Experience Economy

By now everyone’s familiar with the experience economy itself, if not the term. Pioneered by Walt Disney and others, it was codified by Pine and Gilmore, first in their seminal 1998 article and later in their book of the same name. Their key insight was to position experience at the top of a hierarchy, where commerce progresses from extracting commodities, to making goods, to delivering services, and finally to staging experiences. They predicted that this “experience economy” would become the next great battleground when it came to attracting customers.

And they were right – consumers have indeed been moving in that direction in the intervening decades. Millennials became widely recognized as the first generation to favor experience over ownership. Gen Z has continued this trend further with a focus on access, as well a strong sense of community, equity, and authenticity. They also realize that interaction and meeting people outside of their “bubble” can help improve their mental health. They’re ready to get out there and make memories.

Now, as we look forward to a post-pandemic world, people of all ages are bubbling with eagerness to get out of the house and start doing things again. Vice Media has cited a study (in support of bringing back their 29Rooms experience) in which 94% of Gen Z and millennials say they plan to attend in-person experiences as early as the summer. So the experience economy, going strong before Covid, seems poised to benefit from pent-up demand.

Retail Pressures

Another long-running (and perhaps related) storyline has been the downward pressure on traditional retail stores. The flip side of valuing experiences more has been wanting to buy things less. And with the rise of e-commerce, many of the things we did buy, we began to buy online rather than in-store.

The impact of that on retail, especially in malls, has been evident at least since the last recession. Well before the pandemic, it was already estimated that one in four American malls would close by 2022. Shopping malls anchored by department stores at both ends saw those assets become liabilities as multiple large chains ceased operation.

But not all retail comes in the form of malls. Urban storefronts seemed to be somewhat more resilient to the rise of online shopping, as city centers thrived in general. COVID changed all that almost overnight, compressing years of projected future declines into just a few weeks, for almost every kind of retail store. And it has ground on way longer than most expected.

As we finally emerge from lockdowns and health precautions, we may well see the revitalization of urban areas, especially in smaller cities and towns that have seen influxes of those able to work (all or partially) remote. But pretty much nobody seems to expect the decline of large retail spaces to reverse course.

Supply, Meet Demand

No doubt you can see where this is going. On the one hand, we have demand – eager people ready to take advantage of new experiences. On the other hand we have supply – both empty and underperforming retail spaces, often very well located in convenient and high-traffic areas. Retail spaces are extremely well suited for the experience economy.

This isn’t a new insight, of course. The industry has been long looking for ways to repurpose big box stores, and experiences have been firmly among them. But since the pandemic has accelerated both the demand side and the supply side of this equation, it’s an observation that’s now more salient than ever.

The notion that previous and existing retail square footage is going to transition into the experience economy over the next few years has come up in my conversations so often in recent weeks that it feels like conventional wisdom. (That could just be my particular urban experiential bubble, but it’s something.) The question I’m always left with is who is going to take the lead in getting us all through that transition?

The Entrepreneurs

The last several years have seen lots of new and interesting innovations in the experience economy. There was an entire wave of Instagram-friendly venues from temporary pop-ups to more museums of whatever than you can count. Many of these startups were less well-positioned to survive than the big amusement parks, but no doubt some will re-emerge.

There’s been a surge in immersive art experiences. Some such venues (Superblue and Omega Mart come to mind) have opened recently, well after the start of the pandemic. Those entrepreneurs clearly agree with my assessment that demand for compelling experiences will surge as we’re able to freely travel and gather in groups again.

I have no doubt that we’ll continue to see more new experience destinations hit the market in the coming months and years. COVID disrupted the careers of many talented and motivated people, and some will likely take the opportunity to start experience economy businesses. According to a recent Forbes article, 27 million (14%) working-age Americans are starting or running their own businesses. And Millennials and Gen-Z are driving higher interest in entrepreneurship, so they’re sure to play a big role in the experience economy renaissance.

