Did stores prove their worth during the pandemic?

Photo: RetailWire
Apr 19, 2022

UBS has forecast that 40,000 to 50,000 stores will close in the U.S. by the end of 2026, downwardly revising research from April 2021 that estimated 80,000 closures. Part of the reason for the change is because physical stores have shown their value over the course of the pandemic.

“Stores have proven their critical role,” wrote UBS analyst Michael Lasser in the report attained by RetailWire. “They are attractive tools for acquiring & interacting with customers. They provide logistics support. They serve as hubs of fulfillment. They are important sources of data. Their importance will persist. We have assumed that 25 percent of online sales will be fulfilled by stores. It could be higher than this.”

He also noted the industry saw 5,000 net store openings in the last few quarters.

A second reason for the reassessment is the rise in inflation. Mr. Lasser wrote, “Retail sales growth has been and will probably be strong for the near future due in part to rapid inflation. Retailers recognize sales in nominal dollars, so this provides support even as costs are growing rapidly too.”

Finally, a third reason is that e-commerce penetration surprisingly pulled back to 17.5 percent in 2021 from 17.9 percent in 2020. Mr. Lasser further wrote that penetration has increased “only modestly” this year, rising 40 basis points versus the 100 basis point annual increase from 2015 to 2019.

UBS still expects e-commerce penetration to increase sharply over the next few years, especially as innovations like social commerce, virtual reality and automation/robotics advance.

The updated forecast, however, assumes e-commerce penetration grows from 18 percent of retail sales in 2021 to 25 percent by 2026, down from its previous target of 27 percent.

Nonetheless, 40,000 to 50,000 stores — or between 4.5 percent to 5.7 percent of overall stores — are expected to close over the next five years as online’s gains drive rationalization. The steepest cuts are expected to be seen in the office supplies, consumer electronics, clothing and accessories, sporting goods and housewares channels. Stores in enclosed malls could account for nearly half of all closures being forecast, assuming 10 to 20 percent of them are closed or redeveloped.

DISCUSSION QUESTIONS: Do you agree that “stores have proven their critical role” over the pandemic and, if so, in what ways? Is UBS’s revised estimate of 40,000 to 50,000 closures and online penetration climbing to 25 percent of sales by 2026 more reasonable than its previous forecasts?

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"The pandemic dramatically demonstrated the value of brick-and-mortar stores, and local retail in particular. "
"One thing the pandemic pointed out is that not everyone wants everything delivered and be stuck at home."
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20 Comments on "Did stores prove their worth during the pandemic?"

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Mark Ryski

Of course stores have proven their criticality during the pandemic. Remember “Hero pay?” Stores close for lots of reasons, and by many measures the U.S. retail landscape is way over-built compared to other countries. So the estimates for store closures is not surprising. Notwithstanding the recent modest pull back in online, I don’t think the prediction that it will grow to 25 percent is completely crazy — but it’s only a prediction. Let’s keep it in perspective. No one predicted the impact the COVID-19 pandemic would have either.

Dion Kenney
1 month 6 days ago

The pandemic dramatically demonstrated the value of brick-and-mortar stores, and local retail in particular. The old chestnut “you don’t know what you have until it’s gone,” and the reality of what an “all e-commerce future” would look like was immediately and rudely obvious to all.

Bob Amster

To the extent that stores established the ability to deliver directly to homes, in addition to becoming redistribution points for omnichannel retailers, stores have demonstrated their worth. However during the same period, e-commerce proved to be more desirable to those who could not or would not go to a physical store to shop. In that respect, the industry and customer behavior demonstrated how much less critical physical stores are.

