• Watch "Behind the Headlines" to hear Weekly journalists discuss the changes in retail.
When Tim Woods and Adams Holland opened Timothy Adams Chocolates at 539 Bryant St. three years ago, the Palo Alto chocolatiers envisioned their shop in a more or less traditional way: a storefront selling quality chocolates, with customers sipping hot chocolate and wine in an attractive setting.
But after one year of doing business, facing the same challenges as other retailers in the age of e-commerce, they upped their game, with surprising results. The chocolate-making classes and chocolate tastings they added have boosted revenue by 35 percent.
Business is so good that the city of San Jose, which is looking to improve its retail selection at Mineta San Jose International Airport, approached Woods and Holland to open a shop there, Woods said. The new store will open next spring.
On a whiteboard in his Palo Alto store's food-preparation area, Woods recently pointed to a full schedule of classes and events: 24 participants on Tuesday; 35 Wednesday afternoon and 15 in the evening; and a chocolate tasting at a Stanford University banquet for 55 people later in the week, just for starters.
Timothy Adams Chocolates is but one example of how brick-and-mortar businesses are getting smarter so that they not only survive but thrive amidst the upheaval of the retail sector. The store isn't waiting for customers to cross its threshold: It offers online ordering, shipping and catering, as well as tastings at parties, businesses, baby showers and the like.
"The new retail requires an intense personal involvement by the store's stakeholders," Woods said. "And personal interaction — you don't get that online."
The internet is the most-cited culprit for the turbulence in the traditional retail sector. E-retail accounted for 8.9 percent of total retail sales during the second quarter of 2017, according to data released on Aug. 17 by the U.S. Census Bureau Department of Commerce. That may not sound like much, but online retail sales are growing at a rate nearly five times the rate of brick-and-mortar stores' sales, a 2014 International Council of Shopping Centers report states.
E-retail has offered people entirely new shopping options, among them rapid and convenient delivery, the opportunity to compare prices from home and the possibility of finding exactly what one wants.
Even when people shop at brick-and-mortar stores, a 2016 Deloitte report found, they are increasingly using handheld devices before, during and after a purchase. About 55 percent of millennials use a digital device during a shopping trip, and 44 percent of older generations do so also.
"Retail as it stands today is a different business to be in. The (retail) community as a whole has to understand that and get creative," said Russ Cohen, executive director of the Palo Alto Downtown Business and Professional Association.
The buzzword these days, Cohen said, is "omnichannel" retail: digital sales and marketing, targeted and personalized service, creating and understanding customer profiles, gathering email addresses, understanding how much customers spend and how long they stay in the store, and devising ways to get them in the door through fashion shows, tastings, events, discounts and other enticements.
"You can't only sell through brick and mortar. The days of retail brick-and-mortar and show rooms are over. There has to be some draw. It's a very different direction. One among many is 'retailtainment' — create an exceptional and unique experience," he said.
From large to small, local retailers are starting to capture that walk-in market in ways that online businesses can't. Though bookstores have been particularly hard hit, local ones like Kepler's Books in Menlo Park have undergone a transformation to keep up with the times.
Thanks to loyal customers who rallied after the bookstore suddenly closed its doors on Aug. 31, 2005, the store launched a paid-membership "literary circle" to provide added income and renegotiated its lease.
When owner Clark Kepler retired in 2011, a transition team convened to turn the bookstore into a hybrid business that includes a for-profit, community-supported bookstore — which today occupies half of the space of the old store — and a nonprofit organization with educational and cultural programming and community partnerships. The two entities are legally separate but work cooperatively, according to the bookstore's website.
Cohen said "experiential" retail predominates the new business model.
He cited the Apple store as one of the earliest examples of experiential retail. It offers a hands-on, out-of-the-box experience and services such as its Genius Bar to bring in shoppers and keep them returning. A knowledgeable staff provides a service that can't be found online, noted Cohen, who worked on Apple advertising campaigns in the late 1980s and 1990s.
"They set the standard by having Apple World. It's not there anymore, but it hyped the crowd and invited peripheral products. Now there's no need to showcase at an Apple World. It's in the store," he said.
