to change. And so, as a retailer, whether you're a grocery retailer or a convenience store retailer, you have to be putting some level of testing dollars or R&D efforts toward figuring out how instant delivery can be done in your business."

Focus on localization

As malls continue to find a new way forward, especially as anchors falter, many retailers are attempting an off-mall approach to real estate. That means moving into strip centers and neighborhoods and testing small-format locations.

Bloomingdale's, for example, is testing its Bloomie's concept in Fairfax, Virginia, where merchandise is highly curated and frequently changes. Nordstrom has its merchandise-free Local store concept, and even Foot Locker and Nike have opened up neighborhood-based stores.

C-stores, though, have a history of providing local products to the communities they serve. These retailers typically have stores that are smaller in footprint and fit into areas that large grocers cannot, thereby providing grab-and-go solutions to their customer base.

That concept is only going to grow as c-stores evolve, according to Eric Dzwonczyk, global co-leader of the restaurants, hospitality and leisure practice at AlixPartners. "I think that localization is probably the thing that trumps everything. The pandemic has sort of reinvigorated that in American urban consumers," he said.

That means c-stores can act as a central point where people in a community can gather and hang out, as well as make quick trips to pick up a couple of items, according to experts.

An optimized assortment of products on a local level is what convenience stores have always offered, simply because many times there were so many c-stores in the same area. "For years, retail had a one-size-fits-all, or a two-size-fits-all" solution, Dzwonczyk said. But, c-stores had to adapt because there are so many of them, with some less than a mile from each other. "Really being able to quickly localize and tailor the assortment to the area where they're operating, I think is an awesome advantage. And being able to do it quickly," he said.

That's especially true if c-stores move to become more hybrid in nature — meaning a combination of the traditional convenience store, with an added mix of grocery item availability and great food, according to Dzwonczyk. High-end c-stores seem to be following this trajectory: "They're part convenience store, part restaurant, part grocery, part corner market, part cafe. There's a little bit of everything all in one place. And I think that's the thing that's really generated the most consumer appeal," he added.

Embrace private labels

Although the concept is not new, private labels have increasingly become a part of a product strategy in retail. Target specifically has led the way — it now has 48 private brands, 10 of which are worth a billion dollars. Bed Bath & Beyond in 2021 launched eight of its own and Foot Locker introduced its products via the Lckr brand, the Don C lifestyle brand and a performance line through Eastbay.

Grocery is also increasing its private label efforts. A report from the Food Industry Association found that 91% of food retailers and manufacturers are planning to significantly or moderately ramp up their private labels in the next two years. Within grocery, private brand sales reached over $64 billion in 2020, up nearly 15% from the year prior. The motivation behind the change, at least in part, has to do with the pandemic. Seventy-seven percent of survey respondents said they are changing or rethinking assortments and supplier strategies due to COVID-19 pushing changes in consumer behavior and supply chain operations.

Private labels are a way for retailers to give consumers quality at a reasonable price point, can be a competitive product offering and give shoppers an alternative to large brands, according to WholeFoods magazine. 

That may be some of the reasoning behind why c-stores are pushing further into the category, as they leverage their owned brands. In 2021, Foxtrot Market announced two senior-level hires to help expand the company's private label meals and grocery products to help support its "fastest-scaling category." In December 2020, 7-Eleven reached $1 billion in private brand annual sales.

Private label sales are expected to continue to climb. An NACS article that cites research from mobile platform and analytics company InMarket said that private label sales increased 12% in 2020 from the previous year. Additionally, private label offerings may help determine where people decide to shop, and higher earners with incomes of over $100,000 are increasingly purchasing private label products at c-stores.

Surprise and delight

A treasure hunt shopping experience has always been the domain, and strength, of off-price retailers like T.J. Maxx and Marshalls. Yet, the same may be said of convenience stores.

While customers always expect to find products like snacks, coffee and household cleaners at gas stations, there is a certain level of discovery that occurs with these stores, especially when it comes to food.

It may be because around 60% of convenience stores are one-store operators. That means individual owners are bringing their particular concept of what will drive traffic to their brick-and-mortar locations. "With almost 100,000 different owners, there's so many ideas," Lenard said.

