COVID-19 has hit the retail sector hard. A new report from Coresight Research explores just how devastating the virus has been to this sector.
According to its recently released U.S. Store Closures 2020 Outlook, Coresight predicts that from 20,000 to 25,000 retail stores will close in 2020. The midpoint of that range — 22,500 closures — is a significant jump from Coresight’s previous estimate of up to 15,000 retail store closures.
Not all retail sectors will be hit equally hard, though. Coresight predicts that about 55 percent to 60 percent of all store closures this year will be mall-based.
This isn’t surprising. Coresight points to research from CoStar that 14 of the top 20 occupants of U.S. mall space are department stores and apparel chains. These retailers rank among the most vulnerable sectors during the COVID-19 pandemic. As Coresight writes in its report, the fact that malls rely so heavily on department stores and apparel retailers has ominous implications for these shopping centers.
Consider that department stores are typically anchors for malls. If these stores close, other tenants are likely to do the same. Some tenants might enter into co-tenancy clauses that allow them to pay lower rents or break their leases if an anchor tenant leaves. This means that department and apparel store closures often create a negative ripple effect in malls.
Then there’s the fact that even before the COVID-19 outbreak, many regional malls were already hit by reduced shopper traffic and heavy store closures in their core apparel sector. Coresight says that the rise of ecommerce and consumers’ growing preference to spend their dollars on experiences instead of products have been the two main drivers of this shift.
This trend has caused many retailers to begin rationalizing their real estate, adjusting their retail space to meet the changing demands of consumers. This could lead to many shuttering underperforming shops in malls or shopping centers. The shutdown following the COVID-19 outbreak might accelerate this process, leading to what Coresight calls a turning point for shopping centers.
But whatever happens, it’s clear that COVID-19 has already been a disaster for many retailers. Coresight Research recorded 4,005 planned store closures in 2020 as of June 5. Pier 1 Imports closed 936 stores, GNC 304, Tuesday Morning 230 and Victoria’s Secret 223. Then there’s Papyrus, which has closed 178 stores, and JCPenney, which closed 169 as part of its bankruptcy filing.
Coresight predicts that U.S. retailers will see a major uptick in store closings throughout the rest of 2020 as consumers spend less of their discretionary income.
According to the report, the home and office retail sector had as of June 5 seen the highest number of announced store closures at 1,161. Apparel, footwear and accessories had 986 planned closures, while grocery had 480.
Coresight also said that it expects to see a jump in retailers declaring bankruptcy this year as the coronavirus’ negative impact on sales will quash the hopes of survival for a number of struggling companies. As of June 5, 15 major retailers had already filed for bankruptcy protection this year, including such big names as Pier 1 Imports, Art Van Furniture, J. Crew Group, Neiman Marcus, JCPenney and Dean & DeLuca.