Other stores in Palo Alto have staked themselves well outside of the 20th-century retail model. One is capitalizing on the saving grace for traditional retailers: 73 percent of consumers want to try or touch merchandise before they make a purchase, and they spend an average of 54 minutes in a store compared to 38 minutes on a single retail website, a recent International Council of Shopping Centers survey found.
At b8ta, located at 516 Bryant St., the company's philosophy is painted on a wall: "Retail isn't dead. It just needed a revival."
Instead of stacks of cardboard boxes containing products, long tables feature iPad stations, each with a sample product beside it.
There are high-tech skateboards; an easily operated camera drone; walkie talkies the size and weight of a large button that work off cellular service and a smartphone app; virtual-reality goggles; enhancements for cellphones; and smart pens that can instantly transcribe notes into Word documents or add graphics.
Each of the 80 or so sleek stations allows the shopper to access product information, videos and other presentations. If it looks interesting, the shopper can try the product out in the store, with staff explaining how it works. Some items are stocked in the store; others can be shipped to the purchaser's door in a couple of days, said Kevin Chu, a b8ta tester.
Unlike the classic retailer, b8ta doesn't make a profit from the products in its showroom; the store leases space to the product makers. Each iPad enables the maker to effortlessly change its sales campaign, price and other marketing tools as the iPad gathers information about shoppers' experiences: how long they linger at the station; whether they try the product or if they progress to a sale.
Once that sale is made, the maker gets 100 percent of the profit, co-founder Phillip Raub said. But the company is providing two services: It is offering a space where small product developers can showcase their wares, and the consumer gets first crack at products not easily found elsewhere, he said.
Since opening its flagship store in Palo Alto in 2015, b8ta has worked with 400 companies and launched more than 100 products into physical retail for the first time, Raub said.
"On average, customers interact with 36 items per visit and spend an average of 20 seconds of 'dwell time' per product, up from the industry standard of seven seconds," he said.
B8ta brings in about two new products a month to keep the offerings fresh, he added.
"The key difference is being able to connect with consumers and understand what they are looking for," he said. "It's about discovery."
B8ta has begun partnerships with some Lowe's Home Improvement stores: In Livermore, a 400-square-foot mini b8ta, called a "Smart Spot," is located near the front door.
"The store utilizes our experience to create that very tactile, high-touch experience. Lowe's has the relationship with the makers on sales; we just provide the space and services," he said.
Some bigger box retailers are also seeking ways to make shopping experiential. At Crate and Barrel, one can pick up a tablet and scan the merchandise and learn about the product, Cohen said.
"It solves the sales-force recruitment problem, and it gives the customer more of an immersive experience," he said.
In 2016, apparel, home and lifestyle retailer Urban Outfitters purchased award-winning Pizzeria Vetri to add to its stores as a way to improve the shopping experience. The move has reaped dividends. On Aug. 16, shares in Urban Outfitters' stock rose 17 percent on better-than-expected earnings.
While individual retailers try to figure out how to keep pace with consumers' desires, shopping malls and downtown districts are likewise seeking to offer the right mix of goods and experiences to bring in the crowds.
Josh Kalkhorst, general manager for Simon Property Group, which owns Stanford Shopping Center, said the mall attracts customers with nearly 20 restaurants and eateries — including Tender Greens, True Food Kitchen, Terrain Café, Go Fish Poke Bar and Fleming's Prime Steakhouse & Wine Bar — that provide an "elevated dining experience."
Stanford also uses events as draws, hosting the annual 10-week Summer Jazz concert series and seasonal holiday activities such as visits with the Easter Bunny and Santa Claus.
Stanford also offers philanthropic events, such as Dreams Happen, a biennial fundraiser featuring custom-made, life-sized luxury children's playhouses produced by teams of local and notable architects, designers and builders. The fantasy playhouses are auctioned, with the proceeds supporting Rebuilding Together Peninsula, a home-rehabilitation nonprofit.
Last year, Stanford added nearly 40 new retailers and upgraded the look of existing stores in a major construction effort.
