2020 forced many retailers to look hard at their physical store footprint and rethink e-commerce. 2021 could be the year many specialty retailers like Gamestop and Lululemon take a look at something else: being acquired.

These specialty retailers are in the middle of the spectrum of retailers. They aren't chains like Krogers and CVS that sell essentials and have boomed during the pandemic. But they also aren't facing the severe hardships of brands like JC Penney or Macy's, which suffer from undifferentiated brand identity and a lack of clear focus. 

"All the guys in the middle are going to go through the holiday, try to collect as much cash as possible, but then I'm sure there's conversations around one of two things," said Lee Peterson, an executive vice president at WD Partners.

On one hand, retailers and brands could consider selling to a private equity player, likely a good play for investors but riskier for its long-term reputation, Peterson said. On the other, they could "circle the wagons a little bit and merge with other like-minded companies," he said.

"There are so many retailers and brands that are just hanging on by a thread and hoping that time will be on their side," said Carol Spieckerman, a retail analyst and consultant. 

Retailers with a strong private label selection or that offer services that rivals don't will be particularly attractive targets, Spieckerman said. Chains like Macy's, which have their own private labels but rely heavily on branded merchandise, are unlikely to draw M&A interest, she said.

"Are you buying a viable brand, or are you buying a place with a brand that has brands?" she said. "You could argue that Macy's still somewhat enjoys its own brand identity, but increasingly, it's not particularly differentiated." 

Retailers with recognizable brands but a string of poor recent results due to the pandemic are likely to make the best targets in 2021, said Bahige El-Rayes, a partner at Kearney's consumer and retail practice. "If everything is devalued anyway, you're not going to go for something that is distressed," he said.

Business Insider asked retail analysts and experts which retailers and brands they think might be ripe for deals in 2021. Here are 9 companies they pointed to:

Lululemon

Lululemon has benefited from demand for workout and casual wear during the pandemic, and its most recent earnings show it: Sales were up 22% for the quarter ended November 1. 

But having so many stores in malls increasingly represents a liability for the brand, Peterson said, especially with mall anchors at risk of bankruptcy or closing stores. A buyer like VF Corporation, which already makes products under the labels like Vans, North Face, and Timberland, could give Lululemon additional cash and resources to expand its e-commerce business and find new places to sell.

"If you're Lululemon, you're saying 'Oh, maybe I don't want to have so much presence at the mall going forward,'" he said.

Abercrombie & Fitch

Analysts have been pointing to Abercrombie & Fitch as a potential deal target since before the pandemic, saying that it could give rivals like American Eagle Outfitters or even Amazon some brands popular with young adults as well as a wide sourcing network.

Now, Abercrombie might have more of a reason to sell as mall anchor stores like Macy's appear to be on increasingly unstable footing, Peterson said. Many have to answer the question: "When all the anchors go, what's this [place] going to be?"

That could spur consolidation with another apparel retailer or even a deal with a private equity buyer with a reputation for turning around retailers, he added.

Sales at Abercrombie fell 5% for the third quarter.

Gap has picked up the pace of store closures during the pandemic. While it started the year planning to shutter 225 locations between its Gap and Banana Republic banners, it added another 350 to the list in October.

But the chain's group of brands, which also includes Old Navy, aren't necessarily irrelevant to consumers and could be appealing to a buyer who could work with a smaller store base and do more online, Spieckerman said.

"A brand like Gap would offer portfolio and platform to any acquirer," she added.

GameStop

Video game sales have shifted online over the last decade, with streaming and digital downloads capturing an increasing share of the market.

GameStop, meanwhile, still relies on physical stores for a majority of its revenue. Net sales were down more than 30% during GameStop's most recent quarter, which ended in October.

Yet the company has made some moves into the digital realm, including an agreement with Microsoft that gives the chain a portion of every game purchase made on all Xbox consoles GameStop sells. E-commerce sales have also grown to nearly one-fifth of total revenue.

While some analysts have cautioned that GameStop risks going the way of Blockbuster if it doesn't find its place online soon enough, Spieckerman said that the brand could have value for a larger retailer.

"Right now, GameStop is still a viable brand in the gaming space," Spieckerman said. "You could do something with that brand."

The Children's Place

Back-to-school time has traditionally been a key selling season for The Children's Place. This year, as more kids attended school online, fewer parents needed to buy fresh outfits, leading to sales 19% lower for the quarter ending in October.

As a retailer focused narrowly on clothing for young children, the company appeals to a specific group of consumers, Spieckerman said. That makes it potentially a good fit for a buyer-focused on turnarounds, such as Retail Ecommerce Ventures, whose current portfolio includes off-price chain Stein Mart, apparel retailer Dressbarn and Modell's Sporting Goods.

