The long-running tussle over how people shop — online or in-store — has a new wrinkle.
Coming out of the worst of the pandemic, stores got a new lease on life: shoppers freed of mask mandates bumped up traffic and retail landlords experienced the kind of swelling demand they had all but forgotten. The respite has been brief, with signs that people are returning to their old online ways. And really, that reversion seems inevitable, given how accustomed we’ve grown to the ease of online shopping and free returns — a process that the pandemic only turbocharged.
Now, as the dust settles from the whiplash of COVID spending habits, the real test of strength for retail’s online businesses is beginning. Data last week showed back-to-back declines for retail sales at primarily brick-and-mortar stores, while spending grew online. Year-on-year online prices have been falling for seven consecutive months, drawing shoppers. The question this raises is whether traditional retailers have successfully absorbed the lessons of the pandemic; and whether the billions of dollars pumped into e-commerce technology and supply chains will be enough for them to hold on — or even flourish — in the next era of online shopping.
Walmart Inc, for one, invested just short of $13 billion over 2021 and 2022 in such upgrades, and in building out its hybrid online and offline services such as buy online and pick up in store. A chunk of its estimated $18 billion in capital spending this year is likely to go in the same direction. Target Corp, Macy’s Inc, Nordstrom Inc and really the whole industry has pumped billions of dollars into sortation centers, same-day delivery, online platforms and other digital-aligned services.
The investments were a long time coming — but the question of whether companies have done enough remains to be answered. One key lingering challenge for many is expensive and money-losing storefronts. Walmart and Target have both closed some stores this year, even as they renovate
others; American Eagle Outfitters Inc, Bath & Body Works Inc and Foot Locker Inc all have plans to shrink their physical footprint. Even Amazon.com Inc is closing stores, though Whole Foods Market remains untouched.
Walmart has seen monthly declines in store traffic since July, when compared with the previous year, while Target’s numbers have also softened, according to data from Placer.ai, a location analytics company. That’s offset by shoppers staying longer, says Ethan Chernofsky, a senior vice president of marketing at Placer.ai, who interprets any declines as a shift to “mission-driven shopping,” where people do more in fewer visits. He added that the investments both companies are making to stay ahead of hybrid online and in-store shopping trends should strengthen their positioning.
Even though stores often fulfill online orders, they can still drag on profitability amid slower consumer spending and more online shopping. Analysts at UBS Group AG estimated in a report last week that more than 50,000 stores will close by 2027 under their forecast for e-commerce penetration to go from the current 20 percent to 26 percent. But they predict that the leading retailers may benefit as greater e-commerce penetration is likely to hit smaller chains and mom-and-pop stories hardest, leaving some $285 billion in sales up for grabs — some of that will flow online, but the rest will flow to the streamlined brick-and-mortar survivors.
There’s little doubt that stores will always have a place in our modern era of retail, though their ubiquity and utility are changing. Stores have more success now as a “vibe” that embodies the company’s brand, and as a place to show off new merchandise, and quickly exchange or return products. As retail companies struggle to find the right online-offline balance, our shopping-scape will continue to morph even as our passion and need for shopping remain intact.
Leticia Miranda is a Bloomberg Opinion columnist covering consumer goods and the retail industry. Views are personal and do not represent the stand of this publication.
Credit: Bloomberg
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