Reimagining Retail: Ancillary services that bring people into stores and what retailers should think about before introducing them

Audio by Sara Lebow, Suzy Davidkhanian, and Blake Droesch | Oct 23, 2024

Episode Transcript:

Sara Lebow (00:00):

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(00:21):

Hello, listeners. Today is Wednesday, October 23rd. Welcome to Behind the Numbers, Reimagining Retail. An EMARKETER Podcast made possible by TikTok. This is the show where we talk about how retail collides with every part of our lives. I'm your Host, Sara Lebow. Today's episode topic is, ancillary services that bring people into stores.

(00:48):

Before we get started on that, let's meet today's guests. We have a special episode today because we are all in the room together. So, let's introduce them. First up is one of our analysts, Suzy Davidkhanian. Hi Suzy.

Suzy Davidkhanian (01:01):

Hi. Thanks for having me.

Sara Lebow (01:03):

Thanks for being here in the studio. Also with us in the studio is Blake Droesch. Hey, Blake.

Blake Droesch (01:09):

Hey, Sara. Good to be back.

Sara Lebow (01:10):

Good to have you guys all around the table. We talk about e-commerce all the time, but as you guys know, 84% of U.S. retail sales still take place in stores. Today we're going to talk about one of the things driving people into those stores, which is, ancillary services. These are things like, clothing repair or jewelry polishing, that bring people back into the stores where they've already bought something. I'm going to start with a simple question that does not have a very simple answer. What is an ancillary service?

Blake Droesch (01:42):

I think an ancillary service can mean a lot of different things. And at least to me, you can break it down to, what is this ancillary service? What is the reason for a retailer investing in an ancillary service? For some, it's to drive foot traffic into the store and hopefully it will drive incremental sales once customers are in the store. For another reason that you might have an ancillary service would be, an alternative revenue stream, right? If you're providing a service that is tangentially related to the products that you sell, such as, a store that sells pet food offering that-

Sara Lebow (02:22):

Pet grooming?

Blake Droesch (02:23):

Pet grooming, something like that. And then, the other would just be basically to an ancillary service that I think builds on the value of the products that they're selling directly. If you could think of it maybe as a warranty. If you buy a product in a store and it breaks or it needs to be repaired or updated, that there is a service that can help increase the value of the product.

Sara Lebow (02:52):

That last one is like, if I buy an Apple product, I know I can take it back to the Apple Store and ask for advice on it.

Blake Droesch (02:59):

Right.

Sara Lebow (02:59):

How helpful that advice will be as questionable, but I can at least try. The middle one we have the pet food, pet grooming example, that's bringing me back into the store. And then, what was the first bucket?

Blake Droesch (03:10):

The first one is basically just a service that is appealing to customers in some way that brings foot traffic into the store.

Sara Lebow (03:11):

Oh, okay.

Blake Droesch (03:19):

And I think that's probably the one that's the most nebulous, because it can mean many different things. An example would be, certain people like to go to IKEA because they love the meatballs, but, they're not necessarily going to buy a couch.

Suzy Davidkhanian (03:36):

We talked about this at length and we also talked about this earlier this year at one of the conferences that we went to. And I think there's, like you said, it's a bit nebulous, and there are lots of different ways of thinking about it. But for me, the most critical part is that it needs to be credible, like you were saying, Blake, and it needs to be authentic to what you're doing. And if you start to think about it could either be an extra revenue stream, like airlines are now charging for luggage, which is an ancillary service. Or gyms offer trainers also-

Sara Lebow (04:06):

Wait. Sorry. Luggage is an ancillary service, but it wasn't before, right?

Suzy Davidkhanian (04:09):

Correct.

Sara Lebow (04:09):

So luggage has become an ancillary service?

Suzy Davidkhanian (04:12):

Has become. Yes.

Sara Lebow (04:12):

I mean, that's not retailer, so it's not exactly what we're talking about, but that's interesting, as you reduce your services, some things become ancillary.

