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That Is The Question Facing Retailers And Consumers To Mall Or Not To Mall

To Mall Or Not To Mall, That Is The Question Facing Retailers And Consumers

May 28, 2021 at 04:04PM
by PYMNTS

The evolution of online sales and omnichannel selling is seeing the physical footprint plans of at least two marquee retailers head in different directions.

While both Costco and Gap cited significant growth in their eCommerce sales in their latest quarterly results, how the giant warehouse club and multi-brand apparel company approach that shift is telling and unique.

This re-examination of brick-and-mortar space comes at a time when both retailers are seeing sharp increases in foot traffic again as a result of seasonal buying trends and the broader reality that consumers are simply excited to have a chance to comfortably shop in-store again.

“We still anticipate closing approximately 75 stores in 2021, which will bring us to approximately 75% of our goal of closing 350 stores in North America by the end of 2023,” Gap CFO Katrina O’Connell told investors on the company’s Q1 earnings conference call Thursday afternoon (May 27).

This in a quarter that the retailer said saw “standout performance” at its Old Navy and Athleta brands, which grew sales 27 and 56 percent respectively versus the comparable, pre-COVID  Q1 of 2019.

With these two brands headed toward delivering a combined 70 percent of Gap’s sales by 2023, combined with an 82 percent increase in eCommerce sales since 2019, a strategic rethink of the company’s physical footprint only makes sense — especially for its flagship brand and Banana Republic unit.

“[Gap North America] has become more digitally led and is realizing the margin benefit of closing unprofitable stores while also reinvigorating the brand with great creative and product execution,” O’Connell said, noting its lesser 9 percent comp store growth rate in Q1.

In an interview with The New York Times, CEO Sonia Syngal said the company’s shifting view on real estate reflects changing consumer behavior and a widening gap in the vibrancy seen at the country’s 1,000-plus shopping malls. Syngal told the Times that the rift between good and bad malls was exacerbated by the pandemic and that she expects 80 percent of revenue from Gap and Banana Republic will come from “off-mall, strip, outlet and online formats” by 2024. 

View From The Warehouse

While the $170 billion warehouse giant Costco is not directly tethered to indoor malls the way Gap is, it is also contending with a similar confluence of eager in-store consumers and growing  digital sales.

Speaking on the company’s Q3 earnings conference call Thursday, CFO Richard Galanti told analysts that Costco expanded its physical footprint last quarter, and will continue to do so next quarter, as well as next year.

“In terms of warehouse expansion, [for the three months ending May 9] we opened six new warehouses: one in the U.S., three in Canada, and two internationally,” Galanti said, “and we also have plans [this quarter] to open seven additional ones, five in the U.S., and two others internationally.”

Taken together, Galanti said, Costco will add 21 net new warehouses this year, noting that it is looking to open 25 new units in each of the next two fiscal years, including a second warehouse in China.

This store rollout comes as the company’s latest report showed total sales rising 22 percent, and its eCommerce business growing 41 percent, with shopping frequency rising roughly 12 percent globally and in the U.S. where 70 percent of its warehouses are located.

Costco said it is increasingly guiding its in-store customers to its website, especially for bulky items, noting an approximate 5x increase in the variety of items it displays online versus those it can put out in-store.

“In the last year, we’ve increased the number of emailable addresses by 24 percent,” Galanti said. “We’re seeing higher conversion rates and we’re doing more things in the warehouse to drive traffic online as well,” he added.