Author: Sukkriti Nath
The BRB Bottomline
The Retail apocalypse might be at its peak due to the global pandemic. Some of our favorite brands – H&M, Victoria’s Secret, and Gap – have all declared bankruptcy. However, some have taken strategic steps that may have put them ahead of the Covid-19 curve. In a period of extreme economic turmoil, political instability, and rampant uncertainty – is there still hope for some of our favorite retailers?
On 26th June 2020, Microsoft – the multinational tech giant – announced that it would be permanently closing all of its physical retail stores, in the US and worldwide. Similarly, in June, Zara also announced it will be closing nearly 1,200 stores worldwide while Starbucks said it would be closing 400 stores. Presumably, for many tech-buffs, window-shoppers, and Starbucks lovers, this is unsettling news. Unsurprisingly, this news came amidst the Covid-19 pandemic, during which over 280 companies declared bankruptcy in the US itself and blamed coronavirus for the same, as reported by Bloomberg. However, is that to say that Microsoft, Zara, and Starbucks are on the same path? Let’s back up a bit and find out.
Covid-19 and The Retail Apocalypse
The retail apocalypse refers to the growing phenomenon of the closing of multiple brick-and-mortar retail stores in the past decade. In 2019 over 9,302 store closings were announced by retailers in the US, which was a massive 59% increase from 2018. Some of America’s beloved retailers closed stores in double and triple digits in 2017, as reported by Forbes. Macy’s, Abercrombie & Fitch, and Guess all closed about 60 stores. JCPenney, Sears and KMart, and American Apparel closed about 100 stores each. In the past, multiple reasons have been attributed to the same: inability to meet consumer demand, over expansion as well as labour mismanagement.
However, the Covid-19 Pandemic is now emerging as a significant factor that has simply accelerated the retail apocalypse. During this period of economic turmoil and extreme uncertainty, some notable names that succumbed to the pandemic include JCPenney, Victoria’s Secret, H&M, Gap, and J. Crew. The pandemic has inevitably led to a wave of bankruptcies as retailers struggled to make ends meet as the people were locked into their homes, the streets were cleared, and the malls were abruptly shut close. However, a deeper analysis into the store closings of Microsoft, Zara, and Starbucks would reveal that there is a reason beyond a mere pandemic-fuelled bankruptcy.
Staying ahead of the Covid-19 Curve
While common sense would suggest that the reason for Microsoft, Zara, and Starbucks to close its stores in the hundreds would be the same as JC Penny, Pizza hut, or Gap, here’s a quick deep dive into why exactly did these there companies choose to shut down its stores in the hundreds:
The Tech Giant: Microsoft
Microsoft began expanding its retail presence in the past decade in an effort to mimic a shopping “experience” similar to that of Apple’s. However, in 2020, it announced a strategic pivot in its retail operations by announcing that it would close all its physical store locations, only to reinvest in digital storefronts on Microsoft.com, Xbox, and Windows. This was, arguably, not merely a response to the Covid-19 pandemic but instead, more likely, a strategic pivot that took into account the recent boom in online sales as well as increase in digital offerings. Thus, this major move is not a responsive but proactive step.
The Fashion Giant: Zara
Inditex, the parent company of Zara also saw a similar opportunity to pivot to online sales during the Covid-19 pandemic. As noted previously, Zara did announce to close over 1,000 physical retail stores worldwide. However, almost simultaneously, Inditex also chose to invest over $1 billion to upgrade its e-commerce platform and grow its online presence, as reported by Business Insider. This, too, is clearly a strategic pivot which took into consideration the 95% increase in online sales during lockdown, and a 50% overall increase during the first quarter of 2020. Seeing such blaring statistics, it is not difficult to argue that ignoring these numbers would be undeniably a mistake, and this is thus, a strategic pivot by the fashion giant.
The Coffee Giant: Starbucks
As reported by CNN, Starbucks too is pivoting away from physical stores and investing in its pick-up only and to-go business. It is important to note that while in comparison to a tech or fashion giant it is challenging to pivot away from a traditional café-style dining room, Starbucks is still making efforts to do so because they seem to recognize the potential of e-commerce and going “mobile” in the future. Thus, they claim that with the closing up of its 400 stores, it also plans to open 300 new locations that are only focused on carryout and pickup. This, yet again, is clearly a strategic move that should not merely be mistaken for a responsive measure to the Covid-19 pandemic.
With the examples of Microsoft, Zara, and Starbucks, it is clear that there is a need for corporates to not merely respond to the pandemic, but actually recognize the drastic shift in consumer behaviour to take proactive measures. While some major corporates have, no doubt, succumbed to the pandemic-fuelled Retail Apocalypse, the examples of Microsoft, Zara, and Starbucks show strategic moves made by conglomerates which may allow them to stay ahead of the covid-19 curve. Clearly, in a period of such uncertainty, it is difficult to predict the economic outcomes of moving towards online sales or reinvesting in sectors that show more potential. However, with these case studies, it appears that there is still hope.
Sukkriti is a freshman at UC Berkeley, intending to major in Business Administration and Legal Studies. With her writing, she strives to create enduring impact on timeless themes that trouble her immediate and extended communities: rampant Teenage Smoking; the fragmentation of cultural values; and, most recently, India’s deep-rooted caste system. She is also in the process of developing her Ed-Tech startup, Books & Notes. At BRB, she hopes to commingle her passion for writing and her amassed knowledge of Economics hitherto.