"I don't see any reason why The Children's Place or some of these much more specialized players wouldn't be good targets for them, because that seems to be their strategy," she said.

Capri Holdings

Michael Kors, Versace, and Jimmy Choo have struggled in recent months as in-person shopping and international travel has dried up. 

They also have another trait in common: All are owned by London-based Capri Holdings. 

Capri took its current form in 2018 when Michael Kors bought Italian label Versace and consolidated operations under the Capri name. Before that, Michael Kors acquired Jimmy Choo in 2017. 

While Chinese consumers, a key group for many luxury brands, have kept buying handbags, clothes, and other luxury goods in China during the pandemic, that hasn't made up entirely for lost sales as far fewer take vacations in Europe or the Americas.

"An acquisition of one of those portfolio companies would yield access to multiple brands," Spieckerman said. "It's going to be interesting to see if some of those companies, particularly in the apparel space become acquisition targets for companies that want to get instant diversification."

Ulta

"I think Amazon has always been interested in Kohl's and, subsequently, Ulta, because they have physical spaces that are not in malls," Peterson told Business Insider.

Ulta's store network includes both locations near traditional malls as well as stores in strip centers, which have done better in recent years.

That diversification could be appealing to acquirers looking for a store footprint outside of shopping centers, though often still close to them. And Ulta is no stranger to working with other retailers: It recently agreed to open 100 beauty shops within Target stores in 2021. 

Sales at Ulta fell nearly 8% during the company's third quarter.

Rite Aid

Health and wellness have long been areas where retailers are trying to do more, but the pandemic has made them even more important. 

Rite Aid has done relatively well during the pandemic: Revenue was up nearly 12% for the lasted quarter ended in August as more consumers turned to its stores, which occupy a wider range of locations than most retailers, from shopping centers to residential areas.

The company could be especially open to being bought given its history. In 2015, Walgreens announced a plan to acquire the rival drug store chain in its entirety. Over the following two years, though, regulatory concerns forced the companies to scale back their ambitions, and Walgreens ended up acquiring a fraction of Rite Aid's network.

The result is a smaller Rite Aid that could be easier for a big box retailer to justify buying, especially at a time when wellness is getting a lot of attention. "Everybody's trying to get a piece of the action and stretch into it," Spieckerman said of the category.

Macy's

In 2020, Macy's made thousands of layoffs, and its most quarterly same-store sales declined 20% as many shoppers were reluctant to come back to stores. 

A private equity deal could be in the cards for 2021, Peterson said, if a landlord doesn't come to the rescue as in the case of JC Penney earlier this year.

"The private equity hawks are going to swoop in and try to buy as much of this stuff as possible over the course of the next year," he said.

The question of honing e-commerce capabilities has proven to be a bit of a conundrum in the retail world.

On the one hand, online giant Amazon has, in many ways, defined what it means to offer fast and cheap shipping. On the other, obtaining Amazon-like speeds in a prompt manner seems to come easier to massive national retailers with strong brick-and-mortar presences, like Walmart and Target. Smaller retail players and digitally native brands simply lack the footprint to effectively use physical locations as mini-fulfillment centers. Meanwhile, demand for warehouse real estate is soaring and increasingly expensive as the growth of online shopping continues to explode during the coronavirus pandemic. 

"Warehousing is probably like the biggest bottleneck, the biggest issue in e-commerce right now,"Netalico Commerce e-commerce solutions architect Mark Lewis told Business Insider.

That's where the micro warehouses come in.

"The micro fulfillment center concept is a de-risking concept because retailers are spreading their products across a lot of smaller fulfillment centers," Lewis said. 

Several technology startups have sprung up to help solve the issue of fast shipping for smaller, local, and digitally native brands in recent year. Lewis said that many help provide shipping speeds on the level of Amazon or Walmart by employing predictive artificial intelligence in order to determine where to store certain inventory, and ship it in the cheapest and quickest manner possible.

"If you're only shipping 10 miles or 20 miles instead of state-to-state, that can definitely cancel out some of the potential supply chain costs without having multiple warehouses," he said. 

As a result of their proximity to customers in more densely-populated, urban centers, these smaller warehouse chains tend to rely far less heavily on traditional shipping carriers FedEx and UPS. With major shipping players slapping retailers with surcharges and package quotas during the chaotic 2020 holiday season, an alternative mode of shipping is certainly a promising prospect for many smaller retailers. Lewis predicted that an entire workforce of "gig economy" delivery contractors could spring up around micro warehouses in the coming years.

