When the pandemic shut stores across the US in early 2020, it did not take long for a chorus of doomsters to predict that the end was nigh for physical retail. 

The song they sang wasn’t a new one, it was a refrain that has been repeated over and over for many years. However, this time around, the lyrics appeared to have more than a grain of truth to them.

Online penetration, which was 13.8% of retail sales in 2019, rose to 15.8% in March 2020 before surging to 21.4% in April. 

People who had never considered shopping online, including those in older age cohorts, suddenly mastered ordering things on their phones.

Online shopping page

These were permanent shifts that would hasten the demise of physical retail, the songsters chanted.

More than a year on from the start of the pandemic, it is now clear that as beguiling as the melody may have been, it was also somewhat erroneous. 

Online penetration has already come down to around 17% – a significant, but not a drastic uplift on where it was pre-pandemic. It continues to fall, albeit modestly. Meanwhile, footfall in stores is rebuilding and, with the vaccination being rolled out, confidence to shop in-person is increasing.

The rise of omnichannel

The biggest vote of confidence in physical stores is that they are playing an increasingly important role in supporting online sales. Indeed, the most significant shift of the pandemic wasn’t the rise in online, it was arguably the advancement of omnichannel.

In 2019, physical stores in the US supported just over 30% of all online sales. By the end of 2020, this had risen to almost 37%. The reason for the rise? Because omnichannel solutions suit both retailers and consumers alike.

From the retailer side, the attraction is obvious: it is generally more cost effective to fulfil from stores than from distribution centers. This is especially so when the consumer can be persuaded to collect their products rather than having them delivered to home. 

The removal of last mile fulfilment costs increases margins by around 9.6 percentage points in grocery and 3.5 percentage points in apparel.

Target fascia

This dynamic is one of the reasons why stores like Target – which really leaned into omnichannel during the pandemic – reported such strong profitability despite seeing a higher level of online orders.

Aside from margins, a strong omnichannel model provides for greater flexibility, especially during busy periods like the holidays when online orders surge and delivery capacity becomes much tighter. 

In November and December 2020, Best Buy used its store staff to help deliver orders from stores to people’s homes – something that would not have been possible without its investments in omnichannel.

Fortunately, as much as omnichannel benefits retailers, it is also welcomed by consumers.

Curbside is here to stay

For around 71% of shoppers, the immediacy of being able to collect an order the same day is one of the reasons they use omnichannel. This is especially important in categories like grocery where orders are time sensitive. And almost 63% of shoppers find collecting orders more convenient than having to wait around at home for delivery.

The convenience play has been enhanced by the pandemic with the more widespread rollout of curbside collection. Some retailers, such as Target with its Drive Up solution, were offering this before 2020. 

However, for most, curbside was a new thing introduced, at least initially, as a way of allowing socially-distanced collection. What started out of necessity quickly became a popular service, which is why most retailers plan to keep curbside even as the pandemic abates.

Against this backdrop, the view that stores are doomed is highly exaggerated. However, it does not necessarily follow that shops should be set in aspic. Just as consumers and their habits have evolved, the way shops are configured and work also needs to change.

In the US – which is guiltier than most countries, for taking a cookie-cutter approach to physical retail expansion – there is a wave of testing and experimenting around new formats and configurations.

Walmart fascia

Best Buy is trialling stores with a smaller shopfloor and bigger back of house space to support order fulfilment. Walmart is getting rid of its in-store pickup towers and investing more in curbside collection areas and in automated micro fulfilment centers in the back of stores. Even more traditional retailers like Macy’s are trying out smaller formats that carry a more edited selection of products designed to complement the wider offer which can be ordered for collection.

All of this points to a clear lesson that the operational role of stores is becoming more multifaceted. This brings a multitude of challenges from staffing, to order forecasting, to understanding the economics of the business. 

However, all these things are surmountable and do nothing to diminish the fact that physical stores are as relevant now as they have always been.