NRF 2020 - how Neighborhood Goods is shaking up department store conventions, live from Manhattan

Profile picture for user jreed By Jon Reed January 21, 2020
Summary:
Store tours put the happy retail talk from the show floor to the real world test. At Salesforce's Neighborhood Goods reception, I got a firsthand look at a new kind of department store, and learned why digital brands - and customers - find it appealing.

Salesforce and Neighborhood Goods
live from Neighborhood Goods, New York City

NRF 2020 was all about the revenge of the store. Or, as I quickly corrected myself:

Retailers are building a case for stores as a competitive edge - albeit with potentially massive redesigns/rethinks. I called it the "revenge of the store," but quickly changed that to "the revenge of the right kind of store" - fueled by better data on what customers need.

That resonates in NRF's aftermath, with reports of more store closings (JC Penney in this case). And, as Jake Knowles of BJSS brought up in my NRF 2020 podcast review, it's been a hardscrabble year in UK retail. Stores might be a powerful asset - doesn't mean the retail game is easy.

At each NRF "Big Show," I venture into the city for in-store tours. Sunday night, it was off to Chelsea Market for a firsthand look at Neighborhood Goods, which bills itself as a "new type of department store."

Neighborhood Goods - from experiment to Chelsea Market storefront

It's been a busy fall for Neighborhood Goods, which announced $11 million in funding in September 2019. Adding to their flagship store in Plano, Texas, they opened the Chelsea Market store in December 2019, with more store rollouts planned for 2020.

The revenge of store was on Rob Garf's mind as well (Garf is Salesforce's VP of Industry Strategy and Insights). As he told us during Salesforce's in-store reception:

There's a total revitalization around the physical store. Consumers are looking for an easier and more effective way to get their product and return their product. They're looking for an experience, and they're looking for discovery where they can touch and feel the product, talk to knowledgeable people about their brand.

During Garf's chat with Neighborhood Goods CEO Matt Alexander, we learned that the roots of Neighborhood Goods go back to a non-profit project in Dallas, which has become a major initiative for the city. As Alexander told us:

That little experiment, which we threw together in a matter of weeks, brought a whole different demographic of people into an area of the city they would have never been to before. Gave them a dignified and interesting purpose to come into the space.

Digital trends were pointing back to the power of stores:

There was simultaneously the core recognition that customer acquisition for digital brands is going significantly upward; lifetime value is precipitously dropping, and physical retail is seen as a great solve for that.

Customers acquired offline tend to have five times the lifetime value of their digital counterparts. And so, in as much as a physical store might cost less from a lease perspective than a billboard, it can be really productive, and be a much more quantifiable and interesting way of really acquiring, engaging with, and re-engaging potentially customers.

When you step back from traditional sales goals, you shake things up. Alexander:

Physical retail isn't necessarily devoted to sales anymore. And certainly metrics like sales per square foot are not the guiding light for most brands.

Classic retail - but with new tech and metrics

Now we're headlong into new store concepts: go for "experiences" first, earn customer data through trust, and sales will follow. Alexander:

The much more elusive question and problem at hand is: how to make this a really compelling experience to the consumer and to brands alike, to make sure it can be profitable. And so that's where we are trying to stake our claim.

The format for that in our opinion is that it can be driven by very progressive economics, very thoughtful technology, capturing a huge amount of data, thinking about new metrics, but at the end of the day it should be driven by and really known for a real traditional merchant perceptive, and saying "no" far more than saying "yes" - and focusing on really perennial ideas of customer service and experience. So we are in many respects the most traditional possible version of retailer. We just happen to run on much different technology and metrics than would be typical.

That means making each Neighborhood Goods space unique. There are 60 brands featured in Plano, compared to 43 brands in Chelsea Market, but in a third of the space. There are brands you wouldn't expect to see, such as the Dollar Shave Club, which has a few shelves in the wellness section (in Plano, Dollar Shave Club's first-ever retail space, they have 500 square feet, and a full bathroom).

This approach provides digitally-native brands with visibility in front of new audiences. Alexander:

A lot of these brands would want to be in the Dallas-Fort Worth area, tends to be in the top ten markets for most brands, but they wouldn't be able to afford it. So in terms of our responsibility and possibility with the brands we work with, if we can be that aggregator and we can bring them and become a necessary discovery and delivery mechanism in these areas they would otherwise not have access, it's very powerful.

A similar dynamic is in play here, given the notoriously prohibitive storefront costs in the meatpacking district of New York City:

[This area] is dense with the sort of ideal consumer for a lot of these brands... You also have a huge amount of tourists coming through, and great sort of adjacencies to a lot of other brands.

Turning store employees into experience creators

Then Alexander said something I would not have expected a retail CEO to say:

I think for us, the core recognition and belief on our part is that people gravitate much more towards some degree of vulnerability and opinion and perspective and some degree of humanity. And so where we can go in and express that - and be at our best - is where we want to focus.

Neighborhood Goods demo

Whether that outlook is good for the retail business I don't know - but it resonates with me. What I do know is that the store associates on hand that night were exceptionally enthusiastic and on point.

One Neighborhood Goods team member gave my PR contact Elana Ferrari an expert hand cream demonstration (pictured left - I opted out of that one).

My stereotype of the department store is the miserable employee, one that feels exploited by circumstance. The Neighborhood Goods employees I met that night definitely didn't feel that way. So during the Q/A session, I asked Alexander about his approach to employees. Obviously, to make this approach work, his employees need to be more knowledgeable and engaging than the norm. Alexander responded:

hand cream demo

What's always been important to me is that we can pay more than typical upfront... In Plano, if you go one employee to the next, and you ask them their job title, they'll all give you a different answer. I love that. There's a real sense of ownership and belonging.

Employees aren't graded in a typical sales volume manner at Neighborhood Goods. Alexander says that frees them up:

If you can foster that memorable moment, that creates something really special. That's a very traditional retail idea, where you tell your friends about it, and that creates a knock on effect.

My take

As of our visit, Neighborhood Goods was still adding to their launch. Soon, their restaurant area will go public. That means you'll be able to enter the front part of the store at 7am. Commuters can swing by the pop-up grocers in the front part of the store, and eat or meet.

At 10am, the rest of the store opens, opening up areas for brands ranging from Homesick to TASCHEN to The Daily Edited to Good Juju Ink. Home furnishings blend in with private label t-shirts and hats, which have proven popular. There is even a small greenhouse. Sprinkled in, there are comfy chairs and places to relax (I liked the gourmet dog supplies section).

In the future, I hope to talk to Alexander further on the new metrics he measures his stores' success against, as well as the rethink they've given to employee grading. The need for new retail metrics was a standout topic for me at last year's show (NRF to retailers, and Wall Street - we need better metrics to assess retail health); the issue isn't going away.

For now, I found Alexander's view of winning customers on the ground compelling. Giving digital brands a much better option than billboards and ad spam looks like a winner to me - time will tell.