As investors anticipate consumers demanding speedier shipping, these micro warehousing startups raised millions in venture capital in recent years. And now, thanks to the disruption COVID-19 has wreaked upon e-commerce, they're seeing demand really soar.

SEE ALSO: Demand for warehouse space is surging as historic online spending exposes a major weakness

Ohi

Ben Jones founded Ohi in 2019 with the intention of leveling the playing field in e-commerce fulfillment. Jones said that e-commerce giants like Amazon have innovated a "paradigm shift" that sees faster and faster shipping speeds, and soaring customer expectations.

"Our core belief is that it's just going to happen in the next 18 months to two years, that the consumers will want everything within a matter of hours," Jones said. 

Ohi is seeking to help smaller and direct-to-consumer companies keep up. One of their larger customers is casual menswear company Untuckit. Ohi helped the brand transform its closed stores into micro warehouses to keep up with online orders.

"Our sweet spot are those brands that have a certain volume of orders within a geographic region, 5,000 to 10,000 orders a month across their e-commerce site," he said.

Business Insider spoke with Jones about his push to build "an instant commerce platform." For Jones, Ohi's central mission is to "democratize instant commerce for every e-commerce company" that lacks the "data analytics and physical infrastructure to get inventory close enough to the consumer."

Ohi has raised $2.75 million in a seed round from investors like Flybridge, Afore, and River Park Ventures.

"If you fast forward five years time, can you imagine a world in which consumers are going to expect everything within a matter of hours?" Jones said. "Well, yes. And a lot of VCs realize that."

Darkstore's FastAF

FastAF is a consumer-facing mobile app offering from e-commerce tech company Darkstore. Darkstore unveiled the app in September 2020.

The service is currently available in Los Angeles and just opened for business in New York City as well. So far, FastAF has raised $30.2 million in funding from investors.

FastAF currently offers two-hour delivery for products from direct-to-consumer brands like eyewear company AKILA, outdoor clothing business Equipt, and wellness brand Moon Juice, among others.

CEO Lee Hnetinka describe FastAF's direct-to-consumer partners as being both "the hottest brands" and "specialized up-and-coming local brands who do not have a robust presence or a physical storefront to compete in e-commerce." He said that shoppers have demanded increased delivery speed during the pandemic.

"People's patterns and routines were changing before the pandemic hit but has only accelerated as more and more lockdowns have occurred and consumers want same day delivery and with FastAF two hour delivery is possible," Hnetinka told Business insider. "We work directly with our dark stores to deliver everything from the new Playstation 5, limited edition Nike shoes, or cult beauty favorites like Summer Fridays, in less than 2 hours."

Bond

Founded in 2019 in Tel Aviv as an online grocery store, Bond is now a New York City-based logistics company. The business "couldn't crack the last mile," resulting in "bad delivery experiences, late packages, and confusing return policies" thanks to third-party providers, according to the company's website. 

So Bond pivoted from grocery to shipping solutions, opening up a network of parking-space-sized "nano-warehouses" across New York City, Business Insider's Alex Nicholl reported. The company's roster of direct-to-consumer clients includes CBD business RCVR and dog food company Pet Plate.

As of April, Bond has raised $15 million in funding from Lightspeed Venture Partners, MizMaa Ventures, and TLV Partners.

Asaf Hachmon, CEO and co-founder previously told Business Insider that Bond's nano warehouses offered brands "democracy" versus the "dictatorship" of Amazon. Hachmon's cofounder Michael Osadon still serves as Bond's CRO.

Fabric

Founded in 2015, Fabric was originally based in Tel Aviv. Now, the robotics-focused micro warehousing outfit operates in New York City. Supply Chain Dive reported in January 2020 that Fabric was due to open around 14 locations in the United States. One currently-operating micro fulfillment center is based in Gowanus in Brooklyn.

With $136 million in funds raised to date from investors like CPP Investments, Corner Ventures, Innovation Endeavors, and Temasek, the micro warehousing startup touts itself as "the best-funded player in the industry." Co-founders Elram Goren, Ori Avraham, and Shay Cohen still belong to the company's executive team.

Fabric declined to publicize its initial non-grocery clients to Supply Chain Dive, but said that it was able to "hand-pick" customers "due to overwhelming demand." The micro warehousing company serves its clients with both two-hour and one-hour delivery services.

Compared with its micro-warehousing rivals, Fabric strongly emphasizes its robotics capabilities. Chief Commercial Officer Steve Hornyk told Supply Chain Dive that robots were far better at dealing with demand "spikes" than human workers.

