As customers move online, so does the Holiday shopping season

By Michael Corkery and Sapna Maheshwari

The holidays will look different at Macy’s this year. The Thanksgiving Day parade in New York City will proceed without spectators, and Santa Claus will not be reviewing Christmas wish lists from his usual perch on 34th Street.

But while many of those traditions are likely to return once the threat of the coronavirus passes, other changes at Macy’s this holiday shopping season — which traditionally begins with Thanksgiving — signal how the company’s business, and that of the entire retail industry, may be altered forever by the pandemic.

Early last month, two Macy’s stores, in Delaware and Colorado, went “dark,” meaning employees are primarily using the spaces as fulfillment centers where they process online orders and returns rather than a place for customers to browse and shop.

Jeff Gennette, Macy’s chief executive, said the dark stores are part of an experiment as the company responds to customers buying more online and demanding ever-faster shipping for free. But the conversion of a department store into a fulfillment center, even temporarily, reflects how retailers are succumbing to the dominance of e-commerce and scrambling to salvage increasingly irrelevant physical shopping space.

The forces propelling online shopping were set in motion long before the pandemic. But charting the decline of many brick-and-mortar stores and the simultaneous growth of e-commerce in the past seven months is like watching the industry’s evolution, and its impact on the broader economy, on fast forward. In the future, 2020 will be seen as a major inflection point for retail.

“COVID has pulled forward five years of fallout into an 18-month period,” said Vince Tibone, a senior analyst covering retail for Green Street.

Last week, Walmart, the nation’s largest retailer, reported that e-commerce sales increased 79% in the third quarter, while its rival Target said its e-commerce business was up 155%.

Amazon’s sales increased 37% and its profit was up nearly 200% in the most recent quarter.

Retail executives said that staggering growth was not a fluke of the pandemic lock downs, but the result of a permanent shift in how people shop.

“We think these new customer behaviors will largely persist,” Walmart’s chief executive, Doug McMillon, said in a statement last week as the company released its most recent sales and profit numbers.

Across the industry, online sales are expected to increase at their fastest rate in 12 years, accounting for 20% of all retail purchases this year. That’s up from 16% in 2019, according to Forrester Research.

While a portion of those sales are store pickups, many are not and the impact on brick-and-mortar is undeniable. Earlier this month, the number of stores announced for closure in 2020 climbed to a high of 10,991, according to the CoStar Group, a data provider for the real estate industry. Many malls are teetering as tenants reduce the number of stores, fail to pay rent or exit through bankruptcies. Retailers that filed for bankruptcy this year include J.C. Penney, J.Crew, Brooks Brothers and Neiman Marcus.

“Retail has changed; it just has,” said Daniel Horrigan, the mayor of Akron, Ohio, where Amazon opened a fulfillment center this month, creating 1,500 jobs. “You can’t stand in front of that wave.”

“The mall used to be teeming with so much life, with kids and popcorn and concerts,” said Horrigan, who has spent most of his life in Akron. “Every Christmas it would be full of people. But we have to be realistic.”

That realism is settling over other cities, too. Even before the pandemic, some of New York’s most famous retail corridors were emptying. Long stretches of storefront along Madison Avenue and in Soho have struggled with vacant storefronts, taking some of the shine off those luxury neighborhoods. Macy’s, which has posted sales declines of more than 20% in the past three quarters, has been hit especially hard at its iconic flagship store and at Bloomingdale’s with the temporary loss of tourists and office workers.

Workers say that since the retailer reopened in June, there have been more employees than customers in the stores on some days. At Bloomingdale’s, some workers are filling the time by packing online orders to ship from the store.

“There are people in the stores, but they don’t have the numbers,” in terms of sales, said Brenda Moses, who started working at Bloomingdale’s during the Christmas season more than 30 years ago.

Across Manhattan, the number of retail leases signed or renewed dropped 31% in the third quarter from a year ago and rents fell 13% in the major shopping corridors, according to CBRE, a real estate services company. It was the 12th consecutive quarter of rent declines. At Hudson Yards, the long-touted development on the west side of Manhattan, Neiman Marcus said it would exit its 188,000-square-foot space a little more than a year after opening.

“Some retailers will return when the prices come down,” said Santiago Gallino, a professor at the University of Pennsylvania’s Wharton School, who has studied retail. “But their stores are not going to come back in the same format. They will have to be more integrated with their online business.”

Inevitably, though, retailers will need less physical space. And it’s not clear what type of business will fill the increasing void, raising the prospect that Manhattan storefronts could stay vacant for the foreseeable future.

“For the economy and for the retail industry, this transition is exciting and good,” Gallino said. “But it is also true, it is not going to come without pain.”

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