2010 Design Firm Roundtable: Appetite for Innovation

VMSD’s blue ribbon panel of design firm experts says retailers will be looking for new initiatives this year – because they have to.
By
|
Posted January 29, 2010

Last year was a rough one for the U.S. economy, rough for retailing and, therefore, rough for the design firm community. Retailers pulled in their belts and did less expanding and renovating, cutting their capital expenditure budgets. Our annual survey of design firms showed that more than three-fourths of the respondents said their business for the year was down. More than half said retail fees tumbled by at least 25 percent – nearly 20 percent said fees were down by 50 percent or more.
Given all the gloomy economic reports that still dominate the evening news, we were somewhat reluctant to ask design firms what they expected in 2010. But a panel of industry experts convened by VMSD offered some surprising and hopeful insights about the next 12 months and beyond. Our experts insist that smart retailers – those who’ve managed to survive – are taking a look at opportunities and the importance of being innovative and creative. Following is a report of what they had to say.

VMSD: So a difficult year comes to an end. I’m sure nobody is sorry to say goodbye to 2009.
David Kepron: It’s been tough, but there are some great signs that things are finally moving again, after eight months.

Christian Davies: Yes, there seems to be a lot of activity going on out there, a different sense of pace and energy than there was six months ago, maybe even than there was three months ago. It feels to me like it’s starting to heat up, but in a very different way.

Different how?
Randall Stone: Projects tend to be less comprehensive and more tactical – a lot more merchandising and in-store communication projects than total store redesigns. But there does seem to be activity, phones ringing about wanting to start projects, and even optimism on the retailers’ side that they’ve got to get themselves in a position to be coming out of this strong and they can’t wait too long.

Davies: There is a sense that retailers have to do something and that, as the market begins to turn, they want to be in a position to be ahead of the game.

Lee Peterson: There’s a pretty huge appetite for innovation. It could be a broader perspective, like “how do we portray discount or price?” or “how do we reinvent this part of our store?” or “how do we reinvent merchandising?” But we’ve received a ton of calls asking, “how do we innovate?”
 

What kinds of things are they asking of you?
Brian Shafley: Understanding the changing consumer behavior pattern has become a hot topic. “What’s this customer doing now?” Clients are asking for our insights as to how to address those customers who have time on their hands but not money.

Steven Derwoed: We’re seeing a number of clients who maybe a year ago had seven or 10 people in their competitive set within a mall or within a narrow geographic region, and today they’re competing against only two or three. They see this as an opportunity to further differentiate themselves. And they’re willing to entertain so many more out-there ideas today because they feel they have to innovate or they, too, will die.

Randy Sauer: We’re starting to get a lot of calls from people looking at a new business opportunity or a brand manufacturer wanting to get into the retail business. I think the trend over the next year, one of the things that makes us optimistic, is there are going to be a lot of new customers in the market.

Rachel Zsembery: We’re seeing, too, a lot of larger retailers looking at some of their niche markets and looking at smaller footprints to a really targeted consumer.

Shafley: Interestingly, everybody’s paying attention to what Walmart’s doing, not just in terms of strategies but also in terms of store design. Store layout. Customer experience. Digital technology. Green building. A lot of what they’re doing has come together for them at this point and I think it’s why they’re successful.

So clients are asking you to be creative. What does “creative” mean to you in this environment?
Peterson: It’s pretty simple: Can you solve problems? We think that’s what retailers are looking for now in just a fundamental way.

Shafley: I’ve always felt we’re all about problem-solving. Retail design is an amalgamation of architecture, graphic design, marketing and product design, and as retail designers we have exposure to a lot of different kinds of clients, from department stores to start-up entrepreneurial businesses to food to just about every category of hard lines and soft lines. Taking some of the best ideas from one category and applying them to another, sort of a cross-pollination, is a great way to strengthen some categories that have been stagnant for a long time.

Derwoed: Creativity is being willing to cut across notions of conventional wisdom, to stand up in front of clients and tell them what they have believed is the right way to do it in the past may not be the right way to do it tomorrow. To create a future they haven’t yet imagined.

Sauer: A client recently told us: “I need you to do it quicker, better, stronger, more efficient and for cheaper.” That explains what we have to do to be creative to accomplish that.

You all sound bullish, but the retail sales numbers we’re hearing paint a very different picture. Can you address that disconnect?
Peterson: Call it “the new normal.” We’re hearing 1-2 percent increases over last year. Is that disappointing? Not really. We’re just at a completely different level of spending.