Suzy Davidkhanian (04:21):

As revenue streams, right? If you think about it as an additional revenue stream, then it becomes something that is adjacent to the core of your business. Or it could also be things that are free. The warranty is not free, so that's part of ancillary services. But something that's free is maybe a jewelry store that does repairs, if it's nothing super expensive. Or polishing, you can take your things to many jewelry stores, including Kay's or Tiffany. If it's Tiffany branded, you can get your silver polished. It used to be free, I don't know if it's still free.

(04:54):

There's lots of different ways. The key, I think, is that it is a way to ensure that you are adding value and that you become stickier to your consumer, and that they think of you. You think about the installations that Best Buy does. Levi's has a whole tailored shop around refurbishing, and we know that buying jeans are hard. If you have a pair you love, what a better way to create this sticky, fun-feeling and brand love and higher ideas course.

Sara Lebow (05:24):

Not in the jeans, but a sticky feeling in the store.

Suzy Davidkhanian (05:27):

Correct. To the brand, right? To be like, "Oh, Levi's understands that this is a problem."

Sara Lebow (05:32):

I've always had that association with L.L. Bean as a place I can go when my shoes are worn through, that might repair the soles for me. And then I also associate them with being a more sustainable brand for that same reason, which I think is also part of it.

Suzy Davidkhanian (05:46):

And so, then it does create this brand loyalty inadvertently for us as a consumer, but probably very calculated for the brands that are offering these different types of services. Because it keeps bringing you back in.

Sara Lebow (06:00):

We have our three main goals, adding value to the goods you buy, an additional revenue stream for the retailers, and getting people in the store in the first place. Let's talk about that last one, getting people in the store. What are some examples of how ancillary services can drive foot traffic?

Suzy Davidkhanian (06:19):

I mean, anything that is a physical service, will drive you to the store unless you can mail it in. Customization is one of those two that some folks think of as an ancillary service that drives people into the store. And again, anything that you can do that brings you into the store, it becomes a foot traffic driver. Even the recycling like H&M that takes back people's jeans, regardless of what brands they are, is a service. I'm using Trashie Bags now. Do you guys know what that is?

Sara Lebow (06:19):

What is that?

Blake Droesch (06:19):

No.

Suzy Davidkhanian (06:44):

It's like, you pay to send your textiles for someone else to recycle them, but you do get rewarded for that. But it feels like it's... You don't give your holy socks to Goodwill, because that seems not fair.

Sara Lebow (06:57):

No.

Suzy Davidkhanian (06:57):

What you do with that, you throw it in the garbage, but that's not good for landfills, so you can send it to Trashie. I think there are lots of different things that you can do to help the environment, that you have to take on the ownership. But whereas H&M here is like, "Nope, we'll take all your stuff. Don't worry about the condition it's in."

Blake Droesch (07:14):

It's funny when we were thinking about this episode, the first thing that came to mind for me was Coinstar. Do you guys remember Coinstar? They're still around.

Sara Lebow (07:23):

Oh my God. Yes, I liked them.

Suzy Davidkhanian (07:24):

Yeah.

Blake Droesch (07:24):

When I was a kid, I would always-

Sara Lebow (07:27):

Is that the thing that gives you change?

Blake Droesch (07:28):

Yeah. You put your change in there and then-

Suzy Davidkhanian (07:30):

No, it gives you bills.

Sara Lebow (07:30):

Oh, it gives you bills.

Blake Droesch (07:32):

... it gives you bills and when-

Suzy Davidkhanian (07:32):

Or you always [inaudible 00:07:33] for you.

Sara Lebow (07:32):

Oh, I just keep my change in a bucket that I'll never do anything with.

Blake Droesch (07:36):

But if unfortunately this podcast hangs or something and you-

Sara Lebow (07:40):

It couldn't happen.

Blake Droesch (07:43):

... need a little need little-

Sara Lebow (07:43):

Extra cash?

Blake Droesch (07:44):

... extra cash and you need-

Sara Lebow (07:44):

I was so sad about that.

Blake Droesch (07:46):

... collect some change, you go to the Coinstar. And actually I remember too, that was something that I would do as a kid. And then, this is obviously in a retail example, but it's a good example is that, a TD bank opened and they had a Coinstar thing where, that was actually aimed at kids. And kids could go there and you could put the money in and they wouldn't take a cut, they would just give you the cash. And that's a great way to obviously market your services to kids. So when they eventually do open up their first bank account, they've already become familiar with your brand. I think there are a ton of examples.

