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The pandemic may have hit retail five years ago, but its impacts came in wave after relentless wave for months after that. Immediate, dramatic effects — including widespread staff furloughs and the temporary closure of entire store footprints — gave way to longer-term challenges as supply chain chaos swept the industry.

Government-funded stimulus payments, handed out to ease consumers’ pain, boosted spending, but left long-tail impacts that are still hurting retailers today. A lot of stimulus money ended up in the retail sector, which meant the industry “really ballooned” during the pandemic, according to Coresight Research’s head of global research, John Mercer.

“One point we've made repeatedly is that consumers, we think, still haven't ceded what they've spent,” Mercer said, referring to the increased levels of spending shoppers adopted during that time. “But then, of course, the long-term effects of that stimulus is fueling inflation, which then obviously is challenging for consumers.” 

The rise of inflation also coincided with the depletion of many shoppers’ pandemic-era savings. The result? Shoppers pulled back on discretionary purchases, particularly in those categories that they overspent on while stuck inside. That’s led to the past two years of declines and stagnation in categories like home, which in turn has fueled bankruptcies, even years after COVID stopped being a regular word on the public’s lips. 

“We're certainly closer to the end, and there's a couple of data points that you can look to that would support that idea,” Declan Gargan, retail director at S&P Global Ratings, told Retail Dive. 

One of those is the Personal Consumption Expenditures Price Index, which measures shopper spend on goods versus services. According to that data, the pandemic-era shift towards physical goods, which has remained elevated for several years, has swung back almost entirely to its pre-pandemic share of shoppers’ wallets. “Exiting 2024, it's pretty close,” Gargan said.

Mercer believes there’s still a ways to go before discretionary spending normalizes, especially because services like travel were gaining more and more share annually before the pandemic hit. A recent report from real estate firm JLL also expects service-based tenants will account for more retail leases in the coming years, in what it says is an acceleration of a decade-long shift. That suggests the long-tail trends from COVID might still be with us a while longer.

“If that balance swings back to how it was before the pandemic, there's still that potential for a multiyear trend to continue in terms of services gaining at the expense of goods,” Mercer said. 

Still, many of the strongest impacts from the pandemic are finally starting to show up in the rear-view mirror. Here’s a closer look at some of the long-tail impacts from the global health emergency, and what they say about how the industry has recovered.

The threat of e-commerce replacing physical retail circulated for years prior to the moment the pandemic forced the issue. Amazon and the rise of e-commerce made regular appearances in bankruptcy documents, with retailers declaring themselves incapable of adjusting fast enough to the shifts in consumer shopping behavior.

Then 2020 happened and retailers had to adapt — or risk losing out on sales of any kind. Improving websites and services like buy online, pick up in store became critical investments across the industry as cautious consumers avoided stores even after the initial pandemic scare was over. Unlike other areas of retail that boomed in 2020, though, e-commerce growth has yet to stagnate. 

According to Gargan, U.S. retail e-commerce sales as a percentage of total retail sales (excluding automotive) had reached roughly 22% as of Q4 last year. That’s compared to roughly 15% in the fourth quarter of 2019. Looking at the U.S. Commerce Department’s monthly numbers, e-commerce sales in December 2024 were more than $60 billion higher than they were five years previously, a 66% gain in that time period.

“We think really it's going to be the larger retailers that benefit — the ones that have the resources, that have been making investments in capital spending, strengthening their digital capabilities,” Gargan said. “They're going to take that growing share and that's a trend that we expect to continue. But that might have been accelerated in terms of consumers adopting online shopping, because they were essentially forced to in the early days.”

The idea that stores will be replaced by e-commerce is still nowhere near the truth, but Mercer noted that there is more of an emphasis on where physical retail can prove its worth. The way Coresight Research views it, stores should provide convenience, collection services (as in the picking up of orders), discount offerings or be a destination for shoppers.

“There are places where stores can fill in those gaps around e-commerce and digital if they focus on some of those,” Mercer said.

