Coronavirus Pandemic Will Change the Retail Landscape Permanently
The retail sector in America has quickly been turned upside down by the coronavirus pandemic, with many brick-and-mortar stores shuttered, some remaining open with heavy health restrictions, and many customers shifting their essential shopping online in new ways.
“The idea of ‘business as usual’ is being challenged at every turn, but retail is uniquely nimble and adaptable,” explained Chuck Palmer, a Columbus-based retail expert and owner of ConsumerX Retail.
Palmer pointed to examples where retailers have completely shifted product manufacturing to focus on medical efforts, or changed online ordering, pickup and delivery options to keep customers safe.
“Local coffee shops and bakeries like Stauf’s and Bake Me Happy are doing well, by changing their menus and adding items that can be shared at home with family,” he added.
Bryan Savage, broker and owner of Savage Real Estate, works primarily with local and regional retailers that include restaurants, bars, convenience stores, nail salons and medical offices. He said that by his estimates, approximately 85% of his clients are either closed completely or operating at around 25% of their normal capacity.
“Restaurants are not making it with just carry out or delivery,” explained Savage, pointing out that delivery services like Grubhub and Uber Eats contain business fees that cut into small business profits.
Savage said that some retailers are negotiating rent reductions or deferrals during the pandemic so that these businesses can better weather a longer-term closure. He says that striking a deal with a landlord is likely required, as the Federal SBA Paycheck Protection Program (PPP) in the CARES Act only allows for 25% of a loan to go toward rent payments.
“Some property owners are asking for deferred rent to be paid back over a 12-month period and some are adding these deferred months to the end of the lease, stated Savage. “I’ve seen one retail tenant’s landlord who is asking for 50% rent over the next two months — as the tenant is open for carry out and delivery — with 25% paid back over a 12-month period and the other 25% eliminated.”
Who is Hurting More? Small Retailers or Large Retailers?
Federal and State guidelines have impacted all kinds of retail businesses across the U.S., both large and small. Both independent boutiques and large chains have had to make tough decisions with staffing reductions, online sales capacities and customer safety concerns.
“I believe this has hit both sectors equally, however the small business owner typically does not have the financial cushion that many of the larger corporations have to survive a situation of this magnitude,” stated Savage. “Additionally, many small business owners have not been able to apply for the Cares PPP loan as they have independent contractors and not employees.”
Palmer added that the ability for a retail business to survive the coronavirus pandemic largely depends upon a variety of existing shopping options and an existing online sales infrastructure.
“Some small businesses are adapting and maintaining sales, but those are typically diversified organizations that have wholesale, in-store and online aspects of their businesses,” said Palmer. “Some have shut down completely and the odds of those re-opening diminishes each day as shelter-in-place continues.”
Will Coronavirus Hasten “The Retailpocolypse”?
Over the past five years, dozens of major chain retailers have filed for bankruptcy, liquidated or closed large numbers of brick-and-mortar stores, including Toys R Us, Sears, Gymboree, Payless Shoes, The Limited, American Apparel, Wet Seal, RadioShack and others. Some retail trend watchers have dubbed this trend as “The Retailpocolypse,” citing a multitude of causes that range from changes in customer preferences to competitiveness with Amazon to debt-burdened businesses consumed by “vulture capitalism.”
“Yes, many retailers have been struggling over the past few years as they cannot compete with Amazon and other strong online retailers that offer similar products,” acknowledges Savage. “But none of us could have foreseen a situation at the magnitude that we are experiencing now. I can foresee that many large retailers will evaluate each and every lease they have to see if it makes sense to leave certain locations shut down, or renegotiate terms of the lease.”
Palmer agrees that the coronavirus situation is “unprecedented at every level” for retailers to try to reckon with.
“It is likely the pandemic will facilitate or be used as a reason for bankruptcy filings,” he stated. “Everything and anything is up for negotiation. Urban Outfitters has reportedly canceled all outstanding orders that have not shipped — greatly affecting their summer and fall assortments — and said they would take 30% discount on anything in transit to their distribution centers.”
Is 2020 the Beginning of the End for Malls?
With traditional large mall anchors like JCPenny and Macy’s closing stores across the country, some industry experts are questioning whether or not there is a future for the traditional mall format. The more diversified “Lifestyle Center” format like Easton Town Center has bucked the trend, but many traditional malls all across the U.S. have either closed down or been revamped for other uses. Industry researchers have projected that 25% of all malls in America will close down during the five years between 2017 and 2022.
“Yes — the viability of malls depends on leases, which depends on the viability of stores,” stated Palmer. “The federal government is working on ways to put commercial mortgages on pause, which would take the heat off real estate, but that doesn’t mean consumers will return and spend. So we may see some properties shut down.”
Savage speculates that customer behavior will be changed by the coronavirus pandemic and describes what we’re going through right now as a “paradigm shift on a grand scale.”
“With these statewide lockdowns and mandatory shut-ins, more and more people are realizing that they do not have to go out to shop, to eat or even go to the bank,” he says. “I cannot say for sure if the traditional mall is dead. We are a very social society and this is why traditional malls — and now, more so, Lifestyle Centers — have become some popular.”
Post-Coronavirus Retail Trends We May See in 2020
Once the pandemic ends — whenever that may be — everyone hopes that things can quickly return to normal. Of course, the “new normal” is likely to see some differences across all aspects of society, and retailers are no different in monitoring for new trends, good or bad.
Savage expects some current trends to continue into the future — like seeing more shoppers wearing face masks to the grocery store (already a common practice in other countries) and expecting hand sanitizer and wipes at more store entrances and exits.
“Customers will need to see that companies are sanitizing equipment like shopping carts before the next person or group uses them,” he stated. “And entertainment-based retail spaces like bowling alleys, Top Golf, and movie theaters are all going to need to adapt to make customers feel that they are safe.”
Furthermore, with unemployment rates likely to hit levels that haven’t been seen since the Great Depression, customer spending is likely going to take some time to bounce back. Government stimulus checks will likely be used for priority budget items like housing, utilities and groceries before it goes toward nonessential retail spending.
“Consumers will be value-driven for quite some time,” added Palmer. “We have seen in past economic downturns that even as economies recover and pressure eases on spending power, consumers still are anxious and slow to spend on discretionary items.”