Reinventing Retail, One Story at a Time

LISTEN

Unconventionals // Season 3 • Episode 2

A visit to Manhattan boutique, Story

Is it a store, an art gallery, or a magazine? According to founder Rachel Shechtman, Story is a little bit of all three. Based in the Chelsea neighborhood of Manhattan, Story is an unconventional boutique that reinvents itself every few weeks around a new theme, complete with new merchandise, brand partners, and in-store experiences. And while doing so, it’s reinventing the perceptions of what a brick-and-mortar shopping experience can be.

In this episode, host Mike O’Toole visits Story to chat with Rachel Shechtman. The two discuss the shortcomings of traditional retail, innovation within the category, and how brands are collaborating in new ways.

http://www.youtube.com/embed/92SRtQ9ml4k

You can also subscribe to The Unconventionals on iTunes and Stitcher. And be sure to join the conversation on Facebook and Twitter as well.

transcript
x

Speaker 1:
Next on PJA Radio's: The Unconventionals.

Rachel S.:
Look online. Look at what technology's enabled in the new models it's birthed. If you have all these different non-traditional business models which are successful, Kickstarter, Etsy, you know, in generating revenue and impressions, why the heck are retailers, a hundred years later, still saying sales per square foot. It's beyond archaic.

Mike O'Toole:
I'm Mike O'Toole and you're listening to The Unconventionals. When amazon can delivery pretty much any product, sometimes on the same day, and probably for less money than you'd find it elsewhere, what is the role of the store. This existential question is being asked by retailers all over the country, and many think of Circuit City of Borders or a thousand other chains that are dead or dying, don't have the answer. There's a remarkable experiment in retail happening at Story, a boutique in New York's Chelsea neighborhood. Story's success is a reminder why retail, when reinvented for how we like to experience brands today, has such a strong hold over us.


This week, our guest is Rachel Shechtman, Story's founder. Story's a deliberate mash up of retail, magazine, and gallery. Every six to eight weeks, the store is rebuilt from the ground up around a new narrative.


As we move into our third season of The Unconventionals, we're doing something a little different. Before we dive into our conversation, we'll spend a few minutes framing up the prevailing wisdom that our guest is up ending. I talked to David Rogers of Columbia Business School. David is director of the Center for Global Brand Leadership and he speaks and writes extensively on the topic of disrupted business models.


I'm here with David Rogers. How are you, David?

David Rogers:
Glad to be back Mike. Very good. Thanks.

Mike O'Toole:
Today, we're going to dive into the retail market and I'm talking to Rachel Shechtman at Story, the retailer based in Chelsea.

David Rogers:
Great business. Very, very innovative model.

Mike O'Toole:
It's a lot of fun to talk to her. If you're an ambitious person like Rachel, you've got a great idea for a retail model, what's the path there? What do the experts tell you you should look for?

David Rogers:
The traditional path, if you would, for building a great retail brand would be primarily three things. One, you want to get scale. You've got to grow your size so you get visibility in the market place to consumers, but also so you can gain some leverage in dealing with the product brands. It's very important to succeed in the business.

Mike O'Toole:
Like Walmart.

David Rogers:
Exactly. Walmarts. At the ultimate end of that. They have great power in the marketplace, but also if you are a buyer at a high-end of luxury. You're at Barney's or something. You want to be in a position where you can get access to the most exclusive products, so at that end of the market as well.


Second thing would be ... You've really got to create a unique experience. Really, the idea is how do you standardize that? Think of Starbucks. That consistent experience all around the world. Or McDonald's.


The third thing is, of course, you've got to ... To make any of this happen, you're going to have to attract investors, probably early on. You're looking at key metrics like revenue per square foot ... Is sort of a important metric within that industry of retail.

Mike O'Toole:
Rachel and Story, I don't know that they do any of those three things.

David Rogers:
No.

Mike O'Toole:
Very different from that. Really departed from some of that advice.

David Rogers:
Yeah. That's true and that's really what makes Story such an interesting business. Really, in a sense, she's sort of mashing up a retail model with a media model. It's very driven by the idea of narratives, which has become very important in a lot of areas of business today. That hybrid approach, that very unconventional business model, if you will, is what allows her to really sort of reinvent the economics of what makes a business a retail space business sustainable and vibrant. It gives her a clout that allows her to reach out to some really impressive partners and brands in a way that a traditional retailer really wouldn't be able to.

