The Return of Retail

This time last year some wondered if there would still be a place for physical stores in a post-COVID world. With everyone stuck at home and increasingly realizing that they could have virtually anything delivered right to their door, the idea of walking around a crowded mall seemed fairly superfluous, if not outright dangerous.

But tales of the demise of retail seem to have been greatly exaggerated. It's true that some retailers, both large and small, succumbed to the temporary decline in business, just as did some businesses in other hard-hit sectors like travel and hospitality. But most retailers seem to have pulled through, and a year and a half into the pandemic, the outlook is far different now.

With the threat of COVID still looming, especially considering the recent surge of the delta variant, online shopping may indeed keep booming. But while some might argue that there’s no going back, it's very much looking like both ways of shopping can thrive simultaneously.

Mall foot traffic

Outdoor shopping centers saw an increase of 2.1% in monthly visits during July 2021 compared to July 2019 and even indoor malls are only .01% away from those pre-pandemic numbers. Retailers have had foot traffic increase each month this year, with more than a 20% increase between June and July for outdoor malls and an over 10% increase for indoor malls. It’s clear that people missed shopping in person and that these institutions are more resilient than people realized.

True, this has been the case for mostly higher-end mall operators, such as Simon Group. Others haven’t posted such good numbers. Still, customers seem to be willing to drive farther for malls that give them more in terms of items to buy AND things to do, so updating shopping centers with dining options, entertainment, and other experiences will likely continue to be the best way for malls to survive and thrive.

Online challenges

Despite their growth spurt since the pandemic, there are some serious challenges facing online retailers. Most notable is their enormous expenditures on returns. People are buying just about everything online these days, items large and small, thanks to e-commerce giants like Amazon and Wayfair. But as it turns out, photos can’t necessarily tell you whether shoes (or couches) will actually fit. And as the shopping experience has gotten easier, so too has thoughtlessly buying things without thinking it through.

The rise of free returns (and people’s expectation of them) has made it easier to take the purchase plunge, but it's also made it easier for customers to change their minds or to buy jeans in three sizes and return the ones that don't fit. This costs retailers enormously, as very ofter returned items can't be restocked. And customers return a far greater percentage of the items they buy online than things they buy in person – as much as 25-30% .

All these home deliveries and returns are seriously hampering the country’s shipping and logistics infrastructure as well. It's far more efficient to ship things to stores in bulk than individually to consumers' homes. So online retail may be costing our environmental health too. Such considerations might become more important as climate change worries intensify. The best way to solve these problems for both customers and retailers may be to just go to the store.

Internet addresses

Online retailers seem to be reaching that same conclusion. We may be seeing the transition from bricks-and-mortar to e-commerce come full circle. Amazon is evidently planning to join the ranks of physical retail locations with two 30,000 square foot department stores. That’s in addition to their existing small, curated AmazonGo stores.

It may seem counterintuitive for an ultramodern tech company to revive a retail model more closely associated with the gilded age. But think back to twenty years ago when Apple built its first retail store at a time when others were pulling back. In retrospect that now looks like a genius strategy.

It’s an interesting move for a company that used its online commerce model to drive many bricks-and-mortar stores out of existence. But it's clearly indicative of the value of in-person retail sales. One big goal for Amazon will be further personalization, as it tracks customer sentiments in yet another way when they walk into physical stores. This data will likely be invaluable to their online business. And as the largest clothing retailer in the U.S., Amazon will force other retailers to get creative once again in order to win back market share.

And Amazon's not the only tech giant to break into retail in 2021. Google just opened their first retail store as well. It's in their New York headquarters building in Chelsea (down the block from my office, as it happens.)

Retail fusion

Existing physical stores, whether they anchor malls or stand alone, are seeing new opportunities to bring people back. Post-pandemic, the immediate gratification of taking home an item immediately has great appeal. And many consumers are uncomfortable buying big-ticket items online without first seeing them in person, something that holds true even among younger customers.