The sense I get from being embedded in the creative experiences world is that there’s no shortage of talent, dreams and ideas. The missing link in most cases is the investors and financiers willing to step up and enable those dreams to become reality. I personally believe that many such investors will be richly rewarded.

The Owners

Entrepreneurs and startups taking over abandoned retail spaces is good for the experience economy in general, but not so great for the owners of those spaces. By then, property owners will have suffered a period of no rental income. Worse yet, they will have likely seen the value of their assets further decline. Landlords’ willingness to accept lower rents is great for startups looking to reduce overhead costs. But depending on that landlord’s financial position and structure, it might be a real problem for someone else. 

In addition to the accelerated pressure on retail properties, changes in how we work has turned the situation upside down for office space. In many cases commercial property owners have exposure on both fronts. That’s a subject for a different article, but it only adds more pressure to the owners of many retail properties. All the more motivation, then, for these landlords to get out ahead of the problem.

Some commercial real estate owners have been doing just that. Here in the tri-state area, the American Dream mall has been redeveloped and purpose-built to be centered around experiences instead of shopping. AREA15 in Las Vegas has taken a similar approach. These projects both pre-date the pandemic and seem well positioned to experience strong growth later this year.

I wouldn’t be surprised to see more property owners follow suit. The “mall of experiences” model requires a wholesale turnover of a large property and significant investment, so it may not be for everyone. Some spaces may even need to be rezoned before they can be become something new. But it’s not hard to imagine a less ambitious hybrid approach that transitions smaller properties individually or larger ones in phases. Rotating pop-ups and other small-scale activations could be part of the solution.

The Operators

Having property owners take the lead in transitioning retail spaces to new experiences reduces the overall friction to the market. But it still disrupts the current operators – the legacy retailers who have made it this far. More than a year into the pandemic, all retailers still standing have proven themselves the fittest of competitors in a brutal Darwinian struggle. But they surely hold no illusions of a rosy future long term.

I’d argue that legacy retailers are the most highly motivated of all the participants in this ecosystem to figure out where the future of in-person experiences will be and to try and be its advocate rather than its casualty. I’d also argue that they know this – they’ve been experimenting in “experiential retail” for years now.

Mostly that’s taken the form of adding different kinds of services into the mix. Here in NYC I think about the many clothing stores, from Rag & Bone to Banana Republic, with coffee bars inside. I’m also reminded on the (since-closed) Fellow Barber that was located inside a J Crew store (still open, I think). You’ll recall that services is a step down from experiences in Pine & Gilmore’s hierarchy, so such innovations are not quite “experiential” in my book.

Closer to the mark are efforts like House of Vans and Dick’s new House of Sport. Experiences like that tie into the brand’s identity and offer something unique. Such experiences deepen the relationship with the customer, ultimately serving the long-range goals of the retailers and potentially driving more sales. That sort of thing seems like a no-brainer if retailers can find the right concept for their brand.

And there’s also no reason existing stores with more square footage than they can effectively utilize can’t build out ticketed experiences within their floor plates. They wouldn’t even have to directly support the brand, as long as they’re aligned enough to not harm the brand.

If You Build It…

Many of the conversations I have about this topic end up with someone saying that the property owners and retailers lack the vision to make this transition. But I don’t think that’s right. If anything, they just lack the experience economy context and experience (in the sense of having spent time in that market).

But that’s a solvable problem. As I mentioned, there are plenty of entrepreneurs out there with exciting ideas looking for sponsors. And there are also plenty of agencies and consultants (yours truly, for instance) who could help shepherd an internal search for your brand’s experiential future to a successful result. I’m currently having conversations at all three levels of this ecosystem and there is boundless potential.

It would be nice to know that whatever you embark upon is going to take off among shoppers and fun-seekers. Sadly that’s not the case – there’s always a risk in trying something new. But with so much danger in standing still, taking calculated risks seems like the only choice. In today’s retail landscape, getting out ahead of the experience economy may be the only way to survive…

Featured Image: JCPenney Spring Style Garden at Westfield Oculus in NYC