Mike O'Toole:
Rachel's connection to retail goes back three generations, and she has a deep professional background in retail herself. She's consulted with some big brands. JC Penny, the Gap, Kraft, and some notable new brands like TOMS Shoes and the Gilt Group. All of this is giving her first hand knowledge of the short comings in traditional retail. She's also had a ring side seat to innovation in the category. One thing that's excited her is how brands are starting to partner in new ways, like Starbucks showing up in Barnes and Noble. They're totally new kinds of collaboration, which suggest that it might be a fertile time for experimenting.


We talked to Rachel in Chelsea in the middle of her busy store on the first day of her newest narrative, A Cool Story, launched just in time for summer.

Rachel S.:
One thing I said years ago, and the other day I was walking down Fifth Avenue and I stopped dead in my tracks with excitement by the Uniqlo Store and they had a Starbucks sign on their door. The reason I was so excited is because ten years ago I said, "You're going to be going into retail stores and Banana Republic could have a coffee shop and another store could have a nail salon and the reason for going into stores is going to evolve and shift, and it's going to vary by brand in the same way merchandise varies by brand," and look at today. We have Duane Reade drug stores. Ones in Brooklyn have Growler Bars, Duane Reade and the financial district has a sushi bar. Uptown, there's nail salons in the Duane Reade. You have Starbucks at Uniqlo on Fifth Avenue.


I just think that we all only need so much stuff. The same stuff is available other places. You can do one of two things. You can sit there and squawk and "Woe is me. We're not generating enough sales. We're being used as show-rooming for other brands," or you can sit there and say, "Hey. Are there other ways we could create customer loyalty and simultaneously generate revenue in a different way?" What drives me crazy is ... Look online or look at what technology's enabled in the new models it's birthed. You look at Warby Parker or you look at Birch Box creating subscription retailing or Quirky doing crowd sourcing of invention. If you have all these different non-traditional business models, which are successful, Kickstarter, Etsy, in generating revenue and impressions, why the heck are retailers, a hundred years later, still saying sales per square foot. It's beyond archaic.

Mike O'Toole:
It's hard for brands to get along sometimes, isn't it? I think if you're an established brand you like to be in control. You've done a lot in that area with Story. You've gotten big brands to come in and collaborate on stories. How do you do that? How do you get a Quirky ... Maybe Quirky's not such a big brand, but you've had GE and you've had Benjamin Moore. How does that work? How do you, as a one shop retailer, how do you call up GE and say, "Do you want to work together?"

Rachel S.:
Other than my personal passion for cold calling, I think ... I guess the short answer is ... It's like dating. Sometimes it's a match and sometimes it isn't. What we're doing is different. I entered this with the hypothesis that retail's an untapped media channel. If people are investing in outdoor advertising, in TV, in print, and you look at the numbers. Not necessarily in our one shop on 10th Avenue and 19th, but you look at a Gap or Abercrombie and Fitch, and the amount of people going in those stores on a daily basis, multiply it by and 30 day traditional media cycle, the amount of time and impressions trumps many of those others.


I'm not proselytizing that it's either or, I'm just saying that it should be an addition too. Success to me is two years from now a big media buying company has retail media as a line item. What Beth Comstock at GE has done, she's always two steps ahead of everyone else. The agencies she chooses to use, how she markets. They were talking about the maker movement and making 3D printing and injection molding accessible to the everyday consumer before it was a thing, so to speak, in the zeitgeist. The other thing I would say is, again, we think about online impressions driving offline behavior, but why can't you use offline behavior to drive online impression.


An average store, you got 50 to 100 million digital impressions, ranging from social to [earn 00:09:02] media. You're getting the impressions, you just have a different point of entry.

Mike O'Toole:
Of course, offline impressions do drive online behavior, which is a big problem for retailers. Show-rooming, where you find the product in the physical store and get it cheaper on Amazon or somewhere else online, is an enormous drain on value for physical retailers. Story is trying to shake up that equation. Rachel creates novel experiences, often with global brands, that can't be show-roomed. You have to be in-store to be a part of them. These experiences get a lot of attention. They are new and they're super engaging. You could come in for a shave during the Gillette sponsored His Story. They're also perishable like an art show at a gallery.


The brands really value the attention. They're used to paying for impressions through advertising. They'll also pay for the ability to experiment at the store level. Now, Rachel mentioned Beth Comstock in Ge. I think getting into the GE story collaboration will help reveal the power of these partnerships.