Some big box stores had an advantage during the pandemic because they also sold groceries and could stay open for curbside services. But even, for example, knows competition is stiff. One of Target's latest moves has been to partner with Ulta Beauty for a “shop in shop” concept that will sell more than 50 mid-to-high end cosmetic brands. That adds an edge both in person and online, where the items will also be available through a “fun, immersive Target.com experience.”

In a similar play for the beauty market, Kohl’s is partnering with Sephora. They now have 1,150 locations in 49 states, and the companies have plans for more than 850 stores by 2023 with 400 locations targeted to open in 2022. Unlike Ulta, which will sit by Target’s current offerings, Sephora at Kohl's shops replace Kohl's previous in-store beauty assortment entirely. While both Target and Kohl’s have promised an immersive experience, the pandemic is still preventing the possibility of trying makeup on in stores. It will be interesting to see how they make the most of these partnerships via low-touch concepts.

Macy’s, which traces its history back the original department store boom, is also looking to make the most of this retail fusion. They've been expanding partnerships into new verticals like gourmet food and wine. But their recently announced partnership with defunct old favorite Toys R Us promises both excitement and nostalgia.

Walmart, meanwhile, is doubling down on the investments it's made in logistics and last-mile delivery . This could potentially allow them to enlist thousands of smaller stores, both online and in-person, in their ongoing battle against Amazon.

All sizes

Smaller retailers are using different tactics to lure customers back in, like exclusive events. It's one way to make up for some of the high-end shopping experiences they still can’t offer because of pandemic restrictions. They’ve found ways to create experiences within the confines of the new rules, some of which provide the same air of exclusivity.

Ba&sh is bringing back its weekly Dream Closet happy hour this year that provided customers a glass of champagne and the chance to borrow an item over the weekend, but spaces will be limited, making it even more exclusive. Shoppers’ appetites for experiences have returned in a big way and smart brands will take advantage of that.

Brands that have successfully used social media to build their brand personality over the last year are taking a run at brick and mortar stores as well. Kim + Ono, whose luxurious kimonos already drew in those who enjoyed the Japanese aesthetic, threw their support behind the Asian-American community after violent attacks took place around the country, earning themselves an entirely new following.

The new fashion concept store Two: Minds in Soho offers a mix of products from both established designers and up-and-comers.?A good friend of mine just signed a lease to open a new store in Melbourne for her clothing line Lindsay Nicholas New York. So the optimism for retail stores runs from large brands to small ones.

Memorable experiences

Many existing retailers are indeed turning to experiential, and I'm happy to see them take my advice in that regard. At one end of the spectrum, these can take the form of pop-ups, from brands like Studs, Louis Vuitton, and Dior. Some brands are creating Instagrammable art installations like Louis Vuitton’s NYC SoHo shop that was built to look like it was underwater.

At the other end of the spectrum, luxury stores are tapping into their customers’ desires for exclusivity and community in completely. new ways. Take, for example, Saks Fifth Avenue’s SaksWorks . The store-branded, membership-only co-working hubs will launch in the northeast this September in New York City; Manhasset, Long Island; Greenwich, Connecticut; and Eastchester, New York. Three of them are housed in former Lord & Taylor stores, continuing a now-familiar trend of repurposing retail spaces.

Meanwhile, Barney's old flagship store on Madison Avenue is being repurposed as new kind of artistic venue called Art House. Part gallery, part event space, part exhibition, it expects to "do for the art world what Barneys did for luxury shopping almost a century earlier: offer high-end wares from disparate sources all under one roof." Art meets retail, in a way.

If you build it, they will come

Customers are ready to get back to in-person shopping and retailers realize that they have much to gain from drawing them into physical stores even while they maintain an online presence. More time spent shopping, less frequent returns, and new ways of securing customer loyalty through memorable experiences are just some of the rewards retailers can reap.

Bold changes to physical environments help set the stage for brands to reinvigorate their relationships with customers. While it’s unlikely that new innovations will entirely lure customers away from online retail, the potential for satisfying hybrid shopping experiences is great.