The retail shop might be beleaguered in this era of convenient online shopping and free returns, but it's not dead yet. Far from it: just look at the storefronts operated by formerly online-only brands such as Bonobos, Warby Parker, and Rent the Runway.

But e-commerce has definitively changed the way people shop--and according to one Silicon Valley engineer, retailers are failing to adapt.

Most bricks-and-mortar shops are never going to be able to beat the Amazons of the world at supply chain efficiencies, says Vibhu Norby, formerly a lead engineer at the smart thermostat company Nest. So, he concludes, "the future of retail has to do with discovery and customer relations."

If you're wondering what exactly that means, then step right into b8ta, Norby's Palo Alto-based shop that sells Internet-of-Things gadgets. B8ta is designed to be one big showroom where customers can play with high-tech gadgets and ask questions about how they work to employees that don't work on commission. Instead of trying to eke out a profit from thin product margins, the company instead makes money by selling manufacturers monthly "subscriptions" to display spots.

"Retailers operate on super thin margins. Selling space to manufacturers has to be done--space and staffing are expensive," he says.

And what if shoppers just want to try something out but don't want to buy it in the store?

"Showrooming is a good thing for us--that's why manufacturers pay subscriber fees," Norby says. Shoppers can buy the products in stores, but iPad displays, which can be updated remotely by product companies, offer price comparisons from other retailers such as Amazon.

The big value proposition for these companies, besides the fact that they keep 100 percent of sales made, is the data b8ta collects from consumers' interactions with the products. "We're basically like an Internet-of-Things store," Norby says. One hundred and fifty cameras capture how long shoppers stop in front of each product and their path through the store, while the iPads track the colors and styles that shoppers click on.

"Physical stores have always been somewhat of a black box, in comparison to all the data e-commerce sites can collect on individual visitors," says Zoe Leavitt, a tech analyst at CB Insights. "Now, with new tools like foot traffic sensors, machine vision, wi-fi tracking, and artificial intelligence for analytics, manufacturers can start to make sense of how customers are interacting with their products on the shelves in the physical world."

Doug Bieter, head of sales for eero, maker of a home wi-fi system, says renting b8ta space has yielded merchandising insights the company might not have learned otherwise. For instance, because the company can track exactly how long someone stands in front of an eero display, they now know that a four-minute explainer video is too long.

If b8ta is really going to prove that this alternate retail business model works, it's going to have to expand quickly enough--without burning through too much cash--to become a meaningful retail presence for manufacturers outside of a tech enclave.

B8ta's second location was slated to open in early December in the high-end Santa Monica Place shopping center in the Los Angeles area​. Just a few weeks before the biggest gift-giving bonanza of the year, the launch hit a snag: with one week left before the opening, the massive sliding glass doors for the entrance still hadn't been delivered. The b8ta team scrambled to secure a temporary space just several storefronts away in the same mall. Problem solved, and only a week behind schedule.

Faced with a similar delay, most retailers still would have been a nervous wreck. That's precious lost time for driving the all-important holidays sales that can make or break a store's year. But Norby uses the situation to point out what he thinks is the beauty of his retail model.

"Seasonality doesn't matter that much for b8ta's business model," he says, though he acknowledges that "for vendors this is the most interesting time of year."

The weekend b8ta opened in Santa Monica, about 1,000 people came into the store. (A slow day at b8ta might bring in a couple hundred visitors.) Not everyone buys something but shoppers typically interact with more than half of the products. That's valuable, Norby argues, and perhaps the best way forward for retailers. B8ta won't disclose how much manufacturers pay for placement but did say it varies based on each store's location (the Santa Monia store is higher based on traffic patterns).

The ever-changing roster of products fall into four categories: home, sense (wearables and virtual reality/augmented reality), play (robots and tech toys), and move (transportation-related items). The Santa Monica store is heavier on the last two categories, a reflection of the kind of consumers who frequent the area. Pepper the robot was manning the entrance of the store on a recent Monday and other items like a smart oven and an electric bike were on display.

B8ta, which has raised $19.5 million in venture capital to date, opened a third store in Seattle in December and operates mini stores focused on smart home products inside three California Lowe's stores. It's a pretty small sample size so far, but Norby seems unconcerned. He won't get into expansion specifics but says b8ta will be in "most cities" within a couple years and that the new locations won't be all electronics. "People will be surprised what categories we get into," he says.

Published on: Dec 20, 2016