Rachel S.:
It's one of my favorite stories because of what it ended up producing at the end which is ... What they had sponsored was are Making Thing's Story. It was a year and a half ago. It was all about democratizing access to making things. We had eight maker bought 3D printers, we had an injection molding machine, a laser cutter, and a [CNC Mill 00:10:25]. 75% of the store was pure experience. You could come in and make something. You didn't have to pay, you didn't have to sign up and give your email. You could just make things. They were very open about it. Their name and logo was on the wall but at the end of the day, this isn't just about paying to smack your logo on our wall. What I mean by that, the deliverable for each corporate partner is also different and a lot of people don't know that. A lot of people are like, "Oh. They're sponsoring a store on 10th Avenue", but Pepsi used us for market research in R&D, whereas Amex used us as content acquisition for Small Business Saturday. GE was about democratizing this conversation around making things. That's a perfect example about what I was talking about back to the comparison with traditional retail. We weren't sitting there saying, "How are we going to monetize it?" It was really as it relates to sales per square foot.


We stopped and we thought to tell the best story about making things that should be about experience per square foot, because what's the point of making things if you can't make them. Then you just account for the revenue in different ways. The other thing is they're not just a logo on the wall because they are a subject matter expert. GE knows a hell of a lot more about advanced manufacturing than Rachel Shechtman or Story does.


One of my favorite, favorite stories is we have a neighbor across the street by the name of Arthur Randall. I met him two months after the GE Story. He came in and he wanted to introduce himself to me and he said, "I love what you do. I came in during your Making Things Story and I had never seen a 3D printer before. I didn't know what one was. I'm a graphic designer but I never thought about my design as three dimensional, so I played around with the machine a bit and I made a product and I want to show you to see what you think of it and if you think I should do anything with it." He showed me this product called [Scottie 00:12:11]. It's a doorstop and a bookend. I said it was great and that we'd sell it, but you're talking about a gentlemen who lives across the street, who makes his money as a graphic designer, who now has a company because GE, this Fortune 100 company created this experience.


I'm not saying we have the scale of a Kickstarter. Of course we don't. What I am saying is these are very meaningful data points. If you look at ourselves as a lab where you can get some very fast reads on this new frontier of physical community and experience, I think it's really exciting.

Mike O'Toole:
When we come back, we'll continue our conversation with Rachel Shechtman of Story. We'll also check back in with David Rogers to hear his thoughts about what makes Story such an interesting model.

Speaker 1:
You're listening to PJA Radio's: The Unconventionals. If you'd like to learn more about this show or join in on the conversation, check out our Facebook page. Facebook.com/unconventionalsradio. Our academic sponsor for the Unconventionals is a Center on Global Brand Leadership at Columbia Business School, which turns the research of academia's foremost thinkers on branding into practical tools and insight for real world application.


for more information, visit Globalbrands.org.

Mike O'Toole:
Welcome back. We're talking to Rachel Shechtman, founder of Story, the Chelsea store that reinvents itself every six to eight weeks around a new theme, complete with new merchandise, new brand partners, and new in-store experiences. We talked with Rachel about the Making Things Story that she created with GE.


Story can be hard to define. Whenever I called it a retailer Rachel would take exception. She believes the store is as much a magazine as it is a retailer, and it is in the intersection between these models. That story becomes really interesting.


You had said during that Story you had, maybe 70% of the floor is experience, so how do you get paid for that? I know revenue per square foot is the measure and this can't be cheap [crosstalk 00:14:51]. You had to make that space work hard so you're not selling as much stuff, I imagine, if 70% of it is experience. How do you make that work from a revenue ...

Rachel S.:
We sell sponsorship, so like advertising. Whether it's GE or Quirky or Pepsi, sponsorship ranges from $75,000 to $300,000.

Mike O'Toole:
You're able to get them to do that, even though you're a one store retailer, and that's about experiences and ...

Rachel S.:
Yeah, but I think you can position it that way if you're defining us as a retailer, but I don't define us as a retailer.

Mike O'Toole:
Yeah. Fair enough.

Rachel S.:
Part of what we do is retail, but I don't look at the products we sell. In my opinion, that's the content. If you put the book that says Unplug Everyday right next to Quirky's Pivot Power, where you put Plug's In, you're going to see that Quirky product come to life in a different way than if it was just on a shelf at Best Buy. If we were just a retailer then no one would need to partner with us. Quirky could just sell to Best Buy. Really what it's about is if you look at the venn diagram, we're at the intersection of consumer brand and maker. At the end of the day we're just a dating service using story telling to connect brands and consumers like GE.

Mike O'Toole:
What's interesting about that is I can't help but think about when I think about just retail, power is important. If the retailer's really big like Walmart, you have a lot of power over the maker. If the brand's really big you can probably write your own ticket to the retailer, so who has the power with you guys?

