Envirosell’s The Science of Shopping Conference: Paco Underhill Presentation

josh hunter

• March 13 2009
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On March 9–11 some of the world’s leading minds in the field of retail research met in Los Angeles for the 2009 Envirosell Science Of Shopping Conference. The conference was started by environmental psychologist, best-selling author, and Envirosell Founder Paco Underhill to further explore how social change impacts retail, as well as offer attendees insight into global retail marketplace trends. Some of you may remember Paco from his presentation at SIMA Surf Summit 10 in 2007, or perhaps read his bestselling book, Why We Buy: The Science Of Shopping.

After meeting Paco at Surf Summit two years ago and reading his books I became increasingly interested in his application of environmental psychology theories on retail environments, and kept in touch with him through occasional emails. Earlier in the year, Paco and the crew at Envirosell invited me to attend this year’s Science Of Shopping Conference, which I of course took them up on.

To say Underhill is engaging during his presentations is an understatement.

There were 100 executives attending the event this year from a miscellany of retail segments. The dais ranged from grocery tycoon Dan Bane (CEO of Trader Joe’s) to Richard Marcus (the last member of the founding family to run the Neiman-Marcus Group).

In order to try and publish as much information from the conference as possible, I’m going to break it up into three posts. In this first installment I’ll focus on Paco Underhill’s presentation on the future of retail. Monday I’ll share my impressions from a retail tour of Century City Plaza with a group from the conference, and on Tuesday I’ll recap an informative presentation from WSL Strategic Retail CEO Wendy Liebmann on how America shops in a crisis.

Part 1: Paco Underhill Presentation

Paco Underhill has a cult following of über elite retail executives. After you hear him speak it’s easy to figure out why. Every year, Underhill’s company, Envirosell, documents and analyzes more than 70,000 hours of video footage from retail locations around the world. By systematically watching how thousands of people react to certain environmental factors within a retail space, there isn’t much that Underhill’s staff can’t conclude about what is working to drive sales and what is detrimental to sales. They conduct all sorts of research about the people they video and come up with some amazing conclusions.

Paco Underhill (second from right) discusses is presentation with colleagues from Envirosell’s global offices.

Envirosell clients pay top dollar to capitalize on this data. Whether it’s a watching how people react to signage, PoP, and promotions or testing new applications of technology in retail stores, Underhill has become a guru of sorts in his field.

According to Underhill, the way people shop will change more in the next five years than it has changed in the past 100. “The era of conspicuous consumption is over,” he says. “It’s just bad manners.”

Underhill believes that global economic factors, innovations in technology, and a dramatic increase in vacant retail space in the US are creating a paradigm shift in shopping behaviors, and that the world is entering a new era of consumer behavior.

““It isn’t just the middle class that is feeling the affects of downward mobility; it’s everybody,” Underhill says of the current economic climate. “There’s a reason why the über discounter is flourishing. There are people pulling into the parking lots of discount outlets that would have never been caught dead there five years ago … We are celebrating not how much we spend for things, but how little we spend for things.”

Underhill says mobile technology (such as the iPhone) has given the consumer more bargaining power than ever; at a time when the consumer is more price conscious than ever. “The concept of walking through a consumer electronics store with a Web enabled phone, being able to compare pricing right there in the aisle is a fundamental shift in the paradigm of how we relate to the art of consumption,” he explains. “Our access to information and ability to process has given us tools that we’ve never had before.”

The shift has already started. According to a study conducted by WSL Strategic Retail, 14 percent of global consumers are making purchases with mobile devices. This is impacting brick and mortar stores at an alarming rate.

“By May of this year we will see twenty to thirty percent total retail vacancies,” he says. “In some malls now the vacancy rate is approaching 50 percent. In some city’s—like the edges of Las Vegas—at strip malls the vacancy rate is 60 percent. Is it scary? Yes. We are over stored.”

So, what’s going to happen to all of that vacant real estate? Underhill believes that chain stores will get smaller, stores will be forced to find new, smaller-footprint formats in order to survive, and chains from overseas will begin to enter the US market.

“Chains are going to have to get smaller,” says Underhill. “The fundamental issue is that here in the US chains have been answerable to share holders rather than customers. If we look at most US chains, 30 percent make money, 50 percent hold their own, and the rest are a drag on the chain as a whole.”

From his extensive travel, he says that the cutting edge of retail exists outside the US. He uses Ill Store in Tokyo’s Harajuku district as an example of a retail outlet that has a small physical storefront, but successfully draws customers up off the street. “In Harajuku you can go up to a fifth story location, buy a pair of distressed jeans, and pay under twenty bucks for it—and it looks better than what you can buy at Diesel for twenty-times the price.”

Underhill says US retails will also eventually have to learn better strategies to move customers up and down via escalators, elevators, et cetera, as well as incorporate new store formats and services to remain relevant.

Another interesting topic in the presentation was the rise of new secondary markets. “Used is cool,” he says. “It isn’t just the flea market, it isn’t just Ebay. We have a new category of retail, which is right on the cusp of busting out. Goodwill industries is morphing into a vintage clothing store. Goodwill is now doing almost two billion dollars a year in sales!

“The vintage clothing store, the used car dealer, and the urban flea market have all taken on a completely different ethos,” Underhill continues. “It’s almost as if underneath the radar screen there are new channels of distribution happening. Do you know what the irony is? If you look at the used clothing market, they buy that stuff by the kilo. They clean it, separate it, put some nice music on, and the margin is even more obscene than the luxury clothing businesses across the street at Century City Plaza.”

One of the most interesting trends discussed at the conference was the emergence of retailer chains from oversea in North America. Stores with quick turns and ultra fast replenishment cycles are going to pose a serious threat to slower American retail outlets.

“With a whole lot of vacant space available at a discounted price, we may actually begin to see some offshore chains make some moves to come to the US.  We may see some of the powerhouses in retail that have avoided the US market come here and give The Gap and Abercrombie & Fitch a run for their money,” he says. “The typical Zara outside the US turns thirteen times a year, and the replenishment cycle for some of the key merchandise is under two weeks!”

Underhill’s Suggestions On What Can Retailers Should be Doing?

-Revisit Format

-Recognize Value, Significance, and Value

-Don’t Get Lost In Technology

-Make Financial Offering Consistent With Location/ Customer

-Be Careful To Cater To Local Tastes

Stay Tuned To Transworld Business For More Coverage Of The Science Of Shopping Conference.