Last year Next chief executive Lord Wolfson highlighted shoppers were opting to spend money on experiences such as restaurants or cinema visits, rather than products.
His observation was accurate as figures from Visa show that spending at hotels, restaurants, bars and pubs soared by 6.9% in 2016, with recreation and culture spend jumping 6.5%.
This growth dwarfs that across products such as food and drink, household goods, clothing and footwear.
Retail and the experience economy
The ‘experience economy’ is well underway as shoppers have moved away from purely buying products to doing things.
This trend looks set to continue as millennials shun possessions in favour of a sharing economy, which involves renting consumer products.
More than half of UK millennials said they would rather spend their money on an experience rather than a possession, according to the UK Millennials Report, published by marketing agency Inkling.
These shoppers are set to put their money where their mouths are, with 62% planning to increase their expenditure on experiences over the next year.
Richard Talks Retail analyst Richard Hyman believes this shift to experiential spending is hitting some sectors more than others, with fashion particularly impacted.
“Fashion retailers are aiding and abetting this move by devaluing their product offers. They are constantly on sale and encouraging shoppers to buy on price,” he says.
However, other sectors have been impacted.
Sainsbury’s chief executive Mike Coupe said shoppers were opting to spend their disposable income outside traditional retail – on holidays and new cars – when he unveiled the grocers’ profit and sales fall in its last financial results.
Bringing recreation and leisure into stores
Some retailers have tried to bring recreation and leisure activities in store to try and capitalise on the experience economy.
Leisure concessions including nail bars, hair salons and even spas – from Urban Retreat at Harrods, Cowshed at Selfridges and Beyond Medispa in Harvey Nichols’ stores – help entice shoppers in store and provide an opportunity for cross-selling, particularly in health and beauty.
Fashion retailer Oasis launched a Prosecco bar, café and hairdresser in its Tottenham Court Road store in London.
The café, which is run in partnership with Shoreditch-based bar The Jones Family Project, offers breakfast, lunch and dinner plus alcohol in the evening, and customers can sit on the mezzanine level or outside on a ground floor terrace.
In-store dining
Food has been a big expansion area over recent years, particularly for department stores.
John Lewis has introduced Italian restaurant Rossopomodoro and juice bar Joe & The Juice into more than 10 stores, and Debenhams has converted lower sales density areas into better performing eateries such as Costa and Ed’s Easy Diner.
Shoppers who stay to eat are also likely to make additional purchases.
“This will be a defining year for retail and I expect a huge shake out”
Richard Hyman, Richard Talks Retail
Debenhams’ former chief executive Michael Sharp told Retail Week last year that customers eating at its stores spend 40% more.
It is not just department stores that are adding dining experiences to their stores.
Ikea launched a pop-up café and restaurant in Shoreditch, and has added wine bars to seven of its stores along with a food menu based on its delicatessen and bakery offer.
Despite such initiatives, Hyman believes that retail looks likely to lose the battle for spend in the year ahead.
“There’s no magic answers,” he says. “This will be a defining year for retail and I expect a huge shake out.
“Retailers need to focus on understanding their customers and giving them what they want, rather than cutting costs, if they are to win spend.”
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