Changes have been coming to the retail sector for years. But in 2020, with the onslaught of the Covid-19 pandemic, the industry received a ticket to the Fury 325 roller coaster.

The year’s highs and lows reminded us that in retailing, no matter the rhythm of the ride or the dynamics of the journey, there is one thing that matters most: keeping a steady eye on your customers and how to serve and delight them.

Perhaps the most surprising part of the 2020 retail experience was that through the first 10 months of 2020, retail sales (excluding gas, auto and food services) rose 6.4% from the year-earlier period, according to the National Retail Federation’s analysis of U.S. Census Bureau data. Oddly, 2020 could turn out to be one of the best years in the overall retail sector in the past 20 years. The industry did experience a precipitous dip in April, with a sharp drop in sales of 5.5%, including a startling plunge in apparel sales of more than 86%. But concurrently, food-and-beverage store revenues were up nearly 27%. Losses and gains in these two sectors have been persistent throughout the year, as a dressed-down population focuses on essentials for their families and homes.

In many cases, traditional or overleveraged retailers struggled to navigate through the uncertainties. More than 27 retailers declared bankruptcy in the first nine months of the year, from Lord & Taylor (the oldest department store in the country) and the haplessly positioned J.C. Penney to the inappropriately capitalized luxury retailer Neiman Marcus Group and J.Crew Group. Some significant brand names have disappeared from our shopping malls forever, while others will be led by new blood yet face challenges to compete in the new world ahead.

So if overall revenues are increasing, where have all the shoppers gone? Clearly, we as Americans are still spending, but not on hotels, airplanes or eating out. E-commerce sales have continued to rise by double digits all year, although they have leveled off a bit since the pandemic hit hardest in April. And we’ve significantly increased spending on the areas in which we’re spending most of our time these days: our homes. Spending is up for home and garden maintenance, childrens’ toys and games, home offices and, of course, toilet paper and cleaning supplies.

But the surprising fact is that the retail store as we’ve known it isn’t dead (at least not yet). American consumers still love to get out and shop. In January, before the coronavirus swept across the U.S., just over 15% of retail sales occurred outside of physical stores. That number spiked to about 20% of sales in April, and has since leveled back to about 16% of sales in the three months ended in September. That doesn’t point to a populace that no longer enjoys shopping outside of the home.

The King of Prussia Mall outside Philadelphia remained closed in May due to the pandemic. Neiman Marcus filed for bankruptcy protection on May 7.



Photo:

lucas jackson/Reuters

So what are the key trends to think about as we move toward the end of 2020 and beyond?

First and foremost, if American consumers have money, they will spend it. When the stimulus checks hit early in the Covid cycle, retail sales spiked. The Christmas season and fourth-quarter sales should be robust, as well, as consumers allocate the money they normally would have spent on traveling to gifts for loved ones. We saw this trend on Mother’s Day, when jewelry sales sparkled with double-digit increases. The competition for those dollars will be fierce, as always. One change to note: This season, holiday shopping began long before Black Friday’s arrival, with more than half (52%) of shoppers making holiday purchases through early sales and promotions before Thanksgiving, according to the National Retail Federation.

Shoppers at Twelve Oaks Mall in Novi, Mich., on Nov. 21. Despite a rise in Covid-19 cases and new safety protocols, shoppers have been keeping many stores busy.



Photo:

Elaine Cromie for The Wall Street Journal

Second, the playing field in retail is undergoing rapid changes. For centuries, the key reasons people buy things have remained essentially the same. Yet the tools of how we bring them to life are in constant flux.

Convenience matters now more than ever. The options available at the local town market now come to our front door. Our

FedEx

and

Amazon

drivers are as familiar to us as was our favorite salesperson in a physical store. The result: Enclosed malls will diminish in importance, shrinking from 1,800 just a few short years ago to possibly 200 to 400 sustainable malls. While consumers continue to desire shopping experiences, they may be more attracted to outdoor shopping spaces or individualized retailer locations than to large, generic malls.

