Jan 17, 2018

The retail stores that don't care if you buy anything

Photo illustration: Axios Visuals

Two years ago, B8TA launched as a physical outlet for tech gadgets otherwise sold only online, but it's now being embraced by traditional chains. Its secret sauce: introducing consumers to new product concepts, and not necessarily selling them anything.

Quick take: CEO Vibhu Norby's approach makes B8TA look as much a media company as a retailer, something he sees as a long-term trend.

Norby doesn't earn a markup on what's sold at his shops, but rents shelf space to small tech companies that otherwise can't get their stuff stocked in any retail store. His outlets use software and cameras to track customer traffic, so gadget-makers can learn how they react to products.

  • Neither Norby nor the gadget-makers care whether you buy in or out of B8TA, even if you do so on Amazon. B8TA earns its rentals regardless, and the gadget-makers have a chance to get their products into customers' hands for a tryout.

Norby hatched the idea for B8TA — a creative spelling for "Beta" — while working for Nest Labs, the maker of Internet-enabled devices like thermostats and security cameras.

  • Nest, which was founded in 2010 by former Apple engineers, “was full of techie types who thought bricks-and-mortar retail was dead,” Norby tells Axios.
  • But he and his colleagues quickly learned that their faith in the omnipotence of e-commerce was unfounded. “Nest wasn’t Nest without physical retail,” he says.
  • “We used it as a way to get in front of the 95% of Americans who shop in physical stores. We used it as a place to teach customers about and get hands-on demonstration of products. And furthermore, it was the dominant sales channel, even for a hot tech company who had a massive team of engineers working on e-commerce.”

Getting physical in a virtual world: Norby’s newfound appreciation for physical retail didn’t mean that he was blind to how the industry had failed to change. He knew "there has been very little innovation of the retail storefront in forty years.”

  • So Norby and three other Nest colleagues set out to create a physical retail space that fit the needs of emerging brands, confident that there were enough of them with exciting, new products that customers would be dazzled.
  • The company opened five new locations in 2017, including Austin and New York City, and has raised $19.5 million in venture funding to date.

Big names took notice, with Netgear launching a co-branded store in San Jose, Ca., last fall, in part to show off its line of home-security devices, which recently grabbed Nest's top spot in that category.

  • Even the traditional retailer Lowe's, hoping to make its outlets more experiential, is partnering with B8TA to create 70 stores-within-stores where Lowe's can demonstrate smart home products.
  • Ruth Crowley, a Lowe's vice president, tells Axios that the hands-on experience is especially important for high-tech devices like connected appliances. "B8TA is a smart, upstart company with great relationships to the young tech providers," she said.

A synthesis of media and retail: Doug Stephens, CEO of Retail Prophet, says the B8TA model is an inevitable outgrowth of the maturation of e-commerce, in which we are all just a swipe of a smartphone—or an aside to Alexa—from buying something. “Media is no longer a means to attract customers to retail. Media is retail,” he says. “And the corollary to that is that physical retail is becoming a powerful form of media."

  • Amazon appears to agree, demonstrated by increasingly aggressive moves into physical retail, such as its takeover of Whole Foods and its own growing stable of temporary and permanent retail outlets.
  • China’s Alibaba also relies on this model. Much of Alibaba's online revenue comes from ad fees paid by sellers on its marketplaces, while it provides valuable intelligence on customer behavior and tastes. In recent months, Alibaba has been working to take this model offline, buying up traditional retailers and building out promotional pop-up shops for China's Singles Day.

The future of retail: Norby believes that while traditional retail will survive for those who need to buy everyday items on demand, most specialty retailers will eventually adopt his model. Ten years from now, he predicts that, in cities like Palo Alto, "20% to 30% of retail outlets will be filled by direct-to-consumer brands using it primarily for advertising."

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