After The Apocalypse: Why The Pandemic And E-Commerce Didn’t Kill Off Physical Stores

When Triple Five Senior Vice President of Development Kurt Hagen sat down at a local municipality meeting in early 2021, he was ready to burn down the $5B house.

A year of stop-start pandemic lockdowns and restrictions had turned the opening of the long-delayed American Dream mall into an American nightmare. Pretty much the moment Triple Five had thrown open the 3M SF complex's expensively manufactured doors, it had to slam them shut again, and Hagen could no longer hide his emotions.

“Not opening and not being able to generate any cash for six months created some very significant problems,” Hagen told his audience, a group of Bloomington, Minnesota, City Council and Port Authority officials, with whom he was discussing the fate of another of the group's big properties, Mall of America.

“It would have been much better if American Dream had burned down or a hurricane had hit it, financially,” he said, according to a transcript of the meeting. “Because we would have been covered by insurance. But this pandemic that we didn’t see coming has not been covered, and it is the worst scenario imaginable.”

After a decade in which e-commerce had stolen an ever greater slice of the retail sales pie, the pandemic was seen as a further accelerant in retail real estate's decline, shifting even more purchases online and destroying even more value for retail property owners. 

Nearly five years on, the U.S. retail industry starts 2025 with a new protectionist president, uncertain supply chains and potential tariffs, an ongoing squeeze on consumer wallets, and persistently high inflation and interest rates weighing heavily on the sector.

And yet the one challenge not facing retailers is the store apocalypse predicted during the lockdowns — as many commentators said that online had achieved five years' growth in five months. 

Retailers are expanding store footprints in a world where rents have rebased and making money from stores no longer seems impossible. And as a result, the world's largest property owners are taking note of a sector that for a long time was a no-go area. 

“‘This is it, the death of the store. People are going to use their Peloton and never go to the gym again,’” Placer.ai Senior Vice President of Marketing Ethan Chernofsky said, recounting the prevailing view early in the pandemic. “In reality, once the restrictions were lifted people flooded back to stores.

“But what we have now is a reversion to the mean. It’s not either/or. The ideal customer is not a single data point, and the pandemic may have nudged e-commerce forward, but it was not a dial mover. I’d call the new approach harmonized retail, with the emphasis on focusing on what you do best.”

Visits to malls were up around 1.5% in 2024 over 2023, while Placer.ai puts foot traffic for 2024 up 7.3% from 2019, the last full year before the pandemic.

In 2023, U.S. e-commerce represented 22% of total retail sales, according to Department of Commerce data, up from 21.2% in 2022. Although e-commerce sales growth percentage is outpacing in-store growth, the reality is that nearly eight out of every 10 consumer dollars is still spent in a store.

The situation is far from universally rosy. There have been winners and losers since the pandemic, and early in 2025, there has been a fresh spate of retail casualties. Bed Bath & Beyond, Big Lots, Party City, Joann and The Container Store are among those in various states of acquisition, closure or bankruptcy, and the first two months of the year are perennially the riskiest for those brands on the edge.

And online shopping is still eating away at store sales. By 2029, Forrester expects U.S. total retail sales to reach $6T and U.S. online retail sales to reach $1.8T, representing online retail penetration of 29%. 

“What is becoming evident is that there are winners and losers. So the likes of Walmart and Amazon have emerged as clear winners, while we see others have struggled,” former Saks Fifth Avenue and retail veteran Steve Sadove said. “But the idea that physical retail is dead and has become a digital play is incorrect. Eighty percent of sales remain in-store. Customers want the physical shopping experience.”

More stores closed than opened across the U.S. in 2024 after two years of net gains. But the negative total last year was more about distressed categories than the general health of the retail sector.

“In 2024, we saw a small decline, but that was pretty much limited to dollar stores,” Sadove said. “There has been a reversion to the mean.”

The critical question for retailers is how they balance investment in digital and in their stores, and how they integrate the channels. In particular, retailers need to encourage online returns to be made in-store because this typically has a multiplier effect: When customers bring goods back to stores, they tend to spend more than the original purchase value while they are there.