Even so, the growth curve of e-commerce may be tapering off soon. A report from FTI Consulting last year suggested the channel was “maturing” and that it would plateau around 35% in the next decade. That still leaves about 12 percentage points of share for e-commerce to take in the coming years, per FTI’s estimate, and new entrants are also making the space more competitive.

“Shein and Temu, collectively worldwide, generated sales of over $100 billion last year,” Mercer said. “Now a minority of that is in the U.S., so that's not all coming from U.S. retailers, but a chunk of it is coming from the U.S. — and those are coming predominantly from legacy retailers.”

In fact, Mercer said the impact of these competitive challenges on retailers is an “underrecognized story” in the industry, perhaps sidelined given widespread policy changes and consumer sentiment concerns. All of those macro issues are leading to more pressure on legacy retailers, and heavy predictions for store closings in 2025.

Numerically, 2020 was a lighter year for store closures than 2019. And 2025 could be worse than both.

Partially, that’s because Coresight Research’s store count numbers are based on permanent closures and openings, which leaves out the rash of temporary store closures that swept the world in 2020. But it’s also because 2020, though bad for many retailers, also led fairly swiftly to an influx of stimulus money for shoppers, which meant more spending — and fewer closures.

As a result, both 2021 and 2022 saw significantly lower store closings across the industry, with 2022 marking the lowest number since 2012, Mercer said.

“And then it kind of got worse from there,” Mercer said. Store closures in 2023, for example, were the worst since 2020 — until last year surpassed them. “So these things, I think, tend to come in waves.” 

Openings, on the other hand, have stayed incredibly consistent over the years. That may be because the same types of retailers reliably open stores year after year, including dollar stores, grocery stores and off-price retailers.

When it comes to closures, though, pandemic-era stimulus money kicked off a boom in consumer spending, which then contracted due to inflation and other pressures. Now we’re seeing the impacts of that subdued spending in an aggressive store closure prediction for 2025. Coresight Research’s expectation — that 15,000 locations could shutter this year — would equate to a 55% increase over 2020’s count, and would more than double last year’s total. 

But there’s reason for it. Party City ended 2024 by outlining plans to shutter its entire 700-plus store footprint, Joann’s recent announcement adds another 800-plus locations to the count and Big Lots and Macy’s are also pursuing hundreds of closures this year.

“They're already piling up,” Mercer said. In addition to the lingering effects of the pandemic, a weak housing market and the overflow impacts of bankruptcies from last year, there are also increasing competitive pressures from the likes of Temu, Shein and TikTok Shop. 

“In some cases, retailers need to slim down their estates — and I think we see that particularly for legacy sectors like department stores and drugstores,” Mercer said. 

For others, like those in bankruptcy, it’s often more about reducing their cost base. But the pandemic-era pressures causing bankruptcies in some sectors may finally be easing, which could spell lighter store closure numbers in future years.

For the home space, the pandemic was a fairy tale turned horror story when the enormous sales gains fueled by stay-at-home orders largely dissipated, leaving retailers reeling from the sudden (and sustained) dropoff in revenue. That category wasn’t the only one hit by shopping behavior changes — electronics and outdoors purchases also boomed in the early days of the pandemic before facing a pullback as consumers moved on from their COVID-era needs.

“The pandemic — it's still impacting how consumers shop, where they're shopping and what categories they're shopping for,” Gargan said. “If you think about it, today, the areas in retail that are the most pressured tend to be kind of the specialty retailers — the ones that are focusing on more discretionary-type merchandise — and particularly those that are largely focused on home-related categories.”

S&P Global Ratings isn’t expecting a significant uplift in spending across retail this year, but the categories that have been hit the hardest may finally be reaching “trough levels,” Gargan noted. 

Wayfair leadership said as much in the retailer’s latest earnings call, with CEO Niraj Shah commenting that the e-commerce company believes it’s reached “the bottom of this downcycle” in the home market. Best Buy announced falling electronics sales would reach the end of that cycle in 2023 — and indeed, monthly sales in the sector in 2024 were largely flat or up compared to the year prior — but not at Best Buy, which continued to see sales declines. 