"It's not that humans can't do this," he said. "Humans can do it. But you've got all these spikes in e-commerce. Robots are very good at spikes, humans are not."

The year 2020 was a grim one for retail. 

As of December 17, 51 retail companies had filed for bankruptcy, the highest total for a single year since 2009, according to S&P Global. 

With the COVID-19 pandemic continuing to ravage the US, industry experts aren't expecting retailers' struggles to end anytime soon. Government-mandated shutdowns loom across multiple states as cases rise across the country. And even once the pandemic subsides, it may take some time for consumers to feel comfortable returning to shopping in-person.

As the Chief United States Bankruptcy Judge for the Southern District of Texas, David Jones has presided over a number of marquee cases in the last several months, including the restructuring of JCPenney and Neiman Marcus. 

Read more: Inside JCPenney's messy 6-month bankruptcy saga: How infighting and egos almost destroyed the company's shot at coming out of bankruptcy alive

In a recent interview with Insider, he said he was "a little afraid" of what 2021 would look like for the industry. 

"I think that there is a whole pent-up problem that at some point has to be dealt with," Jones said, adding that after looking at the debt structures of certain companies, he has wondered how they are still surviving. 

Some companies have benefited from forbearances from their primary lenders during the pandemic, he said.

But, eventually, the bill will come due. 

Jones predicts that more businesses will be forced into bankruptcy around June, based on publicly available information about forbearances. He pointed to real estate investment trusts, which count many retail brands in their portfolios, as one sector that could see a lot of action.

In 2020, two REITs — CBL Properties and Pennsylvania Real Estate Investment Trust — filed for bankruptcy on the same day, November 2. 

This after Coresight Research estimated in August, that about 25% of the country's malls would close in the next three-to-five years. REITs that have a large number of retail tenants that have themselves filed for bankruptcy are particularly vulnerable. 

"I just have to believe that there are others if people aren't paying rent," Jones said. "At some point, you've got to make your mortgage payments just like anybody else. And so that creates a problem at some point."

Many mall operators have had to compromise with tenants that have not been able to pay full rent due to the effects of prolonged shutdowns last spring. 

The closures of anchor stores like JCPenney, Neiman Marcus, and other department stores could prove particularly dangerous for mall operators, Jones said. Anchor stores typically take up a larger footprint of the mall and are meant to attract more foot traffic than other stores. 

"If you don't get traffic down on that end of the mall, the smaller shops that depend on that traffic start to decline, or the leases end, or they terminate them and they file bankruptcy," Jones said. "And so it just grows."

SEE ALSO: Retail saw big winners and losers in 2020. Here's how experts and insiders think the winners can keep winning in 2021 — and the losers could turn things around.

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Best Buy is closing five stores across the US over the next month, the retailer confirmed to four local news outlets.

The retailer plans to close two Richmond, Virginia area stores, along with one store each in Syracuse, New York,Carbondale, Illinois, and Brockton, Massachusetts.

According to statistics on Best Buy's website, there are 956 locations in 2021. down from 977 US store locations in 2020. It also notes that it closed 12 stores after October 31, 2020. The electronics chain has had fewer stores every year since 2012.

Read more: Walmart, Gap, and other retailers are turning to robotics startups and their 'cobots' to solve the biggest warehouse labor issues

Best Buy beat expectations in the third quarter, though that was mostly thanks to digital sales and the company warned that things could slow down further. Demand for home electronics and entertainment products led to $11.85 billion in revenue, an increase of over 20% from Q3 of the previous year.

Despite the apparent boom, Best Buy stock prices fell as the future looked murky and executives declined to give a forecast for the fourth quarter. Those earnings have not yet been released.

"As we've said many times before, our stores are a vital part of our growth strategy. We're constantly looking at our store network, responding to customer and demographic shifts just as any retailer does. This is the same approach we have employed for the past several years" Best Buy told Insider in a statement.

The COVID-19 pandemic made online orders surge, but it wreaked havoc on brick and mortar retailers. Coresight Research found that major retailers closed 8,741 stores in 2020, and predicts as many as 10,000 will follow this year. Other retailers that didn't close filed for bankruptcy, including J Crew, Nieman Marcus, and JCPenney.

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Disney plans to close 60 stores across North America by the end of 2021 to focus on e-commerce, the company announced Wednesday.

The closures will affect 20% of Disney's 300 global retail stores before it looks at more potential closures, especially in Europe, according to CNBC. Japan and China will not be affected. Disney also acknowledged that this change would lead to layoffs but declined to say how many people will be impacted.

"The global pandemic has changed what consumers expect from a retailer. We now plan to create a more flexible, interconnected e-commerce experience that gives consumers easy access to unique, high-quality products across all our franchises," president of consumer products, games, and publishing Stephanie Young said.