Whether it is brisket in California, Nepali dumplings in Virginia or fried chicken in Michigan, offering great food at a value price point is a way to build excitement and consumer loyalty.

Convenience stores have improved their food offerings so much that some experts think that their competitors aren't other retailers but rather other restaurants. And research backs up that notion: AlixPartners reports that high-frequency customers are more likely to purchase meals from c-stores, with 84% of those shoppers interested in doing so.

"Today, when you look at convenience stores, people shop them differently. They're more likely to go to the store because of what they have to eat and drink. And oh, by the way, get gas," Lenard said. "And as convenience stores evolve from acting like gas stations to acting like restaurants — when you take the gas station component away, you have a restaurant."

That is all part of the c-store evolution, according to AlixPartners' Dzwonczyk. "More and more they've moved into the foodservice business, and now really compete with restaurants," he said. "And they've really amped up their game in terms of being able to hit a wide range of consumers, families and kids at different times of day with good quality and reasonable price points."

But, it's not just about the food. As with localization, the notion is to give shoppers something unanticipated in addition to those items they expect.

"People love being surprised, right?" Lenard said. "They love when they find something unique." 

Continue to experiment with tech

By their nature, convenience stores have always been at the forefront of making a shopping experience quick and easy, but even these retailers had to expedite changes in order to meet the needs of shoppers during a pandemic. 

"The pandemic forced probably five years of innovation in eight months for convenience stores," Dzwonczyk said. "They got so much better at foodservice and delivery and technology because they had to." 

Even as c-stores had to recently adopt new practices, they've also been steadily experimenting with technology even prior to the pandemic. One place where that is most evident is with grab-and-go tech.

"The biggest change that is hitting the c-store right now is this idea of cashierless checkout," said Omni Talk's Mezzenga. 

Amazon has been one of the leaders in the space with its Go concept stores that debuted in 2018. Since its launch, Amazon has moved to sell its Just Walk Out cashierless tech to other retailers, and in late 2021 partnered with Starbucks to debut a grab-and-go store in New York City.

Amazon isn't the only company that is building out that type of technology, though. Startups like Standard Cognition and Zippin have raised millions of dollars to further develop, scale and implement cashierless tech. Even 7-Eleven opened its own cashierless store at its corporate headquarters in 2020.

And the reason why c-stores are willing to experiment with this and other technology? It all comes back to a foundation of serving customers better, and faster.

"People will never ask for less convenience," Lenard said.

The next generation of department store concepts may be located in Fairfax, Virginia.

Armed with a smaller footprint (22,000 square feet), a stylish selection of products and a tech-savvy space, Bloomingdale's new Northern Virginia location, Bloomie's, could point to a new direction for the sector. Or, at the very least, an alternative path.

"Our new Bloomie's store will deliver everything they love about Bloomingdale's in a highly edited, convenient, and unexpected way," Bloomingdale's CEO Tony Spring said of the concept ahead of its launch.

The store features a "tech-enabled stylist service model," and offers men's and women's apparel, shoes, accessories, activewear and beauty. It also has a returns dropbox, in-store and curbside pickup, alteration services and a front desk that answers customers' style needs. The store frequently rotates trends, hosts activations and features merchandise carts, which prompt product discovery. It also offers drinks and Cuban food via a local cafe, Colada Shop.

But will a smaller space, cocktails and coffee, and the ability to drop off online returns be enough to re-engage customers and get them excited about department store shopping?

Looking like a whole snack

The past few years have been especially unkind to department stores. It would be easy to point a finger to the pandemic and place full blame on a health crisis that changed daily life as the reason for their downfall. But, the reality is that COVID-19 only sped up decades of decline in the sector. Rapid expansion, company consolidation and a rise in e-commerce played a part in changing where and how people shop.

Then there is the decline of the mall. While in the past, malls served as an alternative to a city's main street, the appeal of going to one has been waning. In 2020, Green Street analysts forecast that more than half of mall-based department stores could close by the end of 2021. And in the first part of 2021, vacancy rates at "regional" and "super regional" malls reached a record 11.4%, according to Moody's Analytics REIS.

