From Concept To Flagship To Omnichannel Fulfillment Center, Physical Retail Reheats

Few industries were harder hit during the pandemic than retail, but even fewer sectors have adapted more during the crisis and, in turn, emerged with better near-term prospects on the other side.

Today, a confluence of factors have collided to give physical retail spaces renewed stature within the industry, where less than two years ago there was largely stress, shrinking market share and margins, as well as an abundance of vacancies and a feeling of doom.

Granted, there are fewer large players in the game post-COVID, but that thinned competition has also caused more brands and retail chains than ever to roll out new plans to add brick-and-mortar stores to fill the void and serve the changing needs of customers.

According to the latest projections from the National Retail Federation (NRF), those changing needs — along with other factors — are lining up to push U.S. retail sales higher by up to 13.5 percent this year, which would mark the industry’s best growth in nearly 40 years as the economic rebound has accelerated faster than most people expected.

“We are seeing clear signs of a strong and resilient economy,” said NRF Chief Economist Jack Kleinhenz, pointing to data that suggests rapid U.S. economic activity and an energetic expansion over the coming months and through the remainder of the year.

Low-End Love

So far, low-end retailers and discounters have been the most aggressive players in the brick-and-mortar bounce. According to recent data posted by retail analytics firm Coresite Research, the three national “dollar store” chains account for nearly half of the 4,161 new store opening announcements this year through May 28.

While that new store tally is up 60 percent from the throes of the COVID lockdown era, Coresite said it exists alongside a growing — and larger — list of over 4,400 U.S. store closure announcements, which are up over 20 percent from last year, with the net result being roughly 18 million square feet of net new retail space coming online in 2021.

“We continue to operate from a position of strength, and are excited about our plans for 2021 to continue delivering value and convenience for our customers, along with long-term sustainable growth and value for our shareholders,” Dollar General CEO Todd Vasos said in March.

Even though the company’s post-COVID growth rate is projected to slow, its physical expansion is not and Vasos said the retailer is forging ahead with its strategic initiatives and plans to do $1 billion worth of capital expenditures this year on nearly 3,000 real estate projects, including 1,050 new store openings, 1,750 remodelings and 100 relocations.

Other discounters and warehouse names, including Costco, and Big Lots are also increasing their store counts, albeit at a much smaller scale.

“In terms of warehouse expansion, we opened six new warehouses [last quarter]: one in the U.S., three in Canada, and two internationally,” Costco CFO Rich Galanti told investors two weeks ago, “and we also have plans [this quarter] to open seven additional ones, five in the U.S., and two others internationally.”

All total, Galanti said, Costco will add 21 net new warehouses this year and 25 more in each of the next two fiscal years, including a second warehouse in China.

Flagships And Concepts

The physical store trend is also being pushed by strong, profitable brands, including Nike, Lululemon and Dick’s Sporting Goods, that are leveraging their leadership and pricing power to buttress their leadership with more consumer-centric, experiential omnichannel locations.

“We believe the future of retail is experiential, powered by technology and a world-class omni-channel operating model,” Dick’s Executive Chairman and former CEO Ed Stack told investors last month, noting the company’s plan to open more of its new “House Of Sports” concept stores this year follow the format’s April debut.

And 2021 will be the “boldest and most transformational year in the company’s history,” Stack said of the new stores that include indoor and outdoor play spaces that allow for experiential shopping, kicking, climbing, swinging and more.

In addition, 10 days from now, Apple is set to unveil its first store in downtown Los Angeles in the repurposed Tower Theater building on June 24. Not to be outdone, or left out, Google said it was opening its first-ever retail space this summer near its growing urban office footprint in New York City, characterizing its new location as “a space where customers can experience our hardware and services in a helpful way.”

Sum Of The Parts

While this retail surge is undeniable, its long-term sustainability remains to be seen. Even so, the embrace of the trend touches multiple categories, as retailers of all persuasions look to capture the current consumer surge in shopping, whether that is for clothes, shoes, sporting goods or groceries, the latter of which is seeing new large expansion plans from the likes of Amazon Fresh and Aldi.

As much as there may be more stores coming online, they are also expected to include new names and different approaches.

“I think physical retail, and that sort of social opportunity is massive,” Matt Alexander, co-founder and CEO of Neighborhood Goods, said in a recent chat with PYMNTS’ Karen Webster, in which he acknowledged that the U.S. is “over-retailed” but also saw that is a huge opportunity to creatively differentiate.

“There’s going to be a real focus on the traditional idea of what retail is meant to do, which is to offer something relevant, to offer something that resonates,” Alexander said. “I think it’s going to be a really interesting time for physical retail.”