Disney will focus on improving its e-commerce offerings, including the ShopDisney website and app, and offer more direct-to-consumer adult apparel, collectibles, and home goods.

"We now plan to create a more flexible, interconnected e-commerce experience that gives consumers easy access to unique, high-quality products across all our franchises," Young said.

Disney's move is in line with how other retailers are reacting to the COVID-19 pandemic of the last year. The pandemic made online orders surge, but it wreaked havoc on brick and mortar retailers.

Coresight Research found that major retailers closed 8,741 stores in 2020, and predicts as many as 10,000 will follow this year. Other retailers that didn't close filed for bankruptcy, including J Crew, Nieman Marcus, and JCPenney. At the same time, the shift to e-commerce jumped ahead by as much as five years thanks to the pandemic, according to IBM's US Retail Index.

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Retailers that survived the COVID-19 pandemic are going to have to make some changes if they want to stay alive in the as the economy picks up steam again.

In 2020, dozens of retailers filed for bankruptcy or liquidation when the pandemic struck the US and storefronts shuttered. 

Those that survived pivoted to e-commerce and buy-online-pickup-in-store or curbside options. 

Some, like grocery and home improvement stores, even thrived. 

But to stay alive when the country comes out of the pandemic, retailers "have to remain relevant" and adapt to what the new consumer wants, said NPD's chief retail advisor Marshal Cohen. Cohen said consumers now want to entertain and work in a healthy home. 

"Retail success — both in and out of malls — may depend on rethinking business models to adapt to changing consumer preferences and demand shifts," BDO said in its 2021 Retail CFO Outlook Survey.

They'll have to marry the digital and brick-and-mortar stores, Cohen said. 

"As people get out and about you're still going to have to have the digital side communicate with the brick side," he said. 

During the pandemic, e-commerce sales quickly accelerated, accounting for 18% of retail revenue in 2020, according to UBS data. By 2026, online will account for 27%, the analysts said. 

Mary Ann Domuracki, managing director at MMG Advisors, said the runway for e-commerce may be even bigger, though. In the next few years, she said, it "easily" could account for more than half of sales. "Why not?" she said.

Read more: 9 retail brands that are prime M&A targets in 2021, according to experts

For brick-and-mortar, David Berliner, leader of BDO's Restructuring and Turnaround Services practice, said retailers should mimic the Apple approach by making the store an "experience" for customers. 

"When you go to the Apple store, you can see all the products, you can play with them," he said. "There are trained sales people there to answer your questions."

"There is a considerable amount of opportunity" for retailers, if they can increasingly use their stores to fulfill online orders, UBS analysts said in an April 5 report. 

Retailers, the analysts said, must "evolve and adapt their store formats to be the centerpiece of interacting with consumers, including fulfilling online orders."

Nearly 1 in 10 stores will shutter by 2026

Even if retailers change the in-store experience and increase online order fulfillment, more storefronts are likely to shutter. 

"I don't see businesses closing, but I do see stores closing," Cohen said. "I see weak locations; I can see a lot of those flagships being really challenged because of the absence of foot traffic and tourism."

UBS estimated 80,000 stores, or 9% of brick-and-mortar, will be closed by 2026. And that's OK, said Domuracki because "we were over-stored as an economy."

In 2020 alone, 8,300 stores closed as consumers largely made purchases online. Experts have predicted in 2021 at least 10,000 more will disappear. 

Thirty-eight retailers filed for bankruptcy or liquidation in 2020, though that tailed off near the end of the year.  Those bankruptcies were mainly a result of years of struggle coming to a head, said Cohen. In the coming years, the bankruptcies will come from "the businesses that weren't able to transform themselves to the new world of retail," he said. 

In 2020, apparel and department stores accounted for about half of bankruptcies, and they're still the most at-risk in 2021 because of "declining mall traffic, overextended store networks, margin pressures from e-commerce competition, high omnichannel investment needs, and an accelerating fashion cycle," according to an April 7 report from Moody's. 

For retailers that survived, Cohen said the pandemic gave them "the ability to say, 'We had a tough year because retail changed; we're making changes.' Well, after 2021 is done, they better have done that," he said.

Even so, "the theme of uncertainty continues to come to the forefront," Domuracki said. 

That uncertainty stems from determining which consumer habits were temporary and which will be permanent. For work apparel, for example, she said it may or may not make a comeback, as people became used to wearing more relaxed clothes on the job.

"If the consumer changes with what they're going to use, then you'll find more of those companies not being able to make it," she said.

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