The coronavirus has changed the way a lot of people shop. When the outbreak got bad, many consumers stayed out of stores and started making purchases online instead. And now it looks like that trend may be here to stay.
Retailers, in turn, are adapting, and one such example is Gap (NYSE: GPS). The apparel giant has expanded its order fulfillment centers just in time to meet the uptick in consumer demand we can hope the holiday season will bring about. And it's also made a major investment in technology that's apt to give it an edge over its competition.
A focus on digital orders
Like other retailers, Gap has recognized that e-commerce is here to stay, and it recently invested over $100 million to expand its fulfillment centers in Phoenix, Arizona, and Gallatin, Tennessee. Gap's goal was to not only procure an adequate amount of space, but also to implement technology that will allow it to fulfill orders quickly and efficiently.
In fact, Gap has been using artificial intelligence solutions and robotic technologies in its fulfillment centers in an effort to speed up order processing. It's a move that other retail giants like Amazon have already pioneered and an investment that should pay off in the long run.
Ever since the pandemic took hold, Gap has been moving toward a business model that's centered on digital orders and off-mall locations. The retail giant expects e-commerce to account for roughly half of its sales by fiscal 2023.
During the second quarter of fiscal 2021, Gap's sales totaled $4.2 billion, up 5% compared to the second quarter of 2019. It was the retail chain's highest second-quarter sales total in more than a decade. During that time, online sales rose 65% compared to 2019's second quarter and represented 33% of Gap's total business.
The real estate investor takeaway
Gap's shift toward e-commerce isn't unique at a time when online orders are exploding and consumers are still iffy about in-person shopping due to the ongoing pandemic. On the one hand, the fact that Gap expects more business to come from online sales isn't great for real estate investors, because if the chain continues to shutter underperforming stores, malls and shopping centers will be left with widespread vacancies to fill (with malls in particular bearing the brunt given Gap's shift to stand-alone locations).
On the other hand, as Gap and other retail giants focus on e-commerce, there will be a growing need for warehouses and fulfillment centers to support that shift. And that could be really good news for industrial REITs (real estate investment trusts).
All told, Gap likely won't be the only retailer to sink loads of money into its online business. The industrial sector could really boom in the coming years, especially if online shopping proves itself to be far more than just a pandemic-induced trend.
We're also apt to see more retailers invest in updated technology to keep up with power players like Amazon in the fulfillment and distribution space. That could end up being a positive shift for warehouses and distribution centers across the country.