Sara Lebow (08:21):

It's interesting that you had an example that you were thinking of and didn't mention because I do too. Mine is Shinola, which is a luxury retailer out of based in Detroit. And-

Suzy Davidkhanian (08:30):

It does watches.

Sara Lebow (08:31):

Yeah. There's one in Anne Arbor where I famously went to school, that had a coffee shop, which is sort of borderline ancillary. It's a completely different business, although it does bring in that luxury association. It gets me in the door working and thinking about buying their notebooks. But then it also had free monograms for anything you purchase. So yeah, just another service.

Suzy Davidkhanian (08:55):

Well, AKRIVIA has coffee shops in some of their stores, and if you purchase a certain value, they give you a coin that you take to the coffee shop and you get a free iced tea or whatever that coin equivalent is or you pay for it.

Sara Lebow (09:06):

Suzy you're so much better at keeping track of and not losing your little rewards tokens than I am.

Suzy Davidkhanian (09:11):

Oh, no. You do it in the day.

Sara Lebow (09:12):

I feel like you're someone who's gotten everything punched on a card before.

Suzy Davidkhanian (09:14):

I try. I'm a loyalty queen. But that's the other thing, it drives traffic, it drives loyalty, and it's also another way to differentiate yourself from your competitors. When you offer these experiences. And Signet talks about it in terms of premiumization.

Sara Lebow (09:30):

Signet, the Jeweler?

Suzy Davidkhanian (09:31):

Yes, Signet the Jeweler. As you think about what you offer, these types of services give this feeling of an elevated experience.

Sara Lebow (09:38):

That's definitely the Shinola effect, right? Where there are so many gift stores, it's turning one into this luxury experience. That's one. Let's create some more buckets for these.

Suzy Davidkhanian (09:51):

I have another one.

Sara Lebow (09:52):

Yeah.

Suzy Davidkhanian (09:53):

Are you ready?

Sara Lebow (09:53):

Yes.

Suzy Davidkhanian (09:54):

I think one of the things it does, which is very hard to do as a goal, is create a different touch point with the consumer that's in your store. Between the consumer and the associate. But on the flip side, it's not necessarily dollar equations for an associate, so you have to figure out how to incentivize the associates to talk about these services and to take people to the back to get their things fixed or whatever the service is or get their jeans-

Sara Lebow (10:22):

It creates a personal relationship.

Suzy Davidkhanian (10:23):

And I think there's such a nice thing about, a non-transactional touch point.

Sara Lebow (10:28):

It's interesting that Levi's is one of the examples for that because they've focused on client telling, through the mobile app that they have there. People who work in the stores use in-store. This is clearly, I would imagine, part of that whole attempt to create more of a relationship between the consumer and the store. So, definitely another bucket.

(10:48):

Another one that we have is just this, "goodwill branding." This sustainability aspect, LEVI's that's one of them, and L.L. Bean. And then another one that we have touched on is, getting people to need to stay in the store for what I would call, one browse cycle. The example of this is Walmart offering pet grooming, that's sort of tangential to their business. It's not core, but, I imagine it takes 40 minutes to groom a pet. Am I getting this right?

Suzy Davidkhanian (11:18):

No idea.

Sara Lebow (11:18):

None of you are pet owners.

Suzy Davidkhanian (11:20):

Just sitters.

Blake Droesch (11:21):

Yes, just sitters.

Sara Lebow (11:23):

Blake's just always calling from walking and talk, that isn't his. But I'd imagine that's how long it takes. It's like, one turn about Walmart.

Suzy Davidkhanian (11:34):

Of a giant Walmart. Well, I think, yes, it does that, but I also think this idea of the pet grooming or many of the other examples we had, are also a way to make the life of the customer easier. Instead of you going to three places-

Sara Lebow (11:49):

Like oil changes.