“Looking to the rest of 2025, we know the consumer spent over the holiday season, and the inflation rate has come down while employment remains strong,” Sadove said. “But we don’t know what the impact of tariffs will be, so for me, the catchword for retailers in 2025 will be ‘agility.’”

One Store Closes — Now Another One Opens

There is no shortage of major retailers backing their stores. The national retail vacancy rate held steady at 4.1% throughout 2024, driven by a lack of tenant consolidation and move-outs, along with years of minimal new supply. That has led to increasingly tight availabilities across the retail sector, according to figures from Colliers. With the development pipeline remaining extremely constrained and a strong holiday season for retailers, this situation is unlikely to change.

The National Retail Federation held its annual Big Show in New York in mid-January, and aside from the fact that 40,000 people came through the doors, the industry’s big names consistently backed their store portfolios. That is a different tune from the one being sung at such events five years ago.

Lululemon CEO Calvin McDonald has presided over the Canada-based yoga wear brand for six years, doubling its sales, and he has put stores at the centre of a proposed expansion, although he believes the next phase of growth can be achieved through targeted openings.

“Looking forward, there is nothing stopping the brand doubling in sales again, while in the longer term, we want to be a dominant international brand,” he said.

“We have around 700 stores, but that should be easily over 1,000. We’re looking to balance sales at about 50-50 between stores and online, but the store is still very important to us, as it gives us the chance to educate the consumer and engage with them.”

He said that while the athleisure brand has shoppers who only buy online, this happens mostly where Lululemon doesn't have any stores.

“We are predominantly omnichannel,” McDonald said. “Physical retail will always be a key part of this offer. The consumer is looking for value, quality and experience. Those brands that don’t provide this will fall behind — the chasm between the have and have-nots will grow.”

Foot Locker CEO Mary Dillon said “reinventing stores” is key to the footwear retailer’s “Lace Up” program, which it kicked off two years ago. Celebrating its 50th anniversary this year, she wants Foot Locker to “expand sneaker culture” and deepen its relationship with customers through a “best-in-class omnichannel” strategy.

“Brick-and-mortar really matters, so for us, that means investing in customer experience. I am a firm believer that brick-and-mortar is here to stay, but you have to make it an experience people want,” she said, adding that Foot Locker is aiming to have refreshed two-thirds of its stores globally by the end of 2025.

“If it’s a category where people care about experience, you better give them a great experience. You need to put the capital in your plan. We’ve moved more off mall, more toward community stores, having stores in the right places,” she said.

Sephora, a brand that has had a physical presence in the U.S. since 1998, also said at the NRF Big Show that stores were core to its offer and that it would continue to invest in new formats.

“Stores have come back stronger than ever, and last year we embarked on the largest capital program in our history, going back to redesign every store, some lightly and some major,” Sephora North America President and CEO Artemis Patrick said. “We tested a new format that made it easier to update and making fixtures more modular, so for example, we can move the fixture with a more agile footprint.”

The company has updated 111 stores so far, and the majority of stores will have been completed in the next five years, while all new stores will be designed to the new format.

“Too many times, retailers talk about a store of the future driven by the design team,” Patrick said. “There’s nothing wrong with those for a flagship, but what are you doing in smaller stores? Because the experience needs to be the same wherever you go.”

Grocery Shopping Reverts To The Mean

One of the retail categories expected to be permanently boosted by the enforced change in buying behavior during the pandemic was grocery, a sector that had failed to make the kind of advances in e-commerce that many other categories had achieved. While grocery stores were able to remain open, shoppers often opted to buy online. Yet the pervading view that many of those customers would continue to book deliveries faded as the lockdowns ended.

According to Nielsen, just 4% of grocery sales in the U.S. came online in 2019, which has increased to 10.7% in 2024. That more than doubling over five years looks impressive on its face, but from such a low base, there was significant room for growth. The factors that analysts believed would ultimately drive e-commerce and local supermarkets, namely convenience, have been superseded by value.

Dunnhumby, the company best known for its pivotal work with the Tesco Clubcard in the UK and with a similar loyalty program with Kroger in the U.S., points to the consumer squeeze as the reason for a switch back to store-based grocery shopping.

