How Retail’s Physical Spaces Will Adapt in the Post-Pandemic Era

Generations are often shaped by common experiences and major historical moments, and the COVID-19 pandemic is sure to leave an indelible mark on current and future generations for years to come. Millennials and Gen Zers who endured the global health crisis will be shaped not just by the grief, loss and financial damage they faced, but also how their behavior and online habits drastically changed. The way consumers now buy products and services is creating tectonic shifts that are greatly impacting the retail industry.

The lockdowns spurred by the pandemic cratered thousands of businesses across the U.S. and Canada, leaving a trail of bankruptcies and closures. According to a recent McKinsey report, apparel and fashion sales in particular suffered one of its worst years, as this segment of the industry endured a 90 percent plunge in profit in 2020.

COVID’s Impact on the Retail Industry

In the U.S., 10,000 stores are expected to close in 2021, and a recent study by First Insight found 60 percent of consumers don’t plan to shop for apparel in brick-and-mortar stores the same amount after being vaccinated.

According to U.S. commercial real estate organization NAIOP, more than 76 million square feet of retail space was constructed across the country in 2019, but in 2020 that figure dipped to 52.6 million square feet. The physical spaces that fared the worst tended to be enclosed shops, such as indoor malls and luxury apparel.

However, there’s a silver lining among the grey skies: the pandemic taught business owners to quickly revamp operations to bolster their e-commerce muscle and inspire them to innovate in how they welcome consumers back to their physical stores. Additionally, at a local level, communities rallied behind small businesses — particularly local restaurants — underscoring the importance of character and experience in the places people choose to live and work.

How Retail’s Spaces Will Adapt in the Post-Pandemic Era

It isn’t all doom and gloom; forward-thinking retailers that pivoted to online are reimagining their brick-and-mortar stores to create seamless integration with their e-commerce offerings and showcase a lineup of new products through ideas such as pop-up stores. It’s no longer just about an exchange of goods, but rather understanding who customers are and what they want, which may no longer be the de facto storefront they’re used to seeing pre-pandemic.

For instance, Shopify and Amazon.com were booming during the pandemic, and these brands’ delivery models changed the game. Physical outlets may look different in 2021 and beyond, as some brands prefer to transform their spaces into mini warehouses, go in with other retailers to share one space, and pop-up stores could soon become even more popular.

Pop-up concepts, where new product lines are on display for a finite period of time, aren't new but they have typically only been seen in fits and starts. Pop-ups make sense for businesses of all sizes, from small local makers to large brands that want to test a submarket or launch a product and would prefer to rent without the commitment of a long-term lease or the expense of dedicating their staff and resources to a physical space 365 days a year — especially since e-commerce sales have surged since the pandemic began.

The National Retail Federation (NRF) reported that online shopping in the U.S. increased 21.9 percent last year, and is poised to grow between 18 percent and 23 percent this year. Accelerating e-commerce operations early on bore fruitful revenue for future-ready businesses. Retail categories with higher online penetration before COVID-19 saw a dramatic increase in percent spent online during April 2020’s shelter-in-place rules, growing from 37 percent penetration before COVID-19 to over 80 percent at its peak. What should also bring hope to retailers is the wave of vaccine rollout spreading across the U.S.

Looking Ahead: The Future of Physical Spaces in the Retail Industry

Some experts predict retail recovery will face a mixed bag, with essential needs such as groceries, health and beauty keeping a strong pace while other categories such as restaurants will struggle if capacity restrictions continue and rent subsidies expire. Also, a PriceWaterhouseCoopers report points to a rising trend in businesses benefitting from being close to a grocery store, which may become top-of-mind for new homebuyers or renters scouting neighborhoods.

As grocers have seen record sales during the pandemic, grocery-anchored strip malls will fare best in a post-pandemic world. Bigger players may begin to reallocate capital away from retail properties and focus on other asset classes, while landlords could find themselves making concessions by cutting rents. Tenants may not be able to pay full rent, but at this point, it will be challenging for landlords to fill vacant spaces.

How retailers emerge from the pandemic will depend on the resiliency of their own business model and e-commerce strength, as well as the support capacity of their community. Add to the mix the weighty decision on abandoning, even partially, a physical space and it’s clear the road ahead for retailers is paved with challenging obstructions.

However, we’ve already seen businesses of all sizes claw back against the pandemic and adapt swiftly to the new normal. What lies ahead is undoubtedly another chapter in retail’s long history of change and impressive optimism and determination.

Sara Maffey is the head of industry relations at Local Logic, a location intelligence platform that digitizes the build world for consumers, investors, developers and governments.