The news: The pace of store openings and closures has slowed significantly this year.

• There were 3,321 store closures in the first half, down 44.1% YoY, and 3,215 openings, down 23%, per Coresight Research.
• That resulted in a net loss of just 106 stores, a dramatic improvement from the 1,765 net closures at the same point last year.

Why is this happening? Retailers are being selective about expansion in an uncertain consumer environment. Retail sales are up 5.3% YoY through the first seven months of the year, but that resilience comes despite significant macroeconomic headwinds. Real wages have declined for five straight months, while consumer sentiment is near historic lows.

There’s little reason to expect those pressures to ease soon. Diesel prices recently hit a record, while elevated gas prices and other essential costs continue to eat into consumers’ spending power. In this environment, retailers need a compelling reason to add stores rather than chase top-line growth at the expense of profitability.

Zooming in: The retailers still expanding their footprints tend to have a specific role for those stores to play. For off-price retailers like TJX, Burlington Stores, and Ross Stores, as well as discount chain Five Below, the physical treasure hunt is central to the shopping experience. Dollar General and Dollar Tree, meanwhile, use their footprints to reach underserved and lower-income communities.

Others, including Wayfair, Bass Pro Shops, and Best Buy, see stores as more than points of sale. They double as three-dimensional billboards while allowing consumers to touch and feel products, get help from employees, and engage with the brand. Both Wayfair and Best Buy have said that putting stores closer to customers drives not only sales and market share but also online growth and multichannel engagement.

Implications for retailers: Given the uncertain economic outlook, it makes sense for retailers to take a measured approach to expanding their physical footprints.

The best expansions do more than generate in-store sales. Stores can create a treasure-hunt experience that’s hard to replicate online, reach underserved markets, deepen consumers’ connections with a brand through unique experiences, provide hands-on product discovery, or introduce the brand to new customers.

Retailers should judge a store by how it strengthens the entire business, not just by the sales it generates within its four walls. A well-placed location can boost online sales, deepen loyalty, attract new customers, and build brand awareness.

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