And crafts and outdoor retailers, which are counted under the same category by the Commerce Department, continue to struggle through lackluster sales trends as well. Those pressures have led to two Joann bankruptcies in roughly a year, layoffs at the likes of REI and Patagonia, and even pullback from Dick’s Sporting Goods on its outdoors ambitions. 

“To really see an inflection or catalyst that would support sales growth, there's got to be some macro factors that change — and that's principally lower interest rates, bringing mortgage rates down, starting to see improving housing turnover,” Gargan said of the home space.

Spaces like electronics could also start to benefit from the product renewal cycle, according to Mercer, as shoppers look to replace the laptops or TVs they bought five years ago.

“We've possibly reached, or gone past, the kind of dip in stuff — ‘Oh, well, I bought it during the pandemic. I don't need it anymore,’” Mercer said. “Because five years on, things change. Things wear out. You move house — whatever.”

Until sales trends fully recover from the peaks and valleys brought on by COVID, distressed retailers will still be citing the pandemic as a major driver in bankruptcy filings — and according to Gargan, many of them have reason to. 

“It really wasn't a precipitous dropoff, a one-year period,” Gargan said of the pandemic. “It was really kind of these incremental effects.” 

There was the pull forward in demand, then the supply chain disruptions, then inflation and higher interest rates.

“I think those are all — you can kind of tie that back to the pandemic to some degree,” Gargan said. “And so in that regard, I think it is a fair characterization.”

2020 itself was still an enormous year for bankruptcy filings, as many retailers stopped being able to afford rent without any foot traffic to their stores, but the same trends that kept store closures at bay in 2021 and 2022 played out in bankruptcy filings. Now, faced with the reversal of those behaviors, things have ticked up again.

Of the five traditional retailers that defaulted in some fashion last year, the “vast majority” cited the pandemic as a contributing cause, Gargan said of S&P Global Ratings’ data. Four of those five defaults were Chapter 11 filings, he added, which suggests lenders are less willing to negotiate with struggling retailers outside of bankruptcy court. S&P Global Ratings marked 34 bankruptcies in the consumer discretionary and retail markets overall last year.

Joann is an interesting example. The retailer closed no stores during its first bankruptcy and is now liquidating its entire 800-plus footprint during its second one after a group including the retailer’s lenders won a bankruptcy auction for the company.

“The relationship with their vendors, I think, was impaired beyond their expectations,” Gargan said, noting that suppliers started tightening terms prior to Joann’s first bankruptcy. “I think those issues persisted longer than Joann expected. I think they expected them to be resolved once they exited Chapter 11 the first go around.”

With pandemic-driven bankruptcies and closures in 2020 also came meaningful job loss — and surges in hiring as stores reopened and shoppers returned. Layoffs in 2020 more than doubled from 2019, while hiring was up 33%. But ever since then, hiring (and, for the most part, layoffs) have been much more muted.

In fact, hiring declined for three consecutive years after 2020 — and in 2024, hiring totals were nearly 40% lower than they were in 2019. Layoffs, after hitting a high of about 185,000 in 2020, were extraordinarily low for two years before popping back up to 2019 levels in 2023. Last year, layoffs were down almost 50%, though still significantly higher than retail’s stimulus-fueled years. 

“Whether your category is performing better than others, issuers are all facing the same elevated inflationary costs on their business — and so they're looking for ways to offset that,” Gargan said, noting that tariffs and freight rates pose uncertainties for retailers this year. 

Workforce reductions, like store closures, is one of the ways retailers can trim costs. In a Challenger, Gray & Christmas report earlier this year, the outplacement firm noted that retail jobs have “fundamentally changed” and require different skills than they did in the 2010s. In an email to Retail Dive, Senior Vice President Andy Challenger acknowledged the impact of the pandemic on retailers, but hinted that other forces are now at play.

“The pandemic seemed to have permanently shifted how retailers staff and operate, but we've entered a new era where economic uncertainty and falling consumer confidence are driving decision-making,” Challenger said.