Last year, almost 7,000 retail store closings were announced, an increase of 200 percent over the previous year, and major retailers have announced more than 4,000 store closings so far in 2018. The cause most often cited for what some call the “Retail Apocalypse” is online shopping—primarily the convenience and customer experience of Amazon.

 

However, luxury furniture and home design retailer Restoration Hardware is taking what CEO Gary Friedman (and poet Robert Frost) calls “the road less traveled” with the opening of a 90,000-square-foot “gallery” in New York. Friedman wrote to shareholders, “While most in our industry are closing or downsizing stores, we remain committed to our quest of revolutionizing physical retailing.”

 

Other high-profile retailers are placing big bets that physical stores can still be a central component of retail success in the age of Amazon. Tiffany & Company plans to spend up to $250 million to upgrade its 78-year-old flagship store in Manhattan. Target has committed $7 billion to upgrade its operations, including the expansion of smaller stores in more urban locations. And Best Buy has worked with leading tech brands—including Apple, Google, Microsoft, and Amazon—to build in-store boutiques, and has invested in “specialty labor” to better assist customers in its stores and in their homes.

Legacy store-based retailers are not the only ones investing in physical stores. Apple has long used stores to showcase its brand. The company’s 500 stores constitute about 13 percent of the company’s sales revenue. Online eyeglass start-up Warby Parker, now valued at $1.75 billion, plans to have 100 physical stores by the end of 2018. Even Amazon has been focusing considerable attention on a physical store strategy. Along with its recently acquired Whole Foods stores, the company has opened 16 physical Amazon Book Stores, 72 pop-up stores, and Amazon Go stores in Seattle and Chicago, with another opening soon in New York City. A recent report says that Amazon is considering opening 3000 Amazon Go stores by 2021.

 

The End of Mediocrity

 

For Warby Parker, the difference between a store that needs to close and a store worthy of investment is the quality of customer experience. “I don’t think retail is dead,” said Warby Parker co-CEO Neil Blumenthal. “Mediocre retail experiences are dead.”

 

Companies like Amazon have zero interest in opening a traditional store. And Amazon has even less interest in providing a mediocre consumer experience. What Amazon is interested in is anticipating and exceeding consumer expectations. And what consumers increasingly expect from their in-store experience is the same kind of convenience, smoothness, and innovation as in their online experience. Further, they expect their in-store and online experiences to connect into a seamless whole that is greater than the sum of its parts. So an Amazon store is a radically different in-person experience, in which no cashiers are present (at Go stores) and your Prime membership opens the door to tailored suggestions and discounts.

 

It is natural that an Amazon store would lean heavily toward integration with the online Amazon experience. On the other end of the spectrum, few physical stores have as strong a legacy as Tiffany’s. Its flagship Manhattan store was immortalized in “Breakfast at Tiffany’s”—and today customers can treat themselves to breakfast at the store’s new “Blue Box” cafe. But it also recognizes that this physical place must be coupled with a point of view about what it should represent to customers old and new. Tiffany has embraced a “modern interpretation of the historical legacy” strategy designed to connect with a younger generation of shoppers, while retaining the brand’s appeal to its older customer base. It has updated product lines to bring younger shoppers into the stores, and has added “Make It My Tiffany” options for consumers to personalize jewelry purchased in store. It also is expanding into hospitality—starting with its flagship store’s new cafe—to encourage customers to make the stores a destination that is about more than making a jewelry purchase. At the same time, it is carefully expanding its omnichannel customer engagement strategy with partnerships on luxury retail platforms such as Net-a-Porter.

 

In 2012, when, according to Best Buy CEO Hubert Joly, “everyone thought we were going to die,” Best Buy moved to create an experience that Amazon didn’t offer. The company built an elite core of salespeople whose goal was to develop a relationship inside the store that extended into people’s homes. These salespeople can advise consumers on their tech needs and then help them get their purchases up and running and connected to the other tech already in their homes. At the same time, Best Buy developed a capability for in-store pickup of online orders that has achieved a 40 percent use rate. Best Buy has used its physical footprint to offer stores-within-a-store to tech brands wanting to showcase new products in a physical setting. The revenue from these ventures has helped take pressure off Best Buy’s margin.

 

Lessons for Legacy Healthcare

 

Hospitals are working hard to develop their digital capabilities, as well they should. However, for legacy retailers alike, success will rest both on what consumers experience within those four walls, and how that experience integrates with a digital experience.

 

Like legacy retailers, legacy healthcare organizations increasingly are competing with companies large and small that specialize in top-flight consumer experience. And like legacy retailers, a customer experience that is lackluster, is not perceived as contemporary, and is not integrated with a first-class digital experience, will not lead to success.

 

Hospitals and health systems need to be very smart in thinking about a value proposition. The Amazon, Tiffany, and Best Buy in-person customer experiences are very different from one another, but they all build on the companies’ core strengths, all focus on anticipating and exceeding customer expectations, and all are based on innovative ideas. Hospitals need to think about what their organizations have meant to the communities they serve. They need to honestly assess their differentiating strengths. And they need to ask how to build on those legacy strengths to stay relevant for specific consumer groups, from the elderly to young consumers who are starting families and careers. Hospitals need to ask how they can develop an experience that no other organization can duplicate.

 

Hospitals also need to fight incredibly hard. Best Buy’s stock price has increased four-fold in the past five years. Restoration Hardware’s has doubled in the past year. These successes have been achieved through relentless pursuit of the companies’ goals. Best Buy CEO Hubert Joly said, “We get 26 percent of our consumers’ electronic spending. That’s embarrassing. If we get a third, it would still be embarrassing, but the growth for the company would be tremendous.” In 2016, Restoration Hardware CEO Gary Friedman sent a memo to staff in all capital letters that said, “You will never get in trouble for making a decision to delight our customers. You will, however, lose your job if you don’t.”

 

A Bloomberg article recounts a story of a Best Buy home advisor performing a particularly efficient set-up in a customer’s home. The advisor asked, “Any other projects?” The customer paused and said, “You’re not a physician, are you?”

 

That customer’s question is no accident. Healthcare’s complexity, slow pace in adopting new technology, and traditionally paternalistic view of patients all have created a situation in which the consumer experience too often is frustrating and rarely delighting. Consumers are seeking a better way.

 

In retail, we are seeing a clear divide among legacy companies. Those that can create a truly differentiated experience are, for now, successfully navigating the Internet economy. Those that cannot are being left behind. As the Internet economy continues to encroach on healthcare, legacy organizations face a similar fork in the road.