How Wal-Mart just changed the game for retailers

Wal-Mart's recent announcement to increase the pay of its lowest-level workers followed on the heels of fellow retailers including Gap and IKEA. This move by the world's largest retailer points to a recognition that will soon sweep businesses of all sorts. The future won't be won on the basis of price and convenience, but on service and experience.

An employee arranges frozen turkeys displayed for sale at a Walmart Store in Los Angeles.
Patrick T. Fallon | Bloomberg | Getty Images
An employee arranges frozen turkeys displayed for sale at a Walmart Store in Los Angeles.

Society is changing, with more single-person households, a growing sense of social isolation, and the "atomization" that occurs when family members feel guilty about spending more time staring into screens than interacting with loved ones. These changes have rendered the ubiquity of online commerce, convenience, and low prices into mere table stakes. The remaining trump card is to satisfy the consumer's desire for richer experiences.

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Higher pay levels help deliver better service essential to a good experience. Costco pays its people an average of more than $20 an hour, supporting "the Costco experience" that turns shoppers into evangelists. The Container Store, famous for delighting customers, pays nearly twice the retail industry's average. Investing in quality service is not just a smart strategy for stores, but for universities, financial services companies, airlines, telecoms, and even government.

But delivering a rich experience involves more than service. It involves immersion in worlds of the exotic, the elegant, or the abundant. It begins with the employees and extends into the physical space.

Walk into an Apple store or take your daughter to the American Girl Café, and you enter not a store but a world. Brands that are thriving — from Nordstrom to Restoration Hardware – are equally adept at creating immersive worlds with distinctive atmospheres.

More and more, these worlds are integrated with their online counterparts. But they are no mere avatars.

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A year ago, analysts were saying that Best Buy was little more than a testing ground for Amazon's customers. Now Amazon is building physical stores, while Best Buy has tripled its value after it unapologetically repositioned itself as a showroom. Bonobos, a chain of boutique stores that encourages customers to browse online before trying on selections at one of its "guideshops," proves that establishing a physical connection with the customer is vital to a brand's success.

The most inviting atmospheres also foster a sense of community. Increasingly, Americans exhibit the desire to feel safe and close to home in a seemingly more dangerous world. Favorite shopping destinations are no longer the concrete boxes across town, but nearby, pedestrian-friendly districts where we feel safe and are recognized by family, friends and neighbors.

Main Street is making a comeback from small towns to big cities. We want room to walk, congregate and relax with sunlight and open air. Retail is now a social experience that extends beyond anything we can hold in our hand or place on a shelf. Even old hospitalities, like the once-dead neighborhood bookstore or independent coffee house, are making a comeback. There's a return of the shopkeeper, where stores are creating a personal, long-term relationships with customers buoyed by new technology and social media.

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The postwar, fluorescent-lit, concrete behemoth called the indoor mall was always too artificial to serve that role as the heart of a community. That impersonal experience can no longer compete with e-commerce in utilitarian transactions. Yet, the future of the experience-driven retailer — and any business that embraces this ethos — is very positive.

Americans today want to enjoy touchstone places to spend their time and spend money with companies that truly value their relationship. Wal-Mart's investment in better service is one more visible sign of this new economy, one in which consumer businesses of all sorts must provide exceptional experiences or suffer the fate of the old-time, indoor shopping mall.

Commentary by Rick J. Caruso, the founder and chief executive officer of shopping-center developer Caruso Affiliated. Follow him on Twitter @RickCarusoLA.