“We’re back to long-term trends over the last five years after a once-in-a-generation disruption,” Dunnhumby Chief Strategy Officer David Clements said.

“In grocery, we have seen the rise of the value seeker because people are still very impacted by rising grocery prices and many shoppers tend to feel they will be able to find better value in-store.”

Right now, the basket size in the U.S. is smaller because grocery prices are 30% higher than before the inflationary period, Clements said, and that is forcing people to shop around. Shoppers are prepared to drive farther because they don’t want to give up on quality.

The fact that so much grocery shopping still happens in stores hasn't gone unnoticed by the world's largest real estate investor. 

“We've been cautious on U.S. regional malls for over a decade, given some of the headwinds relating to e-commerce. But grocery-anchored shopping centers offer a different value proposition, and fundamentals in the space are as strong as we've seen in several years,” Blackstone Global co-Head of Real Estate Nadeem Meghji said.

Last year, Blackstone took private grocery-anchored shopping centre REIT Retail Opportunity Investment Corp. in a $4B deal, its first major retail deal in more than a decade.

“There is 96% occupancy in the U.S., mid-to-high-single-digit rent growth, and it's basically just supply and demand,” Meghji said. “From a supply perspective, we've seen very little new construction of grocery-anchored retail over the last 15 years. And from a demand perspective, through this last cycle, grocery-anchored shopping centers have been resilient.”

It is not the only major investor to start to dip a toe into the retail real estate sector, driven by a combination of increased resilience from tenants combined with prices that are still at historic lows. 

Last year, Hines put out a note saying that good and bad retail had been tarred with the same brush and that it was getting back into retail real estate investment. Westfield decided to downsize rather than sell off its U.S. mall portfolio, and Simon Property Group and Brookfield have not only doubled down on their properties but have also become owners of retailers through their joint venture with Authentic Brands Group. 

Beyond grocery, in other categories where people typically enjoy browsing, the reversion to stores has been even more marked, even in sectors that have been heavily hit by a switch to e-commerce, such as books. Barnes & Noble CEO James Daunt said that keeping it simple is key to encouraging shoppers back to malls and stores.

“My own view, and perhaps there's a certain amount of arrogance to this, is that if you run good bookstores, customers will come because they enjoy it,” Daunt said. “People love a good shop, and it's just about really nice places to be in.”

In a reversal of the conception of the last decade that there is too much retail in major developed economies, he said that lack of investment in real estate means there is a lack of stock of good development, which he feels is holding back a lot of U.S. retailers.

“The absolute strength of retail, the excellent retailers — you know, the Dick's Sporting Goods of this world, who are just in their niche, they do a really good job — people really enjoy being in their stores and coming to them,” Daunt said.

In a trend long hoped for but not often apparent for retail real estate owners, many successful online-only brands have also branched out into stores, albeit not in the numbers of the expansionist retailers of the 1980s and 1990s.

UK-based gymwear brand Gymshark has ventured into stores after starting its life online. After operating a pop-up store in New York between mid-December and mid-January, it will open a permanent location in the city this year. It has a gradually growing portfolio of stores in the UK and recently opened its first store in Dubai.

“For us, physical retail has shown real green shoots and has gone really well,” Gymshark Chief Brand Officer Noel Mack said of the company's transition from online-only. “So we're doubling down on that and we're trying to do even more innovative things.”

Gymshark opened its first physical location, a London store on Regent Street, in the summer of 2022.

“I can't think ... of a better way to show up for our community than by putting up a store which can transform to a gym on Europe's most prestigious shopping street.”

Mack acknowledged that opening in the U.S. is a potentially big financial commitment, given that it is still chiefly online and has just three stores open. But he said the company has a test-and-learn approach, starting with its pop-up.

“We saw how New York reacted, and then we can use that to solidify our plans for a full-time retail presence in New York,” Mack said. “The first day when we opened the pop-up, it was absolutely insane. People waited eight hours in line to get in. It was very reassuring in [Gymshark's global base of] Birmingham to see that, especially when you're staring down the barrel of some of these big, expensive leases on buildings in New York.”