Suzy Davidkhanian (11:49):

... to fix whatever you need to fix or get your dog pet food and then a vet and whatever else you need to do training, the Petco Company near my house does training. And so, I think it's a way to make the life of the customer easier, which it's all like their own flywheel model. Because the easier you make my life, the more sticky your brand becomes, the more loyal I become.

Sara Lebow (12:12):

And if the brand, and I don't know that we have any examples of this on paper, but if the brand is providing you an ancillary service, potentially that's a touch point to collect data on you as well. Walmart certainly knows all of those people or pet owners. Other companies might not be as on top of collecting that data. I don't know that IKEA is tracking who is a meatball lover and who isn't, but there's definitely potential. They're at least tracking who is a loyal consumer and who isn't.

Suzy Davidkhanian (12:38):

I think, any of the services that you need to divulge who you are. If you're getting a warranty, installments, if you are getting something customized, if you need a piece to be repaired, for sure. If you're opening a credit card, some would argue that a membership service is part of ancillary services. All of those, yes.

(12:56):

If you're dropping off your jeans or if LEVI's... I've never used their Tailor shop. I don't know if you guys have. But if you're doing that-

Sara Lebow (13:03):

The what?

Suzy Davidkhanian (13:03):

The Tailor Shop it's called. I looked it up online, it is so warm and fuzzy and it makes you feel so good.

Sara Lebow (13:10):

Wait, what is this?

Suzy Davidkhanian (13:10):

At LEVI's-

Sara Lebow (13:11):

Oh, okay.

Suzy Davidkhanian (13:12):

... they do refurbishing customization. I think they probably don't have data on you, unless you have to leave your jeans and then come back and get it. And even then, I'm not sure. So yeah, I think it depends.

Sara Lebow (13:23):

We've talked about a lot of things that work. We've talked about a lot of things though definitely some of these things don't work. I know Walmart has pulled back some on more healthcare options in their store. What should retailers be thinking about before introducing ancillary services?

Blake Droesch (13:39):

I think a big one is, how much does it cost and is it sustainable? And if, I think as Suzy already acknowledged, if it's not related in a meaningful way to your core product offering, then, it's going to be really hard to get your core customers moved over to purchasing and using these ancillary services. And if that's not the case, then you're going to be potentially wasting square footage in your retail stores. And you're also going to be potentially wasting a lot of money on staffing for these ancillary services.

(14:17):

I think for the example with Walmart and Health Services, you are employing people who are more expensive probably, than some of the other positions that are working in their stores. If you have to hire a medical practitioner or a nursing staff, that is expensive. And if people aren't using the services, then, it ultimately is not sustainable.

Suzy Davidkhanian (14:43):

I'm just going to devil's advocate that for one small second, which is, there is a chance some services are $0, but the brand love that comes with it is worth it. And so as you think about designing the services that you're going to offer, if you don't already have them, to think about what KPIs you're measuring. Because some of them are definitely about dollars and how much incremental dollars are you bringing in? And some of it, I think maybe it's just like, is your MPS growing in that store?

Sara Lebow (15:12):

I think that's a big challenge. I think ancillary services are almost in some ways the brand marketing of being in a retail store.

Suzy Davidkhanian (15:21):

Especially the free ones.

Sara Lebow (15:22):

In that they're not really measurable. I mean, you can see how many people are bringing in the jeans and stuff, but it doesn't have a dollar attached to it or a dollar per people in store attached to it like purchases do. And that, even if it is low cost for the retailer, you're investing something in it. So you're spending money that isn't immediately turning itself around.

Blake Droesch (15:45):

I think when we talk about, that's why we're delineating between, is it a revenue stream or is it providing value? If people are using it, then an ancillary program could be considered as success. And you're right, even if it's lifetime value that's being measured and it's not a revenue stream, then, it could still be a worthwhile investment for the retailer. I think the area where retailers seem to get in trouble is, it doesn't provide that lifetime value because it's not close enough related to what the brand or the retailers about at core.

Suzy Davidkhanian (15:46):

Their core.

Sara Lebow (16:22):

With some exceptions. Well, I don't know. IKEA, you could say, in some ways, the meatballs aren't furniture. Or you could say that the thing IKEA is about is Swedish. And so, in that sense, the meatballs are a core. Ultimately, obviously meatballs are core to IKEA because they built their brand that way. But the Apple Store can't introduce meatballs. I don't expect people to buy that.

