As the COVID-19 era has vividly demonstrated, closing stores has, at best, a chilling effect on shopping.
In April — a month when, unlike March or May, most if not all nonessential retailers closed down — retail sales as measured by the U.S. Commerce Department and tracked by Retail Dive plummeted 16%. Some segments fared quite a bit worse than that. Apparel sales plunged 89%, for example, while furniture and home sales fell 67%; electronics sales fell 65% and sporting goods and hobby sales fell 46%. General merchants, which in some cases were permitted to stay open thanks to sales of essential items, saw sales fall 14%, according to the government's monthly report.
Although e-commerce's ability to fill in for closed stores has been surprisingly flawed, those sales rose 28%, and captured 19% of overall retail sales, up from 12% on average the past two years, according to Wells Fargo Economics Group, led by Senior Economist Tim Quinlan. Credit for that goes to retailers with already nimble e-commerce operations and the expansion of omnichannel services like curbside pickup.
As important as stores clearly are in drumming up sales and marketing to customers, there are signs that quite a few will be left shuttered even as the restrictions brought on by the pandemic continue to loosen. Those that remain must have a clear raison d'être, analysts say.
"Once we get beyond the medical worry of Covid-19, physical stores will once again become vital, but less for the distribution of products and more as a media channel for the retailer or brand," Doug Stephens, author of "Reengineering Retail: The Future of Selling in a Post-Digital World," told Retail Dive in an email. "With digital media costs bound to rise and retailers flood the market, and commercial real estate prices falling, rent will actually become a more economical form of customer acquisition."
An ideal number
Retailers were already rethinking their brick-and-mortar strategies before the pandemic upended their businesses.
Coresight Research tracked a record 9,548 closures last year, sometimes as part of bankruptcy restructuring, which this year is also leading to several announcements of permanent closures, along with the tens of thousands of temporary ones. Macy's in early February announced the closure of 125 underperforming stores over the next three years as part of its now delayed turnaround plan.
The pandemic could add to that count, as Macy's CEO Jeff Gennette hinted during an early May call with Gordon Haskett Research Advisors. A few days after that Nordstrom announced it will permanently close 16 of its its full-line department stores, later adding its three Jeffrey designer apparel stores. J.C. Penney, Lord & Taylor, Neiman Marcus, Pier 1 and other retailers in bankruptcy or otherwise in financial distress could close hundreds more.
And then there are the department stores, which before the disease outbreak were consistently faulted for running too many overly large stores. That's why more than half of mall-based department stores will likely close for good within two years, a scenario hastened by the pandemic. But specialty retailers, especially those selling apparel, also face hard truths about how many stores to have, analysts say.
"Any brand, I don't care who you are, doesn't need so many physical locations," Lee Peterson, executive vice president of thought leadership and marketing at WD Partners, told Retail Dive in an earlier interview. "All the malls are closing — in the United States there's really no more than 100 A and A-plus malls. Columbus [Ohio] at one time had seven malls and now we're going to have two, and of those, there's one that's really good. That's a pretty good microcosm of what we're going to have. Nowadays, especially post-COVID, you are really stretching it to go beyond that."
Stephens envisions at least a 25% to 30% reduction in the square footage allocated to physical retail. Having a more effective store base isn't just about shrinking it, however. Stores must be designed and staffed for clear purposes, then follow through on those aims.
"Brick-and-mortar stores will be used more as galleries, showrooms and event spaces," he said. "We'll rely on physical retail for only the most convenience-based products and items requiring more physical consideration, items like fresh produce for example."
E-commerce is not a great store
As beleaguered as brick and mortar is, retail can't thrive without it, in part because e-commerce remains a lackluster and inefficient way to shop for nonessential goods, and a poor conductor of impulse-buying, according to Credit Suisse analyst Michael Binetti.
"Eighty percent of people still set aside time to get in a car and go to a store to purchase something that they could have gotten online," Binetti said in a May 14 discussion with the firm's chief U.S. equity strategist, Jonathan Golub. "I think retail in the age of e-commerce is a game of starting points."
That is, retailers with large fleets need to shrink them, while e-retailers like Warby Parker and Amazon have had to open "a few key locations," he said.
Location also matters, given how many malls are failing to drive the traffic and sales they once did. But attractive stores in major shopping districts, in cities like New York, Chicago and Los Angeles are another matter, Binetti said. "We would want a store on Fifth Avenue and Michigan Avenue and Rodeo," he said.
April's e-commerce rise, in revenue and market share, doesn't necessarily tell the whole long-term story, either. It's true that the pandemic has led more people to shop online, even those previously uncomfortable with or disinterested in it, notes Rebecca Hamilton, professor of marketing at Georgetown University's McDonough School of Business. But her research suggests that's unlikely to diminish the value consumers place on shopping in stores because their reasons are fundamental, she said in an interview. "We really like to try out things," she said. "That's why when people feel safe, they are wanting to go back."
Indeed, around Memorial Day weekend, as several retailers reopened, more consumers report higher levels of comfort about going shopping. More than 40% now feel safe going to the store, up from 30% in April, and the intention to shop predominantly online has lessened, according to Deloitte's consumer tracker. Store-based pickup of online orders remains steady — 82% of U.S. shoppers plan to in the next four weeks — though 40% now cite safety concerns (down from 48%) and 32% cite delivery costs.
But sales at physical stores will remain limited until there's a dependable medical solution to the coronavirus — likely a year away at the earliest, Stephens said. Reopening stores too soon, as some public health officials warn is happening, could undo the progress that was made during the shutdown, he also said. And financial anxiety among various income groups will undermine sales in all channels.
"We can forget about discretionary spending in the short term," Stephens said. "Consumers, having gone through an initial phase of panic buying, will largely remain in a state of immobility until the clouds of crisis clear. Until there is a vaccine and widespread inoculation, there can be no return to pre-pandemic volumes."
The ones that stay
The intensity of the disease outbreak means new rules for physical stores, which will have to meet expectations for cleanliness and social distancing that are likely to persist well after the pandemic subsides, as well as for convenience and customer service, experts say. Technology can support solutions like in-store and remote customer service to reduce in-store browsing, virtual dressing rooms and contactless checkout, for example.
More broadly, physical stores now need e-commerce as much as e-commerce needs physical space, staffed by humans, according to Michael Stefanakos, chief revenue officer at retail solutions company FieldStack.
"People buy from people — whether it's clothing or books or cold cuts — it's the personal experience. That's why physical stores aren't going away — tech can only take you so far."
Chief Revenue Officer, FieldStack
"People are going to expect a different level of competency," he told Retail Dive in an interview regarding retail post-COVID. "You've got to have a sophisticated e-commerce presence if you want to be a successful brick-and-mortar retailer. You need to be able to show that you've got five of whatever product in stock and in which store. That gives your customers the confidence that it isn't a wasted trip."
Sophisticated analytics also reveal who shops in which stores, which brings efficiency to the supply chain and improves customer service, he said.
Another lesson for physical stores that may be accentuated by the pandemic experience is newfound appreciation for the people who work in retail, thousands of which have lost their jobs as nonessential stores shuttered, or risked their health as essential ones stayed open. Good use of tech and data enables store staff, who represent one of the biggest reasons why people gravitate to stores, according to Stefanakos.
"The whole purpose of technology is to free people up to do what they do best," he said. "People buy from people — whether it's clothing or books or cold cuts — it's the personal experience. That's why physical stores aren't going away — tech can only take you so far."