But, an interesting thing started happening. Retailers decided to take their stores outside of the mall structure. Both department and specialty stores — including Nordstrom, Victoria's Secret, Macy's and Express — have opened locations that are not mall dependent. Bloomie's is in that group, with its concept store in the middle of an outdoor shopping district.

"For most people the days of just browsing and wandering through the store and making shopping a day with lunch in the middle — that concept may be beyond repair," said Allen Adamson, co-founder of Metaforce. "So, the notion of trying different things is smart," he said of the Bloomie's concept, stating that it can be a way of getting "the best of Bloomingdale's" while allowing customers to get quickly in and out of a store. 

And a quick pop in to the store is part of its appeal. Instead of wading through racks of merchandise, the Bloomie's product selection is curated and meant to frequently change so customers will "find something new to obsess over each and every visit" according to the company website. That means new deliveries are coming into the store multiple times per week. 

"It's a showcase for you. I just want to see something interesting," Adamson said, referring to the benefits of being able to swiftly take in what is new at a store. "In today's time-pressed world, people just want a snack, they don't want a five-course meal."

Besides traditional merchandising, customers can readily discover products on carts located throughout the store, which are designed with flexibility and trends in mind. 

That steady influx of products appeals to a younger demographic, according to Shelley E. Kohan, an adjunct professor at Syracuse University's Whitman School of Management and former employee of Macy's and Bloomingdale's for 17 years. "That translates into fresh goods, more frequency, more visits. And because they're creating a smaller environment, popping in and out of the Bloomie's store is quite easy and fun." 

The right technology in the right places

Another potential draw for shoppers are various services that can be accessed at different points in the store. 

Instead of a traditional cash wrap area, a front desk answers shoppers' questions and is set up to perform a variety of tasks like online pickups, returns, gift wrapping, alterations and styling. In that area, shoppers can also access a dropbox for online returns.

A QR code on a sign makes it easy for shoppers in the Bloomie's store to connect with an associate at Bloomingdale's New York flagship to discuss luxury handbag offerings. And fitting rooms have buttons that shoppers can push for assistance.

Stylists are also able to use tech to aid customers. That means they can access products not only from the Bloomie's store, but other Bloomingdale's locations and on the retailer's website as well.

It's not that all of this technology is cutting edge. (QR codes, for example, were invented in 1994 and have been used by retailers in the decades since, but gained widespread popularity during the pandemic.) Rather, it is the right mix of technology being employed in the right situations, according to Kohan.

"Certainly the pandemic accelerated, pushed retailers to have to figure out how to converge all these different enabling technologies to make the shopping journey and experience more convenient," she said. "So while a lot of the technologies have been around for many years, I think we're coming to a point that we're actually utilizing the right technologies in the right spaces that are relevant for the consumer."

Making it personal

While tech and convenience play an important role in the store, services that make a shopping experience feel personal are also emphasized. One service that lends itself to personalization is the location's monogramming station. Customers are invited to stylize their apparel through monogramming, embroidery, alterations or patches. This is similar to the Levi's Tailor Shop, which customizes products with sewing, pins and patches. The in-store service allows a shopper to easily add their own touch to apparel.

But, the biggest nod to a more personalized shopping experience is that every associate at the Bloomie's concept is a stylist and an expert in all categories of the store. That takes something from merely being transactional to relationship-building, according to Kohan. 

"Unlike a lot of other companies that are really making customer service very self service — they are pulling back on a lot of personal connection and personal touch — Bloomingdale's is doing the exact opposite," she said. "They're trying to create a closer connection with the customer, a deeper loyalty, and their whole strategy is around personal connections." 

In a 2020 study about personalization, McKinsey & Company brought home the importance of developing those bonds with customers. "[R]etailers must respond to the demand for personalized experiences not only to differentiate themselves but just to survive," the authors wrote. "When done right, though, personalization allows retailers to do more than merely survive: it enables them to thrive."

