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McKinsey makes foray into retail by selling underwear at Mall of America

Retailers expected to shutter 12,000 stores
  • The Fortune 500 management consultants at McKinsey & Co. are opening a store at the Mall of America this week that sells everything from women's underwear to jewelry to deodorant.
  • McKinsey says it will gain consumer insights so it can advise corporate retail clients on what technologies to invest in.
  • The move comes as thousands of brick-and-mortar stores close due to soaring rents, rising labor costs and online competition.

Rising rents, increasing labor costs and shrinking foot traffic have resulted in thousands of stores around the U.S. closing their doors this year, threatening the future of brick-and-mortar retail as many of us know it. 

But McKinsey & Co. — known as the management consultancy of choice for the Fortune 500 crowd — is bullish on physical retail stores, so long as they evolve in tandem with consumer tastes. In a sign of that faith, the firm will start selling women's underwear, jewelry, deodorant and other products to better advise their retail industry clients. 

McKinsey on Friday plans to open its first brick-and-mortar concept store, called Modern Retail Collective, at Minnesota's Mall of America, the nation's largest shopping complex.

ThirdLove, a women's underwear company, will be among the brands whose wares McKinsey will showcase for the first phase of its experiment, which aims to collect data about how consumers move through stores and decide what to buy. The partnership also will test a slew of new technologies that could enhance customers' in-store experience and, in turn, drive sales and profits for retailers. 

Retailers expected to shutter 12,000 stores this year

Certainly, many stores could use the help. More than 8,000 stores have closed so far this year, and up to 4,000 more are expected to shut down by December, according to Coresight Research.  

 "Insights from understanding this complicated technical landscape and what customer experiences work are immensely valuable to us and our clients," said Tiffany Burns, a partner at McKinsey. "If you magnify that globally for all retailers across grocery, drug, apparel and convenience, being able to apply this in a fact-based, proven way will drive billions of dollars of impact over time and change the way that retailers operate." 

Consumers increasingly expect experiences that marry traditional and digital shopping experiences: They want to be able to see and feel product, as well as have easy access to technology. McKinsey will test innovations such as so-called smart mirrors that visually suggest sartorial combinations and allow shoppers to compare outfits. Fit-determination software allows shoppers to virtually try on clothing outside the fitting room. The McKinsey store will also accept cryptocurrency as a method of payment. 

"On the revenue side, there is a lot of pressure around making the store experience that's something exciting, that customers feel like it's worthwhile to come into," Burns said. "If all you have is product there, but not any excitement in the in-store journey, retailers are just challenged getting people to come in."

Other changes could include labor reductions, which would help reduce costs, although eliminating staff is not a top priority, she said.

The Mall of America will spot the rent as part of the project, and retailers will take home all revenue from in-store sales. This marks the largest investment in retail strategy to date for McKinsey, which says it has deployed roughly a dozen experts and a full-time team to run the immersive experience from start to finish. 

Could this experimental Texas store be the future of brick-and-mortar retail?

"We have the perspective that stores are here to stay, and there is a lot of opportunity to improve how they perform," Burns said.  "And we see our clients navigating all the change and trying to understand what they can really do to improve the performance, which technology is valid, what will customers accept and like, and everyone is 'throwing things at it.' "

The 4.2 million-square-foot Mall of America, with 520 stores, also recognizes the challenges traditional retailers face today and said the collective allows brands to experiment with ways to reach customers in a low-risk, flexible environment. Mall vacancies, meanwhile, are at a near-record high.

The famously data-driven McKinsey will of course be tracking shoppers' movements along the way. 

"The thing we get excited about is all the data and facts and analysis — as you walk through the store, we will be tracking everything customers do at every point of interaction they have in-store," Burns said. Among the information McKinsey will collect is what purchases consumers make in the store, as well as what they buy online later on.  

While Burns is optimistic about the future of brick-and-mortar retail, another analyst is less sure physical stores will survive the sea-change underway in how people shop. 

"Not so sure it will make a difference to retail brands, since there Is little to nothing individual brands can to do reverse the tide," said retail business strategist Kate Newlin.

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