Neil Saunders
Despite some muddleheaded narratives from a few quarters, stores have always played, and continue to play, a vital role in the retail ecosystem. The vast majority of sales are still transacted through stores, and a large slice of online sales are supported by stores. That makes them very relevant. I agree that more stores will close over the next five years. However, I think UBS’s revised forecasts are still exaggerated. Why? From a pure economic, mathematical standpoint there is certainly a need for serious space reduction. In practice it rarely works out because: Individual retailers don’t look at things on aggregate. They review their own situation and see expansion opportunities in locations where they are not currently present. Technically, the market might not need another store, but a retailer sees an opportunity to take share. The U.S. population is diffuse and there is significant distance between shopping centers, so a strong network of stores is often needed to capture maximum consumer spending. U.S. cities and suburban areas are not built efficiently, retail store networks reflect… Read more »
Ken Morris

Stores are in fact mini distribution centers, and this gives retailers and restaurants a competitive edge over their online brethren. Distributing product closer to the end-consumer lowers the cost of shipping while acting as a showroom for customers to leverage their five senses. And, of course, it gives them the option of instant gratification. I think that store locations that earned their keep are still standing. And it’s no surprise that grocery hasn’t
been hit nearly as hard as soft goods and the other non-grocery segments. Retailers who close locations should be thinking about repurposing some as MFCs or ghost kitchens.

By the way, people probably don’t hate the shopping experience as much as the surveys suggest. Convenience (and a touch of laziness) will push the scales in the e-commerce direction, but seeing, touching, and trying on items is a long way from being replaced by virtual reality.

David Naumann

Great points Ken! The roles of the store have evolved in the past few years. They are fulfillment centers for omnichannel orders and can fulfill orders more quickly than a regional distribution center. From an experience perspective, there is no online alternative that can deliver the five senses experience that a store can. The store is not dead!

Richard Hernandez

The importance of stores has always been there regardless of medical circumstances or economic conditions and I think the closure number is stout at best. Many stores found success in creating an online presence, but I don’t see a horde of people switching to all-online shopping. It is definitely a crawl, walk, run scenario.

Jeff Sward

We were overstored long before the pandemic, so store closings are not in and of themselves a barometer. The pandemic accelerated that dynamic and slammed the door on any retailers on the edge. And now, net positive new store openings as we emerge from the worst of the pandemic are the best indicator of just how critical physical stores are. Finally, there is the recognition that DTC/ecommerce businesses have said out loud how important physical stores are to the overall performance, and profitability, of their businesses. It’s an omni/harmonized world we now live in.

Melissa Minkow

Stores have proven their worth, but this is also a recalibration situation overall. There had been unnecessarily large brick-and-mortar footprints for many retailers. Many retailers simply didn’t need the physical redundancies, and consumers are finding a new balance in their shopping behaviors now that omnichannel services exist. The teeny pull back in online shopping could easily fluctuate back next year but, either way, brick-and-mortar increases online business. Channels work together now – every touchpoint is valuable in today’s customer journey.

Lisa Goller

Agile stores that evolved to serve omnichannel shoppers’ needs proved their critical role in retail success. Ship-from-store, dark stores, BOPIS, curbside pickup and off-mall moves made stores pandemic-proof.

Yes, UBS’ downward revision is reasonable. As much as we value convenience, we still love stores. Underperforming retailers have been decluttered over the past five years; stores that remain are more responsive and resilient.

Brian Cluster

Absolutely. Stores have proven their worth to be versatile in a pandemic and in a digital-driven world. Think of all the innovations that happened in the store, BOPIS, ROPIS, and delivery. They also served as a key point in the community when people needed it most. Change continues with many DTC brands now opening physical stores which shows the importance of personal touch and interaction with the customers. That said, with the greater adoption of digital commerce, many stores need to evaluate the purpose of the store and continue to build on what the stores may provide.

With live shopping, social commerce, and other innovative digital channels being adopted the online penetration rate will continue to climb.

Dick Seesel

E-commerce will continue to grow at a faster pace than pure brick-and-mortar, but the distinction between the two is blurrier than ever. It’s hard to make the case that curbside pickup and ship-from-store belong in one sales bucket or the other; this has become the new “cross-shopping” in the same way that customers used to shop at both Target and their local department store.

The rebound in physical store shopping also suggests that lifelong consumer behavior (social interaction, trying on something new) can’t be totally displaced by two years of pattern changes.

