Why activewear brands like Nike, Adidas and Lululemon are embracing experiential retailing

The competitive activewear market is about to get a lot more crowded. According to Recode, e-commerce giant Amazon is preparing to launch its own activewear private label brands. If the rumor is true, Amazon will challenge industry leaders like Nike, Lululemon and Under Armour in the $44-billion active apparel market.

Amazon’s interest in activewear shouldn’t come as a surprise given the massive growth of this space. Sales in athletic apparel rose 12 percent in 2016, according to the market research firm NPD, as more consumers wear their workout clothes outside the gym. That figure dwarfs non-active apparel sales, which declined two percent last year. Millennials, in particular, have been driving sales in the so-called “athleisure” revolution.

But as the market grows, so does the competition. Everyone from Walmart to H&M, from Kate Hudson to Beyoncé, has recently launched athleisure products. As a result, the average selling price of activewear apparel dropped by nine percent in the first quarter of 2016.

Average selling price of athleisure productsPhoto: Bloomberg

Aware of the increasing competition and decreasing margins, some activewear retailers are looking for new ways to stand out. These retailers are embracing more immersive strategies, bringing unconventional experiences into physical retail.

Here’s a look at the different tactics retailers are experimenting with—and why consumer insight needs to be part of the mix as companies try new ways of reinvigorating sales.

The rise of experiential retailing

Innovation in offline retailing is emerging as one of the top trends in business today. Companies are focusing on experiential retailing, opening concept stores that allow customers to test products, interact with associates and experience the brand.

Lululemon, for instance, recently opened HUB Seventeen in Manhattan, a community-gathering space where shoppers can take yoga classes or enjoy art and music. Nike’s SoHo store in Manhattan features a half-basketball court, a soccer trial zone and “smart” treadmills that capture people’s running stats. In a similar move, Adidas opened a four-level, “stadium retail concept” store in Manhattan that features a personal fitness consultation area, a customization section and locker room-style changing rooms.

So why the focus on offline experiential retailing? One answer is to fend off new entrants like Amazon. As more competitors enter the market, athleisure products become more of a commodity. Providing unique in-store experiences could help activewear labels better differentiate their brands. These tactics also create buzz, which helps attract people at the door and boost short-term sales.

Providing unique in-store experiences could help activewear labels better differentiate their brands.

But there is a bigger, more compelling motivation for these expensive offline retail investments: customer loyalty. Studies show that clothing brands haven’t historically done a good job of creating a lasting emotional connection with consumers. Sixty-nine percent of consumers don’t have any emotional connection to any clothing brand, according to Cotton Incorporated, and compared to the previous year, 47 percent feel less loyal to brands.

Sixty-nine percent of consumers don’t have any emotional connection to any clothing brand.

“Locations are extremely important because they’re the touch point in the real world,” James Dion, founder and president of the retail consulting firm Dionco Inc, tells Sourcing Journal. “As good as digital is, the bond really gets cemented in the physical world.”

Using customer intelligence to improve the in-store experience

No matter how innovative offline retail tactics may seem, ROI is hardly guaranteed. After all, foot traffic in brick-and-mortar stores is still on a free fall, dropping by 3.9 percent during the 2016 holiday season compared to the previous year.

To see significant ROI from experiential retailing, retailers must first develop a deep understanding of the consumers they want to reach. That’s because 48 percent of consumers are more loyal to brands that share their personal interests. Unfortunately, the way companies gather consumer insight today often fail to provide a complete picture. Many retailers rely on data from their CRM systems, loyalty programs and social media analytics to make decisions about the shopping experience. These channels don’t provide sufficient insight because they only capture what customers have done in the past but don’t reveal why people do what they do.

The way companies gather consumer insight today often fail to provide a complete picture.

To improve customer experience and get more from experiential retailing, companies need to understand the lifestyle, preferences and motivations of their customers. That type of insight comes from developing authentic customer relationships in the long term. It comes not just from looking at transactional data. Retailers need to engage directly and regularly with customers to get honest feedback and use that input to make smart decisions about the end-to-end customer journey.

Final thoughts on experiential retailing

Consumer demand for yoga pants pushed the activewear market to the mainstream, but creative tactics aren’t enough to drive further growth. Efforts in experiential retailing should be informed by deep customer intelligence. Developing experiences that reflect the true needs and motivations of customers is key to thriving in the lucrative but increasingly competitive athleisure market.

To learn more about improving the end-to-end customer journey, download The Enterprise Guide to Customer Experience.