Many legacy retailers are getting that message. Macy's in 2020 introduced both virtual and in-person stylist appointments. Nordstrom, which has long been known for its customer service, offers a variety of styling services so shoppers can get outfit recommendations or receive a complete wardrobe overhaul. And Neiman Marcus launched "Your Neiman's," a hub that offers personalized luxury services including the ability to collaborate with a store stylist.

And that thinking may move department stores from a mindset of just surviving to gaining cultural relevance once more.

The future of department stores?

Is Bloomie's the future of Bloomingdale's? Is it representative of the direction that most department stores should head?

Experts said that the most important thing the legacy retailer is doing with the new concept store is staying agile. That means it has the ability to repeatedly test things and make swift decisions. 

Some retailers are already doing this by experimenting with neighborhood stores. Nordstrom Local, which touts itself as being a "Nordstrom experience a little closer to home" has multiple locations in New York and Los Angeles. Market by Macy's is a smaller brick-and-mortar concept with "neighborhood flair," according to the company. And even Nike has been playing with hyperlocalization as part of its larger fleet offering.

"Revitalizing the traditional department store has been tried for many years," Adamson said. "If you can grab something and see what's new and hot and zip in and out, that has a higher likelihood of being more relevant for today's consumers. And it's a lot easier to pivot and say, 'Oh that didn't work, let's try a different curation.'"

When Our Place’s Shiza Shahid moved halfway across the world to the United States for school, she began to miss the flavors of her home.

Shahid’s mother — whose “ambitions were cut really because of her gender” — never taught her how to cook, wanting Shahid to focus on her studies instead, she said.

But when she started learning how to cook, Shahid was met with cookware sets that included innumerable pots and pans. Shahid wanted to re-imagine the role of cookware in consumers’ homes, sparking the idea behind Our Place.

“I'm an immigrant, my partner and co-founder is an immigrant. For both of us, we literally found our place in America by cooking and sharing food and having people come over and breaking bread together,” Shahid said. “We've always believed that home cooking is one of the most powerful ways to bring people together. When all else falls away, home cooking is where culture and identity and connection and belonging really live most deeply.”

Thinking back to her own experiences growing up — with two pots to handle all of her family’s cooking needs — Shahid sought out to create a product to help streamline cookware. And thus, Our Place launched the Always Pan, which the company says replaces eight items in consumers’ kitchens, including a fry pan, saute pan, saucepan and steamer. The product, coming in a range of aesthetically pleasing colors, quickly grew in popularity with a waitlist topping 60,000.

Our Place, which Shahid said is rooted in coming together around food, launched in 2019. But when the pandemic hit just a few months later, and in-person gatherings virtually came to a stop, Our Place needed to navigate how it fit into consumers’ new realities. The brand, like other retailers selling home and kitchen items, was boosted as consumers adjusted to spending more time at home.

“We found that people were actually finding connection and comfort through cooking. They couldn't visit their grandparents anymore, but they could call up their grandma and ask for her favorite biryani recipe and Zoom with her while they cooked it,” Shahid said. “I think the pandemic probably got more people to realize that they can cook and that cooking shouldn't be so scary or intimidating and in fact can be a source of reconnection and I think Our Place is the brand that best captures that.”

Now, following many other DTC brands announcing store expansion plans, Our Place is ready to step into physical retail.

Why physical stores were ‘always part of the plan’

Opening stores has become commonplace for digitally native brands over the years. And while some brands have turned to physical retail later in their lifespan than others, stores were “always part of the plan” for Our Place, according to Shahid.

The brand has formed wholesale partnerships in the past, including with Nordstrom, which allowed the brand to sell its products in the department store’s locations through shop-in-shops. But now, the brand is planning stores of its own: two locations in Los Angeles to open later in 2022 and a store in New York to open in early 2023.

“One thing that I think we've definitely learned in the last few years is something that kind of fits the ethos of our business — and that's the importance of gathering in physical time,” said Will Williams, Our Place’s vice president of global retail. “I think we've learned things in the world about how technology and how online can absolutely be a resource in our lives during tough times … but we also realized that need and that desire for human connection.”

The first stores, which are scheduled to open in Q4 of 2022, are located on Melrose Avenue and Abbot Kinney Boulevard in Los Angeles — two areas of the city that have attracted other DTC brands like Glossier and ThirdLove.

