When clients go browsing, the vacation buying season strikes too

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Macy's holidays will look different this year. The Thanksgiving Parade will continue with no spectators, and Santa will not be checking Christmas wish lists from his usual seat on 34th Street.

But while many of those traditions are likely to return once the coronavirus threat passes, other changes at Macy's this holiday shopping season – which traditionally begins with Thanksgiving – signal the way the company's business and that of retail as a whole are changing may forever from the pandemic.

Earlier this month, two Macy stores in Delaware and Colorado went “dark,” meaning employees use the space primarily as a fulfillment center, processing online orders and returns, rather than as a place for customers to browse and shop .

Jeff Gennette, the executive director of Macy, said the dark shops are part of an experiment as the company responds to customers buying more online and demanding faster and faster shipping for free. However, transforming a department store into a fulfillment center, even temporarily, reflects how retailers are succumbing to the dominance of e-commerce and striving to salvage increasingly irrelevant physical retail space.

The forces driving online shopping were set in motion long before the pandemic. However, to record the decline of many brick and mortar stores and the simultaneous growth of e-commerce over the past seven months is like fast-forwarding the evolution of the industry and its impact on the wider economy. 2020 is seen as a major turning point for retail in the future.

"Covid moved forward five years of fallout over an 18-month period," said Vince Tibone, senior retail analyst for Green Street.

Last week, Walmart, the country's largest retailer, reported that e-commerce sales rose 79 percent in the third quarter, while its rival Target said its e-commerce business grew 155 percent. Amazon's sales rose 37 percent and profits rose nearly 200 percent in the most recent quarter.

Retail executives said that breathtaking growth was not a coincidence of pandemic lockdowns, but the result of an ongoing change in the way people shop.

"We believe this new customer behavior will largely continue," Walmart's CEO Doug McMillon said in a statement last week as the company released its latest sales and earnings figures.

Across the industry, online sales are expected to grow the fastest in 12 years, accounting for 12 percent of all retail purchases this year. According to Forrester Research, that's a 16 percent increase in 2019.

While some of these sales are in store pickups, many are not and the impact on brick and mortar retail is undeniable. Earlier this month, the number of stores announced to close in 2020 rose to a high of 10,991, according to CoStar Group, a data provider for the real estate industry. Many shopping centers fluctuate as tenants reduce the number of stores, pay no rent, or step out due to bankruptcies. Retailers filing for bankruptcy this year include J.C. Penney, J.Crew, Brooks Brothers, and Neiman Marcus.

“The retail industry has changed. It has it easy, ”said Daniel Horrigan, the mayor of Akron, Ohio, where Amazon opened a fulfillment center this month and created 1,500 jobs. "You can't stand in front of this wave."

The new Amazon center replaces a once popular shopping center from a bygone era with a steakhouse from Sears, RadioShack and York.

But the 54-acre site stood vacant for a decade, a blatant reminder of the city's larger fighting in the rust belt: the body of a murder victim was discovered on the mall's grounds and another man was electrocuted while trying to copper to steal from the empty building. "It looked like a huge haunted house inside," said Mr. Horrigan.

A few years ago, Mr. Horrigan attended the South By Southwest festival in Austin, Texas and gave Amazon the idea to redesign the mall.

City and state officials agreed to modernize the streets and intersections to make it easier for Amazon trucks to reach the building, which is near a major freeway. Amazon also scored tax incentives in the deal.

"The mall was full of life, with kids, popcorn, and concerts," said Horrigan, who lived in Akron for most of his life. “Every Christmas it was full of people. But we have to be realistic. "

This realism is also gaining ground in other cities. Even before the pandemic, some of New York's most famous retail corridors were emptied. Long shop windows along Madison Avenue and in Soho struggle with empty storefronts that give these luxury neighborhoods a bit of shine. Macy & # 39; s, which has seen sales decline more than 20 percent for the past three quarters, has been particularly hard hit by the temporary loss of tourists and office workers at its iconic flagship store and Bloomingdale & # 39; s.

Workers say there have been more employees than customers in stores in a few days since the retailer reopened in June. At Bloomingdale, some employees fill the time with online orders for off-store shipping.

"There are people in stores but they don't have the right numbers," said Brenda Moses, who started working at Bloomingdale's over 30 years ago over the Christmas season.

Across Manhattan, the number of retail leases signed or renewed declined 31 percent year over year in the third quarter, and rents in major shopping corridors fell 13 percent, according to CBRE, a real estate services company. It was the 12th quarter in a row that rent fell. At Hudson Yards, the long-touted development on the west side of Manhattan, Neiman Marcus said it would be leaving its 188,000-square-foot space just over a year after it opened.

"Some retailers will return when prices fall," said Santiago Gallino, a professor at the University of Pennsylvania's Wharton School who studied retailing. “But their businesses will not return in the same format. They need to be more integrated into their online business. "

However, retailers inevitably need less space. And it's not clear what type of store will fill the growing void, increasing the prospect that Manhattan storefronts could remain empty for the foreseeable future.

"This transition is exciting and good for business and retail," said Gallino. "But it's also true, it won't come without pain."

The rapid pace of retail change is equally alive in the boroughs outside of Manhattan. More than a dozen e-commerce warehouses are being built out of the sites of long-disused factories to meet New York's insatiable need for same-day deliveries. Storage rents rose in the third quarter by 70 percent compared to the previous quarter.

In Red Hook, on the Brooklyn coast, work teams are building one of the tallest warehouses on the East Coast: a three-story building with parking for trucks and "Sprinter vans" to get goods across New York in less than a day.

In June, Amazon signed a lease for a 285,000 square foot “delivery station” in the Maspeth section of Queens. Amazon has also significantly expanded the space it rents in a number of huge warehouses on Staten Island. In addition to the 855,000 square meter fulfillment center that the company opened in 2018, Amazon expanded to 1.4 million additional square meters at its Staten Island location this fall. In the Bronx, the company is taking over a building that was recently vacated by its rival Walmart.

"I've been doing this for 30 years and it's the best year we've ever had," said Robert Kossar, director of industrial real estate for the Northeast at JLL, a real estate services company. "We certainly don't see any signs of slowing down."