Stone: Spending is obviously going to get better and increase, but it will never reach the kind of levels of spending that we recently saw.

Shafley: We’ve been overstored for a long time; it took a downturn to sort of level off at a sustainable level. But I think there’s a right-sizing going on and there are fewer players, but those fewer players are better – they’ll have to be better.

When do you think your clients’ purse strings will open up again?
Sauer: At least from our standpoint, they’re still in the “how-can-we-cut-or-save-every-penny-we-can-save?” mode. It seems to me we might not really see a lot of the innovations that comes out of this for another three or four years.

Davies: I agree, it’s going to be a while before it all hits the street. I don’t think anyone’s looking at a capital expenditures budget for 2010 and saying, “I’m going to build a brand new sub brand from the ground up and have it all up and running and we’re going to do 300 of these things.” I think people are saying, “I’m going to take a portion of this budget next year and focus on learning who our customer is and trying to reconnect with our customer. And I might do that at a very grassroots level – a pop-up initiative or a remerchandising initiative. I might refresh 20 of our 300 stores to see what happens. But I’m going to do something.”

Dave Nelson: It has started with the more progressive retailers (progressive either because they are forward thinking or progressive as a last-ditch effort) and in dialog only. This modest recovery or uptick is still not driven by job creation. Consumers are shopping more on needs than wants. Therefore most retailers are waiting to see what the new norm is to decide if any of the dialog should be implemented.

How do you think that will all play out in the consumer market in the next several months?
Derwoed: I think people are getting tired of staying home and a sort of “frugal fatigue” is setting in. There’s only so long that people are willing to take their lunch to work and buy nothing. It becomes a form of entertainment to actually go out, spend a little money and have fun.

THE PARTICIPANTS:

  • Christian Davies, vp and managing creative director, FRCH Design Worldwide (Cincinnati)
  • Steven Derwoed, senior vp and managing director, Callison RYA Studio (New York)
  • David Kepron, studio principal,store design, Little (New York)
  • Dave Nelson, vp, client strategy, JGA (Southfield, Mich.)
  • Lee Peterson, vp, creative services, WD Partners (Dublin, Ohio)
  • Randy Sauer, senior associate, Mulvanny G2 Architecture (Portland, Ore.)
  • Brian Shafley, president, Chute Gerdeman (Columbus, Ohio)
  • Randall Stone, senior partner, Lippincott (New York)
  • Rachel Zsembery, associate, Bergmeyer & Associates (Boston)

 

INTERNET GAINS:

VMSD: Online sales continued to be strong last year. How is the business of building stores going to be affected by increasing Internet retailing?

Christian Davies: As long as Wall Street keeps holding up the two sets of numbers, we’ll keep talking about them in isolation. But the reality is, Macy’s likes to sell product wherever it can sell product and ultimately the store performs a different function than online does. Where somebody purchases might be one thing; where somebody goes to experience the brand and learn about the brand and make the brand loyalty decision might be another.

David Kepron: At the base of it all, retailing is about the social experience and the value you get from that. It isn’t just about the ticket price, or the fact that you got 50 percent off the price that day. It’s about the experience you get when you’re in the store and how it has fundamentally changed that two hours.

Randall Stone: There was a quote from Nick Graham, the founder of Joe Boxer: “Retail is the amusement park and the product is the souvenir.” I’ve always felt there’s an inherent truth to that. Often, in retailing, the product is the end result, not the means. Knowing how that’s shifting means how you communicate in the stores will be different, which again leads to new store design.

Lee Peterson: But too often, the stores are really not very interesting. And that leaves a lot of room for hope and optimism for all of us – the experience right now, for the most part, is slatwall and stacked merchandise. If that experience becomes more social, enables you to engage more, becomes more fun and more brand-oriented and more experiential, if that change can happen…

Stone: I’m a firm believer that shopping is entertainment. Just like movie theaters didn’t disappear when DVDs and VHS came, people will still want to get out and shop. It’s part of our social behavior.

Rachel Zsembery: There were so many web-only exclusive deals for so long, now I’ve seen retailers turn that back into store-only deals, products that you can only find in the store. Making an event that you can only get in the store is a way of driving customers back.

Steven Derwoed: I’ve seen high-end home appliance retailers invite groups to private events where corporate chefs cook meals in a social environment, giving the opportunity to mingle but also to see all their products in action. It creates an opportunity for people to come together and socialize, but it also creates a frenzy that feeds upon itself.