Rachel S.:
I think one of the great things is that we're quite democratic. We just had a meeting today with American Express. I sat there for an hour and a half talking about how passionate I am. Every year I have my own geeky internal Rachel focus. First, it was retail is media. Second is merchandising is advertising. What I'm really obsessed with right now is democratizing access and discovery in a physical world. If Etsy democratizes access for makers to sell online and Kickstarter democratizes access for people to launch projects and brands online, if that resonates with us in a digital form, clearly, there's probably a demand, and a need, and an opportunity for it in a physical form.


I was just saying one of my proudest moments was during His Story with Proctor & Gamble. You had Gillette next to a premier brand like Diptyque which sells at Barneys, next to a hipster brand from Brooklyn that does denim accessories, next to a hobbyist making stuff in their apartment.

Mike O'Toole:
They're all playing nice.

Rachel S.:
They're all playing nice, but here's the thing. They're non-competitive. At the end of the day we start with one question, which is a different question then I would say a traditional retailer starts with, and that would probably be, what fuels this democratic notion that I have in terms of our approach, not just a consumer marketing and brand positioning, but also merchandising. What that is is we start with one question: Is it relevant to the story that we're telling? Period.


If you go in and you say, "Is it relevant to the story?," and you choose to not go after a competitive brands, it self selects a dynamic conversation that's going to get to next ... When we did His Story, Details Magazine, part of Conde Nast, was a sponsor, Birch Box Man was a sponsor, and Proctor & Gamble was a sponsor. P&G is going to get at least 5X the impressions because you have Details and Birch Box tweeting about it. If those guys weren't partners ... There's nothing competitive about them. Everyone benefits.

Mike O'Toole:
Makes sense, but it is very hard for brands to do that, right? To let go control. I was going to ask you, and this is a hard question, but what percentage if you are a retail, what percentage media? I suppose you're saying it starts with a story and then you don't worry so much about what's retail and what's media. Is that fair?

Rachel S.:
Normally it shakes itself out. If I don't have the sponsorship dollars to support it and we want to dedicate 75% of the floor to the experience, I have to figure out how to do that. I think there's a myriad of different tactics. Some of which we've used, others which we can explore. It varies story to story. Some stories sponsorship's more than sales and other story sales is more than sponsorship. The truth of the matter is I didn't fund the company. It was self funded. I didn't raise money. I'd argue we're only running at what 20% of our capacity is just off this one store. Just by lack of bandwidth and body so to speak.


I would argue if we had the head count that I would fantasize of, sponsorship, would trump retail sales, but that's also not to say, holiday time, if you forgot sponsorship and you just let sales per square foot just for holiday, we were trending next to Lululemon, which is Top 5 retailer. It's nothing to balk at, it just depends on what that story is.

Mike O'Toole:
We talked with David Rogers at the outset about conventional wisdom in retail. One of the traditional truths in retail is that scale equals impact. Getting big, opening more stores is where the leverage, the attention, and the money come from. Rachel thinks about scale, but as you'd expect, she defines it differently than most.


You've bootstrapped this yourself. You don't have outside funding. The typical path to retail greatness is you scale. Is that part of your plan? Do you want to go out and get funding? And how does a model like this scale? I'm curious.

Rachel S.:
That's a good question. I think that the truth of the matter is there's so many different ways to look at scaling. Scaling could be taking the lessons we've learned in our lab called Story and spinning off different businesses or adjacent business. Scaling could mean digital. Scaling could be additional doors. I think in the same way where I would argue retail is part of our business model but it's not entirely our business model. To some degree we're part retailer. To another degree we're part agency. To another degree we're part community center. Those are kind of the three pillars of what we do that are then also analogous to the content in the sponsorship.


I think when you look at how we're going to scale, it's going to not be just one of those but it will be all there, so there will be a digital component. There will be more physical impressions, but we don't need 50 doors to scale and we don't necessarily see that as a success metric. In the same way, we don't look at sales per square foot.

Mike O'Toole:
What about scale for you personally? I think it was in the New York Times interview you said your goal is to have a life. I can imagine, given the way you run the business, I don't know ... You're probably sleeping six hours a night and spending the rest of the time here so it's ...

Rachel S.:
The good news is I have to sleep eight hours or I won't function, so I do sleep eight hours. I actually do travel and go away. That got me at a very hairy time over Christmas, but the truth of the matter is this, here's the truth, I wasn't your typical ... I'm a born and raised entrepreneur, but I wasn't the typical entrepreneur sitting there and being like, "Okay. What's my business plan? What's the three to four year growth strategy?"


On the one hand, it was a blessing and a curse that I didn't have funding and that my brain doesn't work that way, because I just did it. No business plan. No financial projections. I literally just did it. The reason why I did it was I had a theory. I had my Rachel theory. That retail could be a viable, compelling media channel for brands and consumers.


