Even prior to the pandemic, buyer habits have been changing. Sales of men’s and women’s apparel have decreased, impulse shopping has dropped, and many experts factor the care with which Generation Z and Millennials spend their money as prime contributing factors.
Certainly, the shelter-in-place orders in effect since mid-March have expanded and strengthened online shopping. Online YOY revenue growth rose 68% in April, bypassing an earlier 48% peak in January. As of April 21, U.S. and Canadian e-commerce orders saw 129% YOY growth and global growth in all online retail orders hit an impressive 146%.
But now that governors are relaxing their stay-at-home orders and businesses develop and implement protocols to enable a safe reopening in late May and early June, what will the retail landscape look like in the near future?
Some department and specialty stores — already suffering from financial losses even before the global pandemic hit — have declared bankruptcy and won’t be reopening (or will only open to sell off their stock before closing their doors forever).
J. Crew Group and Neiman Marcus Group filed for Chapter 11 bankruptcy protection during May’s first week. J.C. Penney has announced it may file for bankruptcy in an attempt to avoid liquidation. Forever 21, Jo-Ann Stores and David’s Bridal are struggling, too. Other stores that had announced closures or filed for Chapter 11 bankruptcy before the pandemic hit are not likely to see an influx of business.
It’s not all bad news for retail. Chains like Walmart, Target, Kroger, and Costco that sell groceries continue to do well. So are home improvement stores like Lowe’s and Home Depot and drugstore chains including CVS and Walgreens — each recording increased sales.
Some experts fear that additional bankruptcies will follow in the coming months, a result of retail companies’ inability to show new merchandise because they carry too high a debt load and they cannot move older goods sitting on shelves since coronavirus shut down stores.
Defining What Normal Means
The state’s revenue shortfall — down 60% in April 2020 compared to April of last year — as well as total tax collections declining to $2.3 billion (down by $3.5 billion) could cause serious headaches when lawmakers meet to plan the state budget and strategize how to close budget holes.
These budget concerns prompted members of both sides of the aisle to urge New Jersey Governor Phil Murphy to open retail and other non-essential businesses sooner rather than later. But he has remained adamant that he would use data to drive his decision making.
Although a recent poll shows that 66% of New Jerseyans believe the pacing to lift COVID-19 social distancing restrictions and reopen businesses is on track, eight in 10 worry about a household member contracting the virus. Nine in ten worry that local community businesses will close permanently because of lost revenue caused by the outbreak.
Governor Murphy announced in mid-May that retail stores could reopen for curbside business starting the week of May 18. While customers may not enter stores, they can order online or over the phone. Mall interiors must remain closed; however, customers can order and pay for items online and wait in their cars for someone to deliver the merchandise.
His multi-stage approach includes a mandate that businesses should follow state and federal safeguarding guidelines including:
- Frequent hand washing
- Wearing masks
- Disinfecting and cleaning often
- Taking temperatures of employees
In-store operations are limited to the employees needed to run the operations required for curbside pick-up. Stores should create a system where customers can alert the retailer via text or phone call that they’ve arrived or schedule pick-up times in advance. Designated employees should avoid person-to-person contact, putting merchandise directly in customers’ cars when possible.
These precautions, however, don’t guarantee that shoppers will arrive with open wallets at stores. Over 30 million Americans have filed for unemployment since March and more have said they’re worried about job cuts and furloughs as the effects of the pandemic continue to spread. Analysts fear that the steep declines in consumer spending will only continue in the coming months.
COVID-19’s Impact on Retail CRE
According to a report from The Motley Fool, Atlantic City metropolitan area’s CRE retail market faces the highest financial strain in the U.S. The report analyzed U.S. Census, non-farm employment, and retail sector data from Moody’s Analytics, and learned that 34% of Atlantic City’s employment — the largest percentage in the country — is in the retail and service industry.
The report indicated that CRE sectors here are “at a much higher risk for declining cash flows” and potential defaults. Moody’s forecasts that the 2020 vacancy rate could hit 13.5% nationwide and see a 3.7% drop in asking rents. The Atlantic City region could see a GDP drop between $2.1 billion and $5.1 billion, according to the report.
Most analysts agree that the next two quarters will be challenging for the CRE market, but much depends on whether demand for additional retail space increases and whether expansion plans continue — or are put on hold, perhaps permanently. As New Jersey moves forward and adapts to a temporary normal during the COVID-19 crisis, CREA United’s retail members are committed to updating themselves on new developments and are ready to assist clients preparing to embark on a commercial real estate transaction.