Blake Droesch (16:46):

I don't think the margins on the meatballs are tremendous. I would just guess that they're not killing it on meatballs, but they're definitely getting a lot of people into the store.

Suzy Davidkhanian (16:46):

The traffic.

Blake Droesch (16:55):

And they're building the brand. Because as you said, it is that Swedish thing, and it's just like, that's just a sweet spot for them that they figured out.

Sara Lebow (17:02):

I've never had the meatballs.

Suzy Davidkhanian (17:02):

Oh no, me too. I always get the hot dogs. And the ginger-

Sara Lebow (17:03):

The hot dogs? Oh, I've had the hot dogs.

Suzy Davidkhanian (17:07):

Yeah, the hot dogs are so good there. But I think the Apple equivalent-

Sara Lebow (17:10):

Costco another one.

Suzy Davidkhanian (17:10):

Yes. The equivalent for Apple is the Genius Bar. Do you need a place to sit down in that white well modern designed space to have them come and help you? No, you could probably go stand in the back and do something and then move on with your life. But they have this design aesthetic that makes it feel so much more luxurious, though it's a service.

Sara Lebow (17:32):

I mean, there's nothing to do other than poke around with their new toys.

Suzy Davidkhanian (17:36):

I do think there is a downside in some of them. The KPI measurement is really critical, it's hard to measure the halo effect. But there might be some folks that are able to better than other retailers to measure. You come in to get something done that was for free, but in the browsing time, did you purchase anything else while you were there? Or maybe you're like, "Oh, I don't need this right now, it's too big tick of an item. But next time I need a diamond ring, I will be sure to go here." But what I think you might end up getting too a little bit is people who just use the service, and then they go somewhere else to buy whatever they need, which is not ideal.

Sara Lebow (18:12):

The other thing that you brought up when we were talking about this earlier, Blake, was the square footage of a store. That coffee shop in that Shinola on Main Street in Ann Arbor, that's more of an investment than something that is in a Walmart potentially. Because that store is small, it doesn't have a lot of square footage. This is the case for pretty much any store in New York. The Walmart probably has some space to spare. That said, pet grooming actually takes up a lot of space, I would imagine. But you definitely have to make that calculation.

Blake Droesch (18:44):

And I think that is an important thing because, you're right, Walmart has a lot of square footage, but I'm sure if you ask someone at Walmart, they're fighting over that square footage all the time, right? Because no matter how big you are, you're trying to maximize the value. But there are obviously ancillary services that don't take up a lot of space. I mean, think about a window repair-

Suzy Davidkhanian (18:44):

A Kioski with a-

Blake Droesch (19:06):

... a kiosk and a jewelry store. Or if you're sending it out, I think there, for instance, Tourneau, the watch retailer, if you buy a watch there, they will facilitate sending it back to the manufacturer for repairs. And that's a service that doesn't necessarily take up any of the square footage at all. So there's different ways of thinking about it.

Suzy Davidkhanian (19:24):

And I think they might take up a lot of square footage and maybe are not high. Although I do think it's no longer the method that retailers should be thinking about their store success as sales per square foot. There is a chance that some of these services that might not have super high sales per square foot, are a really good, easy, not cringy way to cross sell other things. You're coming for the grooming, your pet comes out, they look amazing. Now all of a sudden you're talking about the shampoo that you used and the person buys it while they're there.

Sara Lebow (19:55):

These people are taking better care of their pets than I. Well, I don't have a pet, but, these people are really pampering their pets. No, you're right. The last example I want to bring up before we hit time is, another classic example of this for me is Warby Parker. Every time I get knocked in the face and my glasses get a little bent or the little plastic things on the nose come off, I just go into the Warby Parker to get new ones.

(20:21):

That always ends up taking about 20 minutes, which is honestly probably more than it needs to take. But it's not too much time, and it's enough time that I have no choice but to try on all the other glasses that are in the store.

Suzy Davidkhanian (20:33):

And how many of those have you ever purchased after that experience?

