Within the past year, drastic measures in the fight against COVID-19 led to the temporary shutdowns of thousands of stores across the country. While some turned to their landlords for rent relief, others sought a more long-term solution: a complete overhaul of their portfolios.
According to new data from advisory firm BDO, the United States is currently “over-stored,” with an average of 24 square feet per person, compared with Western Europe’s four square feet per person. It’s no surprise then that nearly half of retail CFOs — or about 40% — are reevaluating their real estate footprint in 2021.
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“Store rationalization has been happening for several years, but the pandemic has really accelerated that,” said Natalie Kotlyar, partner and national leader of BDO’s retail and consumer products practice. “While retail CFOs are reducing the number of physical stores, the investments they’re making in brick and mortar is going to increase in order to create a more comfortable and convenient shopping experience that customers are looking for today.”
Here’s what’s on retail executives’ agendas for 2021:
Shedding underperforming stores
Over the past year, hundreds of nationwide chains — some of them anchor retailers like JCPenney and Neiman Marcus — filed for bankruptcy protection as the health crisis worsened their existing business troubles. As a result, many have had to permanently shutter stores, leaving gaping holes at some malls that made them less appealing to shoppers.
The BDO survey showed that a subsequent decline in foot traffic has led 36% of retail leaders to eliminate or consolidate their floor space, while 31% of them are reducing their mall-based outposts.
“These bigger shopping centers need to rethink their purpose right now,” January Digital CMO Sarah Engel told FN. “They’re occupying too much real estate, so they need to reimagine how that space is going to be used, whether it’s by installing pickup lockers [to drive foot traffic into stores] or converting them into mixed-use spaces.”
Investing in safety measures as well as new capabilities
A surge in new coronavirus infections has led many retailers to shift more resources toward providing a safe customer experience. BDO reported that 39% of retailers are increasing their investments in their physical stores. About 56% of them require masks, while 46% are limiting capacity regardless of state or local guidance.
But investments must go beyond safety precautions: For customers still hesitant to return to the brick-and-mortar environment, digital is essential. BDO found that 48% of retail players are pursuing digital transformation this year — with 45% either offering or plan to implement contactless payment options and 41% adopting buy online, pick-up in store services like curbside pickup.
“Omnichannel execution is essential to growth in 2021, even if retailers are working to improve the safety of their physical stores,” added Kotlyar.
Pre-COVID-19, “experiential retail” had been on the rise. Traditional retailers — already contending with the disruption of e-commerce — sought to lure in customers with events such as speakers’ series and networking mixers or trunk shows and in-store cafes. However, those activations and installations (plus other high-touch offerings) have largely been put on hold as COVID-19 continues to spread.
In the short term, as social distancing becomes the norm and new shopping preferences emerge, BDO noted that 47% of retailers have begun to revamp their store layouts. Certain kinds of in-person experiential events like pop-ups have still been possible, just with fewer people and special restrictions.
“A lot of spending habits have changed, but people still want an experience before they want a new wardrobe,” said A Line Partners founder Gabriella Santaniello. “This is an opportunity for retailers to make their stores a little bit more exciting.”