Retailers across the country have struggled mightily during the COVID-19 pandemic. States ordered many retailers and restaurants to shut their doors during the earliest days of the pandemic. And even today, retailers must convince a largely hesitant public that it is safe again to shop, dine, exercise, watch movies or play indoors.
There is hope today, though. COVID-19 cases continue to fall across the country. Mask mandates have been dropped, and a growing percentage of the U.S. population has received vaccinations.
How, then, are retailers faring today throughout the Twin Cities area? We spoke to three CRE pros with the Minneapolis office of CBRE – Peter Dugan, vice president; David Daly, senior vice president of retail; and Sam Newberg, senior field research analyst – to find out.
Here’s what they had to say.
This has undoubtedly been a tough time for retailers in the Twin Cities area. Looking back at the pandemic so far, which retailers have been resilient, and which have struggled?
David Daly: It’s tough to take ourselves back 16 months. We all have our own version of what happened with our different clients and the people we interact with. For a lot of retailers, though, the pandemic was an absolute pause and shock. It was a ‘We don’t know what to do’ moment. Retailers had to strategically plan for something even though they didn’t know how long shutdowns or the pandemic would last. No one really had a clue what was going to happen.
But as we settled down and figured out that we could still get toilet paper and that we could still grocery shop, we began to see a lot of strength in fast-casual restaurant concepts that were set up with apps. We saw strength from the retailers that had their food delivery programs figured out and those that had drive-throughs. The drive-throughs and delivery services were unbelievably valuable for those tenants.
Grocery stores had their own operational challenges. They made out fairly well toward the latter days of COVID when they figured out their operational challenges. But it was an absolute scramble for grocery stores during the earlier portion of the pandemic. As they struggled with their operations, they put an absolute pause on their real estate strategies. They focused almost entirely on operations.
Then we’ve seen some retailers where the pause at the beginning of the pandemic has absolutely carried on. A lot of this was a result of mandates from cities and governments. Fitness centers had to shut down. Movie theaters had to shut down. Hotels have been severely impacted. A lot of those retailers are still facing challenges. They are just creeping out from some of that.
Is it looking better for retailers today now that cases are falling and mask mandates are being lifted?
Sam Newberg: I think back to the restaurants and how they have had to manage through this. I look at some of my local neighborhood hangouts. They had to shut down for the first few weeks. I look at how they have recovered from that. Some of them had to survive to a huge extent on the PPP loans. They had to figure out their own takeout, pickup and delivery systems. Many did that.
One of the local establishments in my neighborhood is going to have better revenue in 2021 than it did in 2019. The government assistance did the job and the owner of the business did a good job of keeping the revenue going. The owner got the paperwork filled out in time for a PPP loan. Now the mask mandate has been lifted and the business is back to normal. Going forward, it looks like this will be a much more normal year for retailers.
We’ve seen consumers who might not have ever ordered food, groceries or other items online embrace delivery apps during this pandemic. Do you think this will stick after the pandemic ends? And what other habits that consumers have picked up during the last year or so do you think will remain once the pandemic is behind us?
Peter Dugan: That is a pivotal question. Is there a new normal? There have been some unique cultural shifts. We had folks who had never used apps or ordered online do that during this pandemic by necessity. I don’t think that is going to change. The convenience of curbside pickup, food delivery or ordering through an app is simply too powerful. Regardless of whether we are dealing with COVID or not, those habits, I think, are here to stay, so retailers will have to keep offering those services.
But I also think that customers will be very grateful to be back in a restaurant or store after the chaos we’ve been through. I think we’ll settle into a new stability. But there will still be a marked change from how we lived before. I just look at my own little neighborhood. There are so many delivery trucks in my neighborhood every day, so many more than there were before. I don’t see that changing.
Daly: I’m not overly concerned about people wanting to go back to gyms and restaurants. It’s our habit as people to want to be with other people. Everyone is busy. But going out with other people is still an important part of our lives. We crave experiences that are entertaining and thought-provoking. People need that. Some of the other habits, such as I how I order my burrito for lunch? Those have changed. But people still want to go out and experience things. That hasn’t changed.