Sara Lebow (20:36):

I've purchased what? Two or three pairs of Warby Parker glasses over the course of several years.

Suzy Davidkhanian (20:41):

So, it's working.

Sara Lebow (20:42):

I haven't purchased any of them right away. That's not measurable, but I have purchased them eventually.

Blake Droesch (20:48):

And it's the ecosystem too, as Suzy is pointing out. As a Warby Parker customer, the main reason why I buy their glasses is because, I can literally go to the app, say I want a new frame or a replacement frame. And because I went there to get my prescription, everything's already in the system and you just, in a click of a button, have that fulfilled.

Sara Lebow (21:13):

You're doing this a lot more efficiently than I've been doing it.

Blake Droesch (21:17):

As someone who lost their glasses last week, I'm very refreshed-

Sara Lebow (21:21):

Where'd you lose your glasses?

Blake Droesch (21:23):

Just on the street. They slipped out of my coat pocket because it was a hot day. I took my coat, then-

Sara Lebow (21:26):

If anyone's seen Blake's glasses on the streets of New York City.

Blake Droesch (21:29):

Please reach out. Actually, I'd like those back.

Suzy Davidkhanian (21:31):

That's the worst. And you already bought a new pair?

Blake Droesch (21:33):

Oh, because I have-

Suzy Davidkhanian (21:35):

You know everything.

Blake Droesch (21:35):

This is turning into an ad for Warby Parker. My prescription was expired, so I went there-

Sara Lebow (21:42):

It expires every two years. I learned that recently.

Blake Droesch (21:44):

Exactly. I went there and I used their services and they sold me on a checkup too, because the people in my eyes-

Suzy Davidkhanian (21:45):

It's very important.

Sara Lebow (21:45):

How are your eyes?

Blake Droesch (21:53):

I actually have really good eyes.

Sara Lebow (21:53):

That's good.

Blake Droesch (21:55):

According to the eye doctor at Warby Parker. Anyways, it is about that ecosystem that just provides the convenience, but that's because their services is literally directly related to what they're selling.

Suzy Davidkhanian (22:09):

To what you're doing.

Blake Droesch (22:09):

And that's why it works.

Sara Lebow (22:12):

Well, on that note, that is all that we have time for today. Thank you both for being here. Thank you, Suzy.

Suzy Davidkhanian (22:16):

Thanks so much.

Sara Lebow (22:17):

Thank you, Blake.

Blake Droesch (22:18):

Thank you. It was around 34th Street and Seventh Avenue, two Sundays ago. If you've seen them, let me know.

Sara Lebow (22:26):

If you see Blake's glasses near, I don't know, what is that?

Suzy Davidkhanian (22:30):

In Macy's [inaudible 00:22:32].

Blake Droesch (22:31):

Just below Madison Square.

Sara Lebow (22:33):

Near Macy's. If you're going to the Billy Joel concert and you see Blake's Glasses, email podcast@emarketer.com.

Suzy Davidkhanian (22:39):

The thing I don't know. I lost my glasses at NRF, why would anybody keep glasses? They're prescription. There's nothing you can do with them.

Blake Droesch (22:45):

Oh, I'm sure they're just in a gutter somewhere.

Suzy Davidkhanian (22:47):

Oh, I think someone took mine.

Sara Lebow (22:50):

Thank you to our listeners and to Victoria who edits the podcast and is far from ancillary. We'll be back next Wednesday with another episode of Reimagining Retail, an EMARKETER Podcast made possible by TikTok. And tomorrow, join Marcus for another episode of The Behind the Numbers Daily.

(23:16):

On November 1st, EMARKETER is hosting a virtual summit. Learn all about the top trends of 2025 with a keynote from analysts, Sarah Marzano and Evelyn Mitchell-Wolfe. Panelists hosted by Kelsey Voss and Yori Wurmser, and featuring executives from top brands. All of this starts at 11:30 Eastern on November 1st, and is hosted by EMARKETER's Vice President of Content, Suzy Davidkhanian, and Senior Director of Client Briefings Jeremy Goldman. Use the link in the show notes to register today.