In January 2009, Iceland’s almost bankrupt economy caused the government to collapse. The small, beautiful and still remote island northwest of Ireland was home to 319,000 people who suddenly saw their economic future nosedive. There was panic. Desperation. And a resolution took hold in every Icelander’s heart to claw their way out of a monetary circumstance they could not control.
Like the magical island of its ancient sagas, Iceland reached out to its inhabitants to help them – with the eruption of Eyjafjallajökull. Although relatively small for volcanic eruptions, it caused enormous disruption to air travel across western and northern Europe over a week in April 2010. Suddenly, Iceland was on every news station in the world and travelers added the spectacle of seeing an erupting volcano to their immediate bucket list. WOW, Easyjet and other discount airlines ran flights to Iceland for under $100 from Europe. American and Canadian ads suggested a layover in Iceland for a therapeutic spa stay to overcome jet lag to Europe. The tourists arrived.
Icelandic retail kicked into hyperdrive.
I visited Reykjavik in 2004 and again 15 years later in 2019. The difference in Laugavegur – Reykjavik’s high street (“main street” in US lingo) – from 2004 to 2019 is striking. The city of ~110,000 people swells in the summer when cruise ships and planes bring in tourists. In 2004, their most optimistic forecasts thought they could reach perhaps 1 million visitors by 2020. Instead, over 2 million visitors arrived in 2018. Steadfast in their resolve to build economic stability, many Icelanders opened retail shops, turned their family farms into B&B’s, offered horse treks with the family herd and catapulted amma’s* recipes into a roadside cafe.
So they danced while the fiddler played. But 2019 tourism is down -24% this year. Which means high street is likely to start looking sparse as shops close. The downward spiral is that less tourists means less shops which is less attractive which means less visitors and so on.
A local retailer told us their island has been visited by the trend setters and they –and their deep pockets– have moved on.
Here is what it means for high street retail.
- Iceland has a very limited amount of natural resources to fabricate and export goods. For tourists, the basics are wool and rock. That’s about it. Sure there are fish – but who is taking that home. Which means when Reykjavik opens 50 souvenir shops, it is the same goods over and over: sweaters and all other manner of woolen goods and things made from rocks: candleholders, jewelry, desk trinkets. That’s about it. The incredible merchandise repetition on Reykjavik’s high street causes tourists to shop less and visit less store per day than other more diverse shopping destinations.
- With uninspiring retail, city visitors tend to head to the bars early in the day. Reykjavik promotes itself as a partying town. Certainly, that is true. But for retailers there, they must covet the disposable income that ends up in a beer glass or cocktail shaker.
- From the sales levels I saw, many retail shops are just keeping their head above water. Soon, shop owners will cut back staff hours, reduce part-time positions and decrease inventory. Meaning shops will be even less enticing and staff assistance will not be plentiful.
So what are the retail strategy lessons to learn from Reykjavik?
- Look at merchandise diversity when granting occupancy and use licenses. While no city should be in the business of selecting merchandise or setting retail strategy, a nod to price range and product diversity is key. US Landlords regularly set merchandise exclusivity for shopping districts where food, footwear, toys, appliances, media and other key categories cannot be sold within the same shopping center by more than one retailer. It keeps the shopping area more vibrant with diverse products on offer. Naturally, some categories like women’s apparel or home decor can withstand many more shops. But reviewing the average price per item can help diversify customer offerings. The key is to help provide a wide assortment of products for sale to entice shoppers to visit many stores.
- Encourage local artists and creators with retail spaces to showcase their products. Artist studios should be zoned so that they can also be retail establishments – at least during limited hours. Such arrangements help expand a sustainable economic base that can withstand fluctuations in shopping traffic levels. Artists and creators can endure shopping declines without creating unemployment the way that standard tourist shops do.
- Partner with educators to help build natively-designed products. Work with high schools technology departments and colleges to fund labs and studio spaces where young designers can create their own products. Access to 3D printing technology, CAM milling machines, ceramic kilns and industrial textile production early in a designers career can help them explore new product development. New products are the heart of retail. A region that innovates with new products and designs will be a more vibrant retail destination.
Selfishly, I will return to Iceland and never miss the multitudes. But for any municipality looking to build a resilient retail segment, there are lessons to be learned from the boom – and inevitable bust – of Reykjavik’s high street. Getting a retail strategy right is non-negotiable. It is why it is the first chapter in Retail: The Second-Oldest Profession.