The Death and Life of Great American Retailers, 2013

NEW YORK (TheStreet) -- Like last year, I spent a considerable part of the past week/weekend traversing retail space in Southern California.

I made my first-ever purchase at Lululemon (LULU). What a fantastic experience. Beautiful and friendly retail associates getting the job done without bonehead-like stops and starts. Of course, LULU has the product -- unique and high-quality -- that draws me in.

I also spent time strolling the classic case study in the privatization of public space -- Santa Monica's Third Street Promenade. Unless I know what I need and am confident I can walk right in and painlessly purchase it, I spend very little time in the stores along this jaunt with three notable exceptions:

  • Apple (AAPL)
  • Tesla Motors (TSLA)
  • Barnes & Noble (BKS)

Yes, Barnes & Noble.

There's still something to be said for the way bookstores -- local and national chains -- organize their selections. I'll probably always appreciate and utilize the experience. Sadly, no brick-and-mortar bookseller has even come close to leveraging this still-worthy experience into corporate survival.

Whereas my wife still tends toward actually buying items at BKS, I rarely do. In fact, this past Wednesday I spent over $100 on (AMZN) while browsing and scalping ideas off of the Barnes & Noble shelves.

I think my wife dropped $30, $40 tops at the register. This cannot be a good tradeoff for BKS. But it's on them, not Amazon. Amazon innovated, while Barnes & Noble slept. And they're still sleeping, unable to reinvent the physical retail experience in a way that even resembles how Amazon came along and trashed it over a decade ago.

Barnes & Noble relies on low-hanging fruit and that I want it now, not tomorrow or the next day impulse. Again, not good. And the local booksellers have done very little to innovate for survival, short of trying to guilt you into buying local. Because, somehow, you commit a civic crime -- often, they make it sound like a crime against humanity (!) -- if you don't overpay to "support" your local community.

It's not their job to provide value in one way or another; rather, it's your job to subsidize their lack of creativity and vision. Such an odd view of reality.

I would digress here, but there's no digression required.

Retail has become -- or at least should become -- less of a shopping trip and more of an experience. Barnes & Noble has the experience part down. They just haven't figured out how to monetize it. They're still stuck in the mud (somewhere in the swamps of Jersey!), generating sales for Amazon.

The LULU experience isn't all that different from the TSLA or AAPL experiences. All three offer unique, almost cult-like products that people either want but can't have or are willing to pay a premium for. They couple these excellent offerings with fantastic experiences. Being in the Tesla store made me want to buy a Tesla t-shirt or coffee thermos. I resisted, but that self-control will not last long.

It's obvious what makes BKS different than LULU, TSLA and AAPL -- they don't have the unique product. And they haven't figured out how to make selling somebody else's product sexy. Neither has Best Buy (BBY), J. C. Penney (JCP) or any other dime-a-dozen physical retailer mired in what one retail analyst called "the race to the bottom" in a recent and excellent Fortune article.

It's a special kind of feeling to see somebody spectacularly riff, in the same spirit as you have, on why so many retailers decided to stay open on Thanksgiving:

The reasons why have nothing to do with ethics or even pent-up demand. They're about desperation, as brick and mortar retailers fighting for share continue what retail expert Robin Lewis of the Robin Report calls "the race to the bottom" with massive, seemingly permanent discounting. "The spiral kind of perpetuates itself," says Lewis, "because everybody is using discounting as a strategic weapon of choice. It used to be tactical to get rid of excess merchandise. Now it's an everyday thing."
... But for the most part retail is suffering from both a deficit of original thinking and a surfeit of physical store locations ...

Robin Lewis, you go. (Full disclosure: When I first saw Lewis's comments, I thought he was a woman. I had this whole thing written where I proposed marriage in light of "her" comments. But, alas, Robin Lewis is a man. And a very, very smart one). Anyway ...

At smaller private retailers, the numbers are worse. Sales growth at these companies is less than 1%, and mom-and-pop stores with sales below $5 million annually have seen sales contract by 2% so far this year, the slowest rates since 2009, according to research from Sageworks, which analyzes private companies.
It's a war of attrition, says Lewis -- which is, by definition, a war that no one wins. Kahn, on the other hand, remains hopeful that retailers will break out of this cycle of doom. "I think it's an opportunity and people will figure it out."

So awesome. Why do so few people who watch retail tackle the subject with the type of depth and insight Lewis flaunted in front of us here? I am fanboying all over him as we speak.

Simply put, retailers must -- like now -- stop focusing on the very same retail basics that got them into this mess in the first place. They must -- like now -- start placing focus on the experience, whether it's creating one or enhancing an existing experience, and monetizing it for themselves, not somebody else.

In one corner, Barnes & Noble is a nice case study of the aforementioned. In the other, Lululemon, Apple and Tesla are solid case studies of physical retail success.

--Written by Rocco Pendola in Santa Monica, Calif.

Rocco Pendola is a columnist for TheStreet. Pendola makes frequent appearances on national television networks such as CNN and CNBC as well as TheStreet TV. Whenever possible, Pendola uses hockey, Springsteen or Southern California references in his work. He lives in Santa Monica.

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