B. You could create a dynamic physical retail brick and mortar experience that wasn't just engaging for consumers and brands but that was also profitable in one year. I mention that because not only is profitability not often associated with startups in the first years when you're talking about technology. When you're talking about traditional retailer you break even in year three, and you're lucky if you're profitable in year three.

Mike O'Toole:
Did you make it?

Rachel S.:
I wanted to make sure that we were profitable in our first year and yes, we did make it. I stood up on stage as one of the keynotes at the National Retail Federation a year, almost to the day, and announced we were profitable. Here's the thing, back to the question about having a life for your vision, I literally, to be honest, had zero ... That was my goal. To be profitable in a year and do this. I did it. Here's the truth of the matter, is I went an entire year ... This was the part that I think is what killed me. Kat Cole, who's the president of Cinnabon, talks a lot about your natural state and then the state you're required to be at depending on whatever that experience or challenge is in front of you and the different between those states is emotional labor.


I was working overtime with emotional labor because what I realized, now in hindsight, is I wasn't working toward anything bx I had already done it. Done it in my version of doing it. Everyone's talking about scale and growing and yeah, we grew, we double what we did in the first year, but in spite of ourselves, because to your point, at the end of the day, what am I good at? I'm good at creating. Not maintaining or growing. Year two is about maintaining and growing and that's where I expended more emotional labor than one could fathom. Now it's kind of all come full circle where it's like, "All right. We're either going to do this or go on to a different theory and experience." The answer is we're going to do it. Now it's just having some very high level conversations to figuring out who the best partner is to scale with are.

Mike O'Toole:
There's a lot of invention going on at Story. The focus on narrative, not category. A new way to partner with brands that upends the power dynamic, and a new way of looking at value, experience per square foot. I'd like to bring back David Rogers for some final thoughts.


As I talked to Rachel, David, it occurred to me there's a lot that's interesting there. It's what's happening in her store at a true retail level. The products she's merchandising, the experience she's created. There's also the Stories, every six to eight weeks, reinventing the narrative.

David Rogers:
It keeps you coming back as a consumer. Something new to find.

Mike O'Toole:
It does. An entirely new experience. Maybe what's most lasting and most disruptive is the way she's working with some of these big global brands. GE, for instance, or Gillette. The way that they're creating novel experiences that aren't quite just about shopping and they aren't quite just about media, but they're somewhere in between.

David Rogers:
And that neither of them could do without the other. That I find particularly interesting, because a lot of big brands right now are looking for this opportunity. To co-create new business models, new sources of values, new experiences. Sometimes it's within consumers, it may be with channel partners. A lot of them, though, are looking, like GE, at these new startups with very innovative different approaches to business, whether it's GE partnering with Quirky ...

Mike O'Toole:
We saw a lot of those products in the Cool Story.

David Rogers:
Exactly. Whether it's a Silicon Valley startup or somebody like Rachel in New York in a retail space or a media companies, the large brands are realizing they're not going to create all these new sources to evaluate themselves, so they're looking for new ways to partner and co-create it with some of these new business models.

Mike O'Toole:
I think that's what upends that traditional power dynamic. You don't have to be an enormous retailer to make yourself interesting to a brand like GE if you can begin to create those experiences.

David Rogers:
Exactly. I think businesses are waking up to the fact that we're no longer in a binary world, where you're either my partner or you're my competitor. It's one of the things I'm writing about in my next book is this idea of business ecosystems. Every relationship is inherently sort of a bit of a mix of competition and collaboration. You've got to see that opportunity in every business you're working with.

Mike O'Toole:
David, thanks for making the trip to Cambridge.

David Rogers:
Absolutely.

Mike O'Toole:
I appreciate having you, as always.

David Rogers:
Glad to join you.

Mike O'Toole:
I'm Mike O'Toole and this is The Unconventionals.


On our next show, the beginner's mind.

Speaker 5:
In Japan, we have the phrase [foreign language 00:27:35], which means beginner's mind. In the beginner's mind there are many possibilities. In the expert's mind, there are few.

Mike O'Toole:
David Rogers and I will talk about how naïvete can be more important than expertise if you're a disruptive entrepreneur.

Speaker 1:
The Unconventionals is written and produced by Mike O'Toole and Reid Mangan. Post production and technical direction by Reid Mangan with Emmanuel [Oarding 00:28:04] and Anthony Gentles. Promotion and social strategy by Greg Straface and Graham Spector with Tori O'Neil. Our creative director is Aaron DaSilva. Our executive producer is Phil Johnson for PJA advertising and marketing. I'm [inaudible 00:28:19]. To hear more episodes of The Unconventionals, visit pjaradio.com.