Experience retail: can support a business but not enough to get rich
Is anyone shocked that Living Social announced they are closing their DC events space ("Why LivingSocial is pulling the plug on its 'Adventures' brand" from the Washington Business Journal)? I'm not.
I was surprised at all the speculation in the print media previously that experiential events would be a growth area for them ("With Aerosmith, LivingSocial doubles down on events business" from the WBJ). It's a small market, hard to get repeat business, with high costs.
(Note to people who think Groupon and Living Social are great businesses. They are direct marketing organizations who happen to sell via the Internet. Nothing more. The Internet in itself isn't a business model, it is a channel.)
Similarly, the point in the Post this weekend that Barnes & Noble ("Barnes & Noble can succeed, but not by competing with Amazon") could reshape itself along experience lines, using the example of local hardware stores missed two fundamental points.
First, local hardware stores are not really successful because they are locally owned, but because they sell necessary goods that people need (called convenience goods) so that they can take care of their houses. The local-ness and short distance for travel is a benefit over going to a big box, but if they weren't selling stuff people needed, they'd be screwed.
People don't need books (at least most people don't).
Left: community information board at a Lululemon store. Photo by Lululemon Athletica.
The second is that chain stores, except for Lululemon, aren't focused on building deep connections within communities, not unlike the experiential events space for Living Social.
They make their money systematizing operations and merchandising so that they can run the store with limited skill personnel who don't cost that much labor wise.
For Barnes & Noble, becoming an event space--like Busboys & Poets--is a lot harder, more time consuming, and requires local connections.
Ever notice that chain stores, even "cool" places like athletic shoe stores or bike shops like Specialized don't have information boards for local events?
Lululemon is different. But the stores are really small and the markups/profit margin on what they sell so high that it's not very expensive for them to put some investment into community building. It's tougher on a book that sells for $8, with a 40% profit margin before expenses.
The NYT, "Why Barnes & Noble Is Good for Amazon," also argues that there is a place for Barnes & Noble. But maybe it's not that bookstores are good for Amazon but for publishers. And publishers might have to step in and help out.
There is still a place for bookstores, but not necessarily Barnes and Noble, and to make it, bookstores might have to move more towards the Busboy and Poets model of (1) restaurant (people eat every day); (2) event space; and (3) hopefully a bigger books department than the itty bitty one at Busboys & Poets. The Kramerbooks and Afterwords bookstore-restaurant combination on Dupont Circle is another example.
For Radio Shack to get their business model together (see "RadioShack in Talks to Bolster Finances" from the Wall Street Journal), they are going to have to figure out how to market themselves like hardware stores, or to join in with hardware stores in order to reposition. It's about electronics gear as convenience goods, but to sell electronics items (specialty goods have a different sales process than convenience or discount goods), they have the same problem with showrooming as everyone else, and the difficulty of providing a wide range of items in small stores.
Maybe they could make money on service, like the Apple Store genius bar, but at the neighborhood level, there isn't enough business to make it work.