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An inside look at the McKinsey store revitalizing brick-and-mortar business

Are our days of in-store shopping numbered? The rapid rise of e-commerce, which has accounted for over 40 percent of US retail sales growth since 2016, might suggest that they could be. But not everyone is so sure.

“Stores are not going away,” says McKinsey partner Praveen Adhi. “But they have to evolve. There is a tremendous opportunity at the intersection of technology and analytics to transform the in-store experience for the customer, while making a step change improvement in profitability.”

Our firm is showing retailers what the future of stores might look like. As has been widely reported in the media, McKinsey’s Retail Practice has created a fully interconnected shopping experience called the Modern Retail Collective. Located in Mall of America, which welcomes 40 million shoppers annually, the space opened on September 27th.

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Join a few Modern Retail Collective creators for a glimpse inside the store of the future.

The Collective, as it’s also known, is a collaborative venture between McKinsey, Mall of America, retail brands, and technology providers like Microsoft, Zebra, Square, and SmartracIt’s a real, shoppable, multi-brand store where retailers can test the latest technologies with actual customers.

Despite the rise in online shopping, our research shows that most consumers still want a brick-and-mortar experience. “And direct-to consumer-brands are increasingly choosing to create physical environments to drive awareness and sales,” explains Tiffany Burns, a McKinsey partner. An example of this is intimates brand ThirdLove located at The Collective, which marks its second physical location so far.  

“Clients often tell us they want to experiment with new types of in-store technologies,” says Jennifer Schmidt, a McKinsey senior partner. “But they’re inundated with the magnitude of new technology available and are often unsure how, how much, and where to invest.”

The Modern Retail Collective is a safe space for brick-and-mortar businesses to test and learn. “The beauty of the Collective is that it offers retailers the ability to experiment with little risk or disruption to their own stores and operations,” adds Tiffany. “It’s a flexible environment, where they can work with new technology and learn what resonates with customers.”

To understand how digital tools affect store traffic, engagement, transactions, and productivity,  for example, the Collective helps retailers make sense of non-sensitive customer and operational data.

“We’re prioritizing topics that retailers say are most top of mind for them,” says Jennifer. “Right now, the Collective is looking at product discovery: how can technology help in-store shoppers discover new products and get the same level of information that they would have online?”

One way is through interactive mobile hot spots. Through near-field communication technology, customers simply wave their phones over hot spots near a product they’re interested in, and more product information and reviews appear on their screens. No app download is required.

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Interactive mobile hotspots provide in-store shoppers with online levels of detailed product information.

“Nothing takes the place of physically touching and walking out with a product, though,” says Gerry Hough, a McKinsey senior expert. “And that’s why we made a very purposeful decision to offer a mix of physically purchasable products along with additional digital options.”

The jewelry brand Kendra Scott, for example, offers top seller items for onsite purchase, as well as an endless aisle of custom designs that rely heavily on shoppers’ interaction with actual stones, metals, and styles. So, McKinsey, Kendra Scott, and ComQi created digital displays that use radio frequency identification (RFID) technology to register a customer’s choice of stone and design in the store itself. Purchases, then, are shipped directly to their home.

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Inside the Modern Retail Collective, digital displays use radio frequency identification technology to enhance shopping experiences.

Elsewhere in the Collective, augmented-reality mirrors allow customers to interact with and virtually try-on merchandise. “For retailers, this means not needing to carry as much inventory in the store, since shoppers can explore it all through this platform,” explains Tyler Harris, a McKinsey engagement manager. With an integrated social sharing component, customers can take selfies, share looks with friends, and make purchases of their favorite items.

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Augmented-reality mirrors let shoppers try on merchandise, virtually.

From anywhere within the Collective, customers are able to check out quickly through a portable point-of-sale device. There’s also a counter dedicated to Flexa, a platform for cryptocurrency payments, that helps educate shoppers on multi-currency wallets and offers retailers the opportunity to explore the future of lower cost and fraud-free payments.   

“The idea is to offer shoppers a new, frictionless way to interact with and pay for merchandise that cuts across both online and offline channels,” says Gerry, “and to validate the operational efficiencies that crypto-enabled payments can offer retailers in the future.”

Every four months, a new set of brands will be featured in the Collective with a new use case to test. Examples could include looking at the impact of in-store technology on conversion, sales-associate productivity, inventory automation, post-purchase engagement, and more. 

By analyzing data from in-store technologies, the team can stitch together and understand customer journeys to unlock unprecedented insights for improving engagement and operational efficiency. “Imagine being able to quantify what levers to pull,” says Tyler. “With that kind of fact-base, the rewards for those that get this right will be significant.”    

Our research shows that effective personalization can increase store revenues by up to 30 percent, and several next-gen technologies can improve store productivity by at least 10 to 20 percent.  “This has significant implications for stores’ profits and losses as well as the level of customer service associates will be able to offer customers,” adds Jennifer.

“Now is a great time for retailers to embrace this challenge of integrating tactile experiences and operational processes with the seamlessness of digital,” adds Tiffany. “And we’re really excited to show all that’s possible here in the store.”

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