Shahid hopes that Our Place’s stores will “pay tribute to our values” by featuring things like family portraits to celebrate its team and community. The stores will also feature live cooking demos to show consumers the various uses of its products and spark inspiration for new recipes.

“Being offline is going to give us a chance to build relationships with customers that we've already met online in a different way,” Williams said. “It's going to give us an opportunity to continue to build that community with customers that we haven't met online, potentially. And our goal is that we're going to create brand channels that really allow us to meet our customers where they are, and still deliver the best experience.”

Williams — who has experience working with both traditional retailers and DTC brands like Tiffany, Michael Kors, Away and Ritual — believes the value in stores is long lasting. 

“There'll be a place for physical retail for quite a long time. We, as retail leaders and retail brands, have to be really smart and continue to evolve to make sure that the physical experience is really delivering both value and experience to the community that we serve,” he said.

DTC brands need to realize that the sales opportunity will come from where the consumer is and what’s most convenient to them, Williams said. “That's really the name of the game: identifying the best service experience for the customers that we serve and identifying the value that we're exchanging for their time to walk into a retail store,” he said. “Sometimes that can be touching and feeling the product. Sometimes that can be having a conversation with a host in store and understanding better who we are as a brand.”

Stores often serve as an important marketing vehicle for brands that can ideally offset the high costs associated with acquiring customers online, which has sometimes hindered brands’ profitability. And while Our Place reached profitability just six months after launching, the value of a physical presence will still serve the brand, according to Shahid and Williams.

“The ‘why’ for us was really clear,” Williams said. “The ‘why’ was: We have such a bigger story to tell beyond what we can tell online. We have an opportunity. The ethos of our business is surrounded around bringing people together and telling cultural stories.”

While the company hasn’t set a number on how many stores it intends to open, Shahid said she hopes to eventually have a presence wherever the brand’s consumers are.

“We're not rushing into trying to hit a number. We're very excited about the retail, we're really excited about the impact of retail for our business, and this is not going to be a one-off store,” Shahid said. “That being said, this is a new initiative for us. We're scrappy entrepreneurs and we really like to dig in and figure things out and then replicate them.”

Experiential e-commerce company Obsess launched a new offering on Tuesday, Ava by Obsess, which gives brands the ability to build their own virtual stores and customizable 3D e-commerce experiences.

The service has been in development for the last two years. Obsess, which has helped create more than 200 virtual stores for brands like Ralph Lauren and Charlotte Tilbury, used feedback and data from its past partners to build the offering.

Through the virtual store builder, brands can add products to the space and enable clickable content like in-scene videos, social media integration and branded avatars. The platform is accessible through an annual subscription with Obsess.

Obsess’ technology currently powers hundreds of virtual stores featuring interactive content, livestreaming, gamification, social shopping and more.

“Much like Shopify revolutionized e-commerce for small businesses by providing them with traditional DIY storefront capabilities, Ava is now enabling brands to build and manage their own next-generation, immersive 3D virtual storefronts, dynamically changing merchandising, content and styling as needed throughout the year,” Obsess founder and CEO Neha Singh said in a press release. 

The platform offers a self-serve solution to virtual store management, allowing brands to customize features like product imagery and placement over time. Upon uploading a 3D media file, Obsess’ patented rendering technology converts it to be visible in a large-scale 3D environment.

Obsess' virtual store builder allows brands to create and manage their own virtual experiences rather than rely on tech companies to develop them. Brands have invested more in virtual experiences recently. For example, hair care brand Living Proof worked with ByondXR for its metaverse store, which featured an AI-generated beauty quiz. Men’s underwear brand Saxx teamed up with Emperia for its virtual shopping experience to promote a new collection.

As virtual reality shopping grows in popularity, companies are even incorporating product launches, fashion shows and showcases into their virtual spaces. For this year’s Metaverse Fashion Week, Tommy Hilfiger debuted a multi-metaverse hub powered by Emperia and with participation from DressX, ReadyPlayerMe, Spatial, Roblox and Decentraland.