Dugan: We are social beings. But at the same time, things have changed. I went inside a coffee shop the other day. I was the only person standing in line. Everyone else came in, picked up an order that was ready for them at the counter and left.
Newberg: A lot of the pickup and delivery technology was hatched in 2019 or earlier. The pandemic just accelerated these existing trends. A lot of this was happening already, it just hadn’t been fully fleshed out by a lot of retailers. These changes will stick, whether it’s a reliance on drive-throughs by fast-casual restaurants or enhanced delivery and pickup options. Those are not going away.
If you go back to 2019 or 2018, there were forecasts saying that ecommerce was going to grow and grow. What 2020 saw was that this growth spiked a little. Companies that have existing stores are already pivoting toward online sales. One of the big-box retailers reported that 95 percent of its online sales were orders that customers ordered online and then picked up from their store shelves. They are not storing those items in a warehouse. They already have a warehouse in their store. When online orders did pick up last year, this retailer was able to serve them using their own store spaces. It’s not to say that warehousing isn’t an increasing part of the retail world, but that some stores were ahead of the game and have this built-in capacity to serve as warehouses, too.
Before the pandemic hit, we were writing a lot about the rise in experiential real estate. Is this sector of retail ready to bounce back after getting hit hard during COVID-19?
Daly: I think gyms, family entertainment centers, bowling alleys, they will come back. I think they will come back equal to 2019. I’m a member of a gym and it feels like it’s already back. We represent SoulCycle and Orangetheory. Their numbers are coming back, too.
Newberg: The mask mandates and occupancy restrictions were lifted at roughly the same time. There is pent-up demand for experiential real estate and entertainment. People are getting out to malls and restaurants. How much more are they spending? How much will the pent-up demand result in a spike in sales? We don’t know that yet. It will be interesting to watch. How is real pent-up demand versus an antsyness to get out of the house?
The experiential retail side is still an important part of the retail world, even as ecommerce continues to grow. Will physical stores continue to close? Absolutely. But there’s still a human side of this that involves being together and touching the product. That can’t be overlooked.
How creative did retailers get during this pandemic?
Newberg: When capacity was restricted, retailers did notice that you could have things like live music socially distanced. Some of that came about because there was no other way in the peak of the pandemic to get people together and make revenue. Restaurants benefitted from street closures and parking lane closures that allowed for outdoor dining. Especially in denser cities, retailers took advantage of these opportunities. The common thread has been the human experience. People want to be with others. It’s important to the management of retail centers, then, to offer that sort of live entertainment experience. That is something that isn’t going to go away after the pandemic.
Dugan: I have noticed at our neighborhood parks that there are many more people gathering outside with their kids than I’ve ever seen before. I’m not sure if that is a trend or if that will change when COVID is over. But I do think the outside gathering might be more of a trend that retailers will have to focus on.
What about in downtown Minneapolis and St. Paul? Retailers in downtown areas, because workers aren’t in their offices, have been hit hard. Are they starting to bounce back?
Daly: It does feel like people are coming back downtown. But it is happening slowly, as we all expected. There is more energy downtown today, though. It is heading in the right direction. How long will it take until downtown is back to where it was before the pandemic? I’m not an expert on that. But I am seeing sales numbers growing out of our Skyway retailers. Their hours are getting extended. Downtown is very important to our community and our market. Hopefully, it comes back as soon as possible.
Newberg: Minneapolis is not unique. Downtowns across the country are facing issues related to how many people will return to the office and how quickly. Will the hybrid working model stick? If workers in downtown Minneapolis only come back to the office two or three times a week, lunch spots will suffer. But that said, sales are coming back in downtown. The Farmers Market reopened on Nicollet Mall. There are signs of life. As people come back to the office, that will only improve.
Dugan: The hybrid working model, how that works out, will have a big impact on CBDs across the country. So that needs to be watched to see what happens to our downtown retailers. I think the Farmers Market will actually be an important bellwether. If people are comfortable out there and the Farmers Market is well-populated, that will be a good sign. We’ll have to see what happens over the summer.