The news for retailers is grim: According to the latest research from CoStar Group, store closures in 2020 will reach an all-time high.
As of October, retailers had announced plans to close more than 130 million square feet of store space this year, according to CoStar. More than half of this space is coming from five big-name retailers: J.C. Penney, Macy’s, Stein Mart, Bed Bath & Beyond and Pier 1 Imports.
Experiential retail has been hit hard, too, with retailers such as 24 Hour Fitness, Gold’s Gym, Check E. Cheese and many restaurants announcing store closures this year, too.
COVID-19 is the big cause of this record-setting pace. But it’s not the only one. As CoStar retail analysts say, the retail sector was facing challenges long before the pandemic hit. The growth of ecommerce and online shopping had already hit traditional brick-and-mortar retailers hard, according to the company. CoStar says that the pandemic, and the further boost it has given to online shopping, has only accelerated these struggles.
“It was rather surprising to see the speed at which retailers were announcing closures,” said Robin Trantham, retail consultant with CoStar Advisory Services, during an interview with Midwest Real Estate News. “We, of course, expected closures to come from the pandemic, but the pace has been rather quick. Retail is always going through a big transition. This year, the pandemic really accelerated that transition. With the pandemic and the continuing threat of ecommerce, we are seeing record store closures.”
Trantham said that retailers who were already struggling with the threat of ecommerce before the pandemic are feeling more pain today. Those retailers that have adopted an omnichannel approach — maintaining brick-and-mortar stores more to showcase their products and then expecting a large chunk of their consumers to buy these products online — have been able to better withstand the impact of the pandemic and the resulting shutdowns.
Retailers with stronger online presences, such as Target and Walmart, have benefitted from the growth of online sales during the pandemic. Many consumers have increased their online purchases during the last seven months as retailers shut brick-and-mortar stores. And while this has helped bigger retailers with strong websites, it’s hurt others, especially apparel retailers, restaurants and entertainment centers.
The five big retailers that are seeing the most store closures are an example of this. They mainly sell apparel or home goods. Both of these retail categories were hit especially hard by shutdown orders.
“People are still staying at home more,” Trantham said. “They aren’t going to these apparel and traditional retail shops to spend money. A lot have lost their jobs. There is less discretionary spending. These retailers saw a drop in foot traffic. As a result, they are thinking of cutting down their footprints.”
Now it’s not just shutdowns that are hurting these retailers. As Trantham says, many consumers are still hesitant to shop at retailers even if their states’ shutdown orders have ended. They’re worried about contracting COVID-19 and would rather shop online than take their chances at a traditional brick-and-mortar retail center.
“It comes down to people feeling safe when they are shopping,” Trantham said. “A lot of retailers and center owners have put money and resources into making sure their centers are more than safe enough to shop at. That is of high importance right now. But a lot of people still don’t feel safe shopping in person.”
And don’t expect things to look better for traditional retailers soon. CoStar predicts that during the next 12 months, pandemic-related closures will drive a further increase in retail vacancy rates. The company predicts that mall vacancies will increase by more than double that of the next-highest retail center type, while power centers and community centers are expected to suffer through significant vacancies.
Neighborhood centers, which are typically anchored by grocery stores, will see the lowest amount of closures, according to CoStar analysts.
CoStar doesn’t just track retail closures. The company also tracks store openings. Trantham said that grocery and discount stores are active today, opening new locations even during the COVID-19 pandemic. Trantham said that he expects these retailers to continue to do well even as the country continues to fight the pandemic.
But what about those retailers offering experiences, places like movie theaters, high-tech bowling alleys and indoor entertainment parks? For years, these experiential retailers had been growing, offering consumers experiences they couldn’t get just by shopping Amazon.
Trantham said that it will be a long, arduous road to recovery for these retailers. They’ve been devastated by the COVID-19-related closures. A good example is the Regal theater chain, which announced it was closing all 536 of its U.S. movie theaters.
But this pandemic won’t last forever. Trantham says that in the long run, experiential retailers are best poised to beat back the threat of ecommerce. Because of this, he said, experiential retailers should continue to thrive once a vaccine is distributed and U.S. shoppers feel safe again gathering in larger groups.
“We still believe that the long-term threat to retail is ecommerce and the growth of ecommerce,” Trantham said. “Experiential retail is not as exposed to the threat of ecommerce as is an apparel or traditional retail tenant. It is still a good play for a shopping center to take on an experiential tenant over the long-term over one that is highly exposed to the threat of ecommerce.”