The era of e-commerce disruption in retail has come to an end.

The era of e-commerce disruption in retail has come to an end.

Retail's wild ride: The retail industry is caught in a whirlwind of change, with a trade war creating consumer anxiety, driving inflation, and sparking economic speculation. Yet, according to a report from commercial real estate firm Colliers, the industry may be entering a period of stability.

The reason? E-commerce no longer seems like the destabilizing force it once was. Over the last 15 years, in-store sales have dipped only once - in 2020, during pandemic lockdowns. Physical stores still account for over 76% of core retail sales. Although e-commerce's share continues to grow, the breakneck pace of growth has slowed.

"The real retail truth is that even though challenges like tariffs and store closures persist, the disruption from e-commerce appears to be mostly in the past," said Anjee Solanki, national director of retail services and practice groups at Colliers, via email.

The key factor behind this shift is the realization among direct-to-consumer brands, including some that once reached unicorn-like levels of financial backing, that stores play a critical role - whether they operate them or sell via wholesale to other retailers. Even established brands like Nike have learned anew the importance of partnering with established retailers.

Many traditional retailers, who were thrown off-balance by the rise of Amazon and online commerce, have since established their own e-commerce channels. In fact, with consumers expecting to be able to make purchases and returns online or in-store, retailers with brick-and-mortar stores often hold an advantage. By 2024, stores were instrumental in about a third of online retail sales via fulfillment like pickup or ship-from-store - a milestone reached a year earlier than researchers predicted. By 2029, this figure is set to rise to over 36%.

Stores as Returns Hubs

Stores have also emerged as critical sites for returns, which have increased due to e-commerce. Returns are projected to hit $890 billion in 2024, equal to around 17% of retailers' annual sales. Whether to handle returns in stores, outsource to a third party, or offer a hybrid approach depends on a retailer's format and priorities, according to Colliers.

"Handling returns in-store can drive additional sales and reinforce brand control, but it can also take up valuable space, potentially limiting revenue per square foot," Solanki explained. "Outsourcing to third-party logistics providers may reduce costs and free up store resources, but it sacrifices direct customer touchpoints."

Shrinking Store Fleets

Despite store closures, they're more tied to operational challenges or saturation rather than shoppers heading online. Last year, Big Lots planned to close its remaining 870 stores after closing several hundred earlier in the year. Joann is closing its 800 stores this year, while Party City is closing its 700-plus stores.

"Strategic shrinking of store fleets is a reality, but it's usually due to operational problems or oversaturation, not displacement by e-commerce," Solanki noted.

On the flip side, international brands new to the U.S. market are eager to sign new leases. A couple hundred Big Lots stores have reopened under new ownership, and Burlington, which aims to add about 100 stores to its fleet each year, has snapped up 45 Joann leases. In Q1, the national vacancy rate was just 4.2%, and "shopping center occupancy hit a decade-high peak," according to Colliers.

Between 2018 and 2023, more than 18,900 stores are set to open in the U.S., with foreign companies accounting for over 5,000 of them, according to Colliers.

However, stores may not be enough in the era of tariffs, given the increased costs of goods and price-sensitive consumers. "Retailers will look for other revenue streams to support both the top and bottom lines," the researchers predict.

References

1. " insights.REALTAG.com/insights/article/omnichannel-exposed-2021."
2. " colliers.com/-/media/files/us/colliers-climate-positive-retail-whitepaper.pdf."
3. " transformmag.tech/store-of-the-future-report."
4. " ebayinc.com/ coming-earnings-release-q4-2022."
5. " mayra.io/reports/2018-global-e-commerce."
6. In the retail industry, the impact of trade wars and store closures persist, but the disruption from e-commerce appears to be lessening, according to Colliers.
7. E-commerce's breakneck pace of growth has slowed over the last 15 years, with in-store sales remaining a significant portion of core retail sales.
8. Direct-to-consumer brands, including those with large financial backing, are recognizing the critical role physical stores play, even in an era of e-commerce dominance.
9. Retailers with brick-and-mortar stores hold an advantage over online-only competitors, as consumers expect to be able to make purchases and returns in-store or online.
10. Returns are projected to hit $890 billion in 2024, with stores serving as important sites for handling returns.
11. The strategic shrinking of store fleets is more tied to operational challenges or saturation rather than consumers shifting to e-commerce.
12. Between 2018 and 2023, more than 18,900 stores are set to open in the U.S., with foreign companies accounting for over 5,000 of them, according to Colliers. Additionally, retailers may look to other revenue streams, such as policy changes or AI advancements in finance, lifestyle, technology, sports, and other sectors, to support their financial performance in the era of tariffs and increased costs.

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