Brick and Mortar Isn’t Dying — It’s Evolving in COVID Times
2020 was a year marked by a record number of store closures as the coronavirus pandemic slammed retail and rapidly drove consumers online. Although 2021 — amid a surge in COVID-19 cases — is expected to see more of the same bruising in the retail sector, some experts are painting a more hopeful picture for the year ahead.
According to recent data from CoStar Group, the average retail vacancy rate is forecasted to rise to 5.7% this year — up from 5% in 2020 and the highest level since 2015. Last year, retailers like JCPenney, Lord + Taylor and Men’s Wearhouse collectively announced 12,200-plus store closures, which the firm said represented roughly the equivalent of 159 million square feet of retail space. Already, in the early weeks of 2021, Macy’s and Christopher & Banks are among the retailers that have announced closures.
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However, it’s not all bad news for the industry: Sarah Engel, CMO at consultancy January Digital, said the accelerated shift to digital and consumer adoption of omnichannel innovations doesn’t necessarily spell the end of physical stores. Rather, it has led retailers to rethink their brick-and-mortar strategies and find creative ways of keeping stores relevant amid a so-called “new normal.”
“2021 is going to be a year of agility,” she told FN. “The harsh reality is that there are too many stores right now, but the physical retail store will continue to exist. Their purpose is shifting pretty drastically — both from a customer perspective and how they’re being used: They’re serving as mini-distribution centers. They’re acting as return centers. They’re becoming COVID-19 testing sites.”
Over the past year, major chains like Walmart and Target have converted some of their outposts into fulfillment hubs in order to get orders to consumers both faster and more cost-effectively. Meanwhile, Amazon took a chance on traditional retail even before the COVID-19 health crisis slammed the United States: It entered into a high-profile partnership with Kohl’s a couple years ago to enable customers to return their Amazon.com purchases, which can potentially drive more traffic to stores.
Retailers are also introducing new concepts, like Dick’s Sporting Goods’ Public Lands venture, which is opening two locations this year in former Field & Stream stores as the company retreats from the firearms business. “We think there’s a real opportunity for people getting outdoors, camp, hike, bike, kayaking, fishing,” executive chairman and CEO Ed Stack said in the company’s Q3 2021 earnings call.
But it’s not just about the physical transformation of existing brick-and-mortar stores; some retailers have found success in ramping up their experiential offerings. Lululemon, for instance, leveraged its acquisition of Mirror to create shop-in-shops in 18 of its U.S. units “to test and learn how to refine our in-store selling experience,” CEO Calvin McDonald said in its Q3 2021 earnings call, adding that the brand plans to expand this to several hundred stores this year.
“Over the past several years, we have shifted our organization to be focused on the omni-guest experience rather than focusing on specific channels. This served us very well in the COVID-19 environment,” said president of Americas and global guest innovation Celeste Burgoyne. “We know that guest behavior is dynamic, and our goal is to create opportunities in both the physical and the digital worlds that offer compelling experiences.”
According to HRC Retail Advisory president Farla Efros, digital and omnichannel — particularly curbside pickup and other contactless services — grew to represent 50% or more of some retailers’ sales last year. Digital and related channels such as mobile are expected to remain robust even as COVID-19 vaccination efforts ramp up and consumers feel more comfortable returning to physical destinations.
“The need to create and enhance these capabilities — whether it means investing in processes, tools, or talent — will remain a critical priority in 2021,” she said, adding that “to effectively compete, retailers must find the right balance in their stores of serving walk-in traffic and fulfilling digital orders in stores.”
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