Third, the brands we love are changing, and the standards we judge them by are evolving. Consumers are starting to consider where and how the goods they buy are made. Consumers are asking: What are the core values of the retailer and the brand, and do they align with my worldview? There is much talk in the area of values-based sustainability, and it continues to grow in importance. The new status is becoming the ability to signal virtue, not just the ability to spend.

Still, don’t believe for a minute that people will buy sustainable and politically correct products in lieu of ones that are priced for affordability. Price and relative quality are still the primary drivers of consumer behavior, but have become blended with a new consciousness. Smart retailers will combine both.

Toby Cox opened his Three Lives & Co. bookstore in New York on June 8 for the first time in 10 weeks.



Photo:

Victor Llorente for The Wall Street Journal

The Tanger Outlet Center in Michigan in June. The center established social-distancing measures including capacity limits and mask requirements.



Photo:

Emily Rose Bennett for the Wall Street Journal

Most important, technology continues to change nearly everything about the retail experience. Personalization and the ability to stimulate our interest via data and artificial intelligence will be startling. Retailers will know us better than our spouses and families do.

How products are sourced, produced, distributed and consumed will be tracked. The merchant princes of the past must become the consumer-insights leaders and data analysts of tomorrow. They will need to combine an understanding of consumer needs with a core appreciation of design, math and technology.

Live streaming has taken off in China and will accelerate here in the U.S. as retailers use it to advertise, sell products and train employees, among other things. This will have a real impact on our shopping habits. Since the start of the pandemic,

Facebook Inc.

has released a native shopping platform for small businesses, and TikTok has taken on

Walmart Inc.

as a major-stake investor—demonstrating the centrality of retail to the virtual world’s bottom line.

A promoter demonstrates technology for doing live-stream sales at a tech expo in Beijing.



Photo:

Ng Han Guan/Associated Press

Yes, the roller coaster is a real one in retail. In 2020, changes in the way we are engaging, selling and retailing have accelerated. But our love of shopping is alive, and retail isn’t dead. This is a moment in which, like a season’s end, we begin to clear out the brush to allow new branches to grow and bloom. What replaces the relics of the past will be clearer, cleaner, more vibrant and even more affordable. Retailers will create communities around their brands that become points of gathering. We will shop together virtually and share tidbits in all ways we communicate. Shopping will be fun and we will aspire to be a part of retail movements and moments.

But within those changes, core retail principles will remain constant. In the end, the retailers who will win are those who watch their pennies, focus on the customer, and build and sell great products that meet needs and fulfill aspirations.

Key Retailing Dates in 2020

• April 15: Retail sales fell a record 8.7% in March, the Commerce Department reports.

April 24: Many national chains, including Macy’s, Gap and TGI Fridays, say they will sit out the early phase of reopenings as states ease restrictions. They cite health concerns and uncertain demand.

May 4: J.Crew files for bankruptcy protection, succumbing to the downturn sparked by the pandemic.

May 7: Neiman Marcus files for chapter 11.

May 15: Retail sales fell 16.4% in April, the biggest drop since record-keeping began in the early 1990s, the Commerce Department says. J.C. Penney files for chapter 11, becoming the biggest retailer to seek a court restructuring during the pandemic.

• July 1: Macy’s says nearly all its stores have reopened, but indicates it expects regional disruptions based on virus levels.

• Aug. 14: Retail sales surpassed pre-pandemic levels in July, the Commerce Department says.

• Aug. 18-19: Walmart reports its second consecutive quarter of big sales gains and Target posts the strongest quarterly growth in its history, as the pandemic boosts big chains able to stay open throughout the crisis.

• Sept. 29: Retail store closings in the U.S. reached a record in the first half of 2020, BDO USA reports, and bankruptcies and liquidations are on pace for an annual record.

How will the pandemic affect America’s retailers? As states across the nation struggle to return to business, WSJ investigates the evolving retail landscape and how consumers might shop in a post-pandemic world.

Mr. Rubel, a retail and consumer investor, is chairman of the executive board for MidOcean Private Equity and the chief executive officer of Empower Ltd, a special-purpose acquisition company. He can be reached at [email protected]

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