(Bloomberg Opinion) -- After the worst of the pandemic lockdowns in the spring, as the weather heated up and more people ventured outdoors to hit the golf links or hiking trails, Dick’s Sporting Goods Inc. was in a prime position to benefit. The chain notched two quarters of booming comparable sales growth, with e-commerce serving as a key driver. But undergirding the booming digital growth was the chain's most traditional retailing asset: its stores. Those outposts — not warehouses — fulfilled more than 75% of the chain’s online sales in the second quarter and 70% in the third quarter.
It’s a case study that illustrates a fascinating conundrum facing the wider retail industry. On the one hand, the pandemic has hastened the migration toward online shopping, a shift that even in pre-Covid times had forced chains to rethink their store footprints and consider paring back on physical locations. This year, retailers announced a record 11,157 store closings through Dec. 1, according to CoStar Group — partly owing to retail liquidations but also reflecting this trend. At the same time, though, these last several months have proved that brick-and-mortar stores can have real utility in making e-commerce work better, complicating any decision about how many stores is too many.
Two retail heavyweights, Walmart Inc. and Target Corp., have shown for several years the value of stores for e-commerce support. Walmart has nurtured a winning online grocery pickup operation, while Target’s ability to fulfill significant portions of online orders from stores has contributed to its robust sales growth. Now during the pandemic, we’re seeing more evidence that a wider array of chains can rely on their brick-and-mortar shops to play a significant role in growing their e-commerce business. At Bed Bath & Beyond Inc., as digital sales exploded 89% in its most recent quarter, stores fulfilled 36% of orders, including more than $120 million of curbside and in-store pickup orders. Kids’ chain Carter’s Inc. said stores fulfilled 24% of online orders in the third quarter. At Urban Outfitters Inc., nearly 1 million units were shipped from its stores in the three-month period ended in October.
Fulfilling online orders from stores has key advantages: When the shopper chooses pickup, it is typically more profitable for the retailer than traditional e-commerce because the chain doesn’t have to pay for last-mile delivery. Another format, shipping online orders from a store, is not necessarily helpful for profitability but can help retailers offer speedier delivery. If chains can harness these powers for a suddenly larger e-commerce business, there’s less of a reason to close locations, even if foot traffic isn’t what it used to be.
Retailers shouldn’t take this situation as permission to hang on to a store portfolio that was designed for 1990s shopping habits. But they should look to examples of big chains that are rethinking stores in ways that seem especially relevant in light of shopper behavior in recent months.
Take Best Buy Co. Since the pandemic, it has designated about 340 of its outposts as hubs for ship-from-store orders, based on their proximity to shipping partners and their available space. Executives say this model has allowed them to extend the cutoff time for next-day deliveries, bolstering the chain’s competitiveness on speed. The electronics giant has also recently begun testing a new store format in which the sales floor is about half its original size and features a smaller product selection, with the rest of the space reconfigured for supporting pickup and ship-from-store operations.
Department-store chain Nordstrom Inc. has been experimenting with a model that would make sense for rivals and specialty apparel retailers. Since 2017, it has been rolling out locations it calls Nordstrom Local, which are small-format centers for order pickups, returns, alterations and sessions with a personal stylist. Instead of being located in regional malls, they are in neighborhood centers convenient for a quick errand.
In this model, a chain can still get the benefits that come from having merchandise and services close to customers but without being stuck in a mall that was losing its luster before the pandemic and is in even deeper trouble now. I could imagine some of the multi-chain retail companies opening mini service centers that incorporate several of their brands. For example, Gap Inc. could open some that serve its namesake chain as well as Old Navy, Banana Republic and Athleta. Macy’s could have some that also serve Bloomingdale’s and Bluemercury.
Store closings will undoubtedly continue to pile up as retailers feel the pain of pandemic-fueled changes in spending patterns. But chains should be careful not to shut down stores that could help support their e-commerce ambitions and should not be fearful of opening unconventional, non-mall stores that could shore them up for the future.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Sarah Halzack is a Bloomberg Opinion columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.
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