Store Openings Are Ushering In a "New Age of Retail"

A “new age of retail” has emerged in the wake of the COVID-19 pandemic, as brands begin to open physical store locations at a renewed pace, according to a new analysis from Moody’s Analytics.

The recent slew of store openings demonstrates “a reasonably strong appetite for in-person shopping exists on both the demand and supply sides,” Moody’s analysts note. “Retailers experience value in opening physical locations because it drives sales and influences consumer tastes and preferences. In other words, there is still money to be made in brick-and-mortar retail.”

The lifting of COVID-19 restrictions have forced a decline of e-commerce sales as a share of retail from their pandemic peak of close to 16%. That figure stood at 13.3% at the end of the second quarter. The decline, coupled with the pace of store openings in 2021, demonstrates  “there is still room in the market for growth in in-person shopping.”

In contrast to the spate of store closures ushered in by the pandemic last year, Moody’s notes a shift whereby a new group of brands are opening physical locations with new objectives and new product offerings: think less apparel and fewer department stores and more openings in food and beverage and automotive-related activities.

“Both of these opening categories point to shifting consumer tastes in the wake of the pandemic as demand for essentials has risen, spurred by population shifts by consumers seeking more space and a lower cost of living environment,” the report notes.

In particular, companies that sell products requiring in-person browsing are dominating retail openings, with brands like Marshall’s and Home Goods leading the pack.  And from a geographic perspective, store openings have tended to be concentrated in areas that have seen population shifts and require more retail resources to meet burgeoning demand.

“The excitement and spectacle of in-store shopping coupled with customer engagement provide a total shopping experience,” the report notes. “Stores now more than ever need to provide spaces that encourage customers to interact with the products, whether in the apparel, beauty, technology, or homewares space, ‘try them on,’ and determine if the item is a good fit for them.”

Moody’s researchers also note that a growing cadre of single-brand retailers who previously only had an e-commerce presence are now opening physical locations.  They cite the example of Warby Parker, which originally launched online and has since expanded to a physical footprint of 145 locations across the US and Canada. Of those stores, 50 locations have been opened since June 2019 and 27 opened since June 2020.

“The discovery experience provided by in-person shopping has become vital,” the report notes. “The physical location serves not only as a trading outlet but also as a marketing tool for brand recognition.”

Moody’s attributes vacancy declines to the upgrades many existing retail landlords are undertaking to make their properties more desirable to new tenants.  The firm also describes an inverse relationship between e-commerce as a share of retail sales and the direction of activity in brick-and-mortar construction.

“As any pandemic-related restrictions once in place, particularly on retail, have been virtually eliminated in the US, e-commerce as a share of retail has declined and many companies have chosen to open brick-and-mortar retail locations,” the report states. “This is strongly indicative of the fact that despite the ease with which items can be purchased online and delivered to one’s door, consumers still have a penchant for in-store browsing that converts into purchases.”

Some of the country’s most recognizable brands have continued expansion plans despite the pandemic, including grocers Lidl and Aldi and coffee giant Starbucks. 7-Eleven also announced plans this fall to open 6,300 new locations, while Sonic Drive-In and Dollar General will each open 1,000 stores by year’s end.

Lynn Pollack reports for GlobeSt.com.