"For example, Neiman Marcus finalized an interior renovation, Bloomingdale's relocated into a new, two-level, 120,000-square-foot store and Anthropologie opened a 32,000-square-foot multi-level flagship store and restaurant. We welcomed 22 new specialty stores and restaurants. ... Existing retailers glassybaby, Hugo Boss, J.Crew, Solstice, Tommy Bahama and Victoria's Secret reopened in newly designed spaces," he said in an email.
Stanford also expanded pedestrian areas and gathering places and a new open plaza with stores and amenities at the center's west end. It is also known for its gardens, sculptures and fountains.
Kalkhorst said these upgrades are necessary for malls to thrive.
"There has been an explosion in the luxury retail scene in the Bay Area. This is likely due to the growth of the tech industry and how the center's shoppers have evolved," he said.
Santana Row in San Jose, now 15 years old, is another regional center that continues to transform itself. It has a mix of retail and incorporates housing, offices and a hotel that support the retail.
The 42-acre site has 615 rental units, 219 condominiums and offices that provide a built-in customer base, said Collette Navarrette, marketing director for owners Federal Realty Investment Trust. Office workers fuel sales during the weekdays, during happy hours and when people get off work; local residents shop on weekends.
Office-building parking is open to the general public on weeknights and weekends.
Santana Row has a popular CineArts movie theater and a Wednesday French farmers market. The mall and individual retailers regularly offer events such as a kids' chess tournament, free yoga classes, fall fashion shows, a wine stroll and other enticements.
The Santana Row developers wanted to capitalize on the tech boom without building a cookie-cutter mall, said Jeff Kreshek, director of leasing for the West Coast for Federal Realty.
"When the development was conceived 17 years ago, it was ahead of its time. You had mixed-use in New York and Chicago, but you didn't have it much in California. In the past 10 years, and specifically in the last five, (Santana Row) has become one of the most important analogs for commercial mixed-use in the country. ... It's a little city," he said.
In the past six years the company has added two apartment buildings, two offices with ground-floor retail and 30,000 square feet of retail, Navarrette said.
"It's tempting to dump a whole bunch more retail on it, but we found that office demand is high," she said.
Kreshek said economic success is all about balance of the uses, which is key to any shopping mall.
"So many projects now are not thinking things through," he said. Instead of balance, they are merely expanding (retail), but that won't necessarily bring more customers."
Santana Row's retail mix of 90 stores, restaurants and other facilities includes stores that are familiar, stores that are unfamiliar and those with a broader reach, which get away from brands one would find everywhere, Navarrette said. The Row has familiar stores such as Sephora and Crate and Barrel, but it also is offering newer-concept stores, such as b8ta, which has signed a lease.
In the six years she's been there, Navarrette said, Santana Row's replaced a number of tenants that the company realized were out of sync with customers. The new stores they added to replace the underperformers are doing almost double the sales revenue.
Kreshek said another interesting trend in retail is that companies that previously sold only online — those responsible for the great shift away from brick-and-mortar retail — are entering the brick-and-mortar market. Online inexpensive eyewear company Warby Parker (which also has a store in Palo Alto) has opened a store there, and Amazon opened a bookstore in August. Each of these stores is tinkering with and re-jiggering the retail experience.
"There are all of these people who say that retail is dying. It's not dying. It's evolved," Kreshek said.
He thinks the predicted demise of brick-and-mortar retail is overblown. It's bad service and bad experiences that have driven people away, he said.
As a case in point, when his paper shredder at home died, he went to a major office-supply retailer. But the employee did not seem interested in helping him, and he would not accept a discount coupon because it had expired the day before. The manager also would not honor the coupon.
Kreshek put the shredder back.
"You guys don't get it," he recalled saying. He had made the effort to come to the store rather than purchase online. But "you took away my incentive."
And that is a cautionary tale for other retailers in today's market.
"If you don't get that as a retailer, you are in trouble," he said.
Navarrette agreed. So much retail is conditioned on one-time events, such as Black Friday, but those don't work anymore as economic boosters.
"We have to win a relationship with our customers every day. We need to have them come and have a cup of coffee and shop for five hours," she said.