I’ve recently discovered that what Nespresso does at its Queen St Mall Boutique, where it offers free cups of coffee to customers in a cafe-style setting, is “Brand Theatre”. I figured this out after reading Retail Therapy, a recently published book authored by Mark Pilkington, a UK-based consultant to the retail industry. The free coffee and relaxing experience Nespresso offers is excellent, but now I don’t buy capsules in the store because it takes too long. So I order them online. In the old Nespresso store on the other side of the Mall, it was much simpler and quicker. You’d queue up and order what coffee capsules you’d like. But now you need to wait for one of Nespresso’s roving employees to assist you, and they often hand you over to another staff member who will retrieve the capsules from out the back.

What I never appreciated fully is that Nespresso is deliberately pushing existing customers to online purchases. The stores are dedicated to creating new customers rather than servicing existing ones, who can be serviced much cheaper online. In his excellent book, Pilkington explains (on p. 208):

Retailers need to use the stores to do the things that the web cannot – namely, provide an immersive brand ‘experience’ – which pulls in customers, and then transfers them to the web for the actual transactions.  

Pilkington’s book has the sub-title “Why the Retail Industry is Broken – And What Can Be Done to Fix it”. He is a believer in the so-called Retail Apocalypse being experienced across many advanced economies, with high rates of vacancies in many shopping malls and high streets. The Retail Apocalypse has been caused by e-commerce, other digital disruptions such as Uber Eats, and lower car ownership among Millennials, among other factors.

According to Pilkington, the bricks-and-mortar retail industry needs to adapt or die. It needs to develop more private label brands, to compete with manufacturers selling direct to the consumer via the internet. Pilkington notes (on p. 226) the internet is “collapsing supply chains” and “Multiple mark-ups no longer work.” Stores need to do more than simply being a means of bringing goods to consumers. The smart retailers, such as Nespresso (my example rather than Pilkington’s) are putting on “brand theatre”. Pilkington expects that retailers will need to embrace the “store as community” model, and he gives Apple and Starbucks stores as examples. He also suggests there needs to be more widespread analysis of data to target customers and A/B testing of products and concepts (on p. 244):

Rather than rely on large, slow-moving, monolithic projects aimed at producing complete solutions, retailers need to move towards encouraging lots of small experiments.  

Pilkington notes retail is struggling across a broad range of advanced economies, including in Australia. He refers to failed retailers such as Dick Smith Holdings, Herringbone, and Oroton, and notes the struggles David Jones and Myer have had in recent years. It is well known Australian retail has been facing difficult times. Indeed, over the last year retail turnover has only increased 0.2% in real terms (see chart below), despite Australia’s ever-growing population. Australian retailers would be well advised to read Pilkington’s book.