DeAnn Campbell

Incentivizing shoppers to include physical stores is the absolute best way to improve profit margins, basket size, loyalty, employee satisfaction and brand recognition. This was only underscored during the pandemic.

Gene Detroyer

As Mr. Lasser notes, “Stores have proven their critical role. They are attractive tools for acquiring & interacting with customers. They provide logistics support. They serve as hubs of fulfillment” That is the definition of stores in the future.

Did stores prove their worth? The easy answer is, yes. Shoppers voted with their dollars and feet to confirm that. But one must question how many stores did not make it through the pandemic, mainly because they could not offer the services that Mr. Lasser notes. Sadly, there is a limit of resources that most retailers have to meet Mr. Lasser’s objectives. Small stores and limited chains will find the future difficult.

Brandon Rael

The brick-and-mortar stores absolutely have proven their worth during the pandemic. They have served as centers to connect and experience, and they provide flexible methods of product fulfillment. Going against the retail apocalypse false narratives, stores underwent an evolution even before the pandemic started.

With the blended digital and physical shopping journeys, stores will remain vital. We should expect continued store rationalization initiatives to right-size store fleets and the drive for more customer-first store formats that will drive engagement and increase conversion rates with integrated and engaging technology innovations.

Every single brick-and-mortar and digital strategy should begin and end with the customer experience and journey in mind.

Brian Delp

Yes, stores continue to be the foundation for successful retail however their role has evolved to be much more than a point of sale. They are now functioning as distribution centers as well. The e-commerce penetration has declined in recent weeks as restrictions are lifted and I see the trend shifting back to the original trajectory.

Gary Sankary

This sounds like the old “Retail Apocalypse” discussion. According to NRF in 2021 retailers opened twice as many new stores as they closed. One of the key lessons that the pandemic reinforced was that customers who shop multiple channels are more valuable to a retailer than those who only shop one. The value of a physical location to delivering a retailer’s value proposition can not be overstated. Retail is dynamic. Bad retail continues to struggle and close. Great retail continues to grow. Best in class retailers are doing so with physical locations and through digital commerce. Any discussion about how many locations are closed has to also include statistics about new store openings, otherwise the story is distorted.

Craig Sundstrom

It seems kind of cheating to say stores have proved their value, and then list one of the ways as “order fulfillment.” Perhaps we’d be more accurate to say “having a physical presence” has proven itself.

I think it would be valuable, too, to look at different rates in different sectors: gas, presumably is still 100% stores based — prices notwithstanding! — convenience stores near that, groceries still very high … and the ones where online has had a dramatic impact: electronics? office supplies? books?

James Tenser

As too often occurs with broad analyses of retail, this one from UBS needs to be de-constructed to be truly diagnostic. The trend varies greatly across classes of trade and product categories. I imagine that grocery, club and convenience store closures will not contribute much to the forecasted 40-50K closures, for example. Office supply, specialty apparel, and mall-anchor department stores are certainly at much greater risk, as the report indicates.

A “rationalization” of store counts in those sectors is justified and not unhealthy, in my opinion. Hybrid shopping journeys will continue to rise in all sectors, and curbside pickup has proven its appeal for some (not all) purchase occasions. When shoppers choose to visit physical locations, they will be motivated by momentary need, personal preference, or hedonic benefits.

Stores certainly “proved” their worth during the pandemic, but no proof was really needed. Each retail sector is now much closer to finding a natural equilibrium between digital and physical shopping, as shoppers master how to optimize each occasion.

Kenneth Leung

The death of stores is always overstated in my point of view, from the vocal segment who swears they never want to step outside to shop again. One thing the pandemic pointed out is that not everyone wants everything delivered and be stuck at home. Good stores with good offerings will stay open and draw people there. In other cases, the traffic pattern — especially around commuter areas — definitely changed and some of those stores may not make it.

"The pandemic dramatically demonstrated the value of brick-and-mortar stores, and local retail in particular. "
"One thing the pandemic pointed out is that not everyone wants everything delivered and be stuck at home."
"Channels work together now – every touchpoint is valuable in today’s customer journey."

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