Retail: Is There a New Normal?

What will the post-pandemic landscape look like for brands and retailers in North America?

Anyone who tells you they know what retail will look like over the next three years is lying.”

This is a quote from one of my favorite retail real estate execs during the Great Recession and it’s still applicable. COVID-19 has impacted how we shop, where we shop and why we shop. Though retail is struggling,  there are some bright spots.

Everyone confined at home has impacted grocery, home improvement,  nesting oriented goods and casual wear. A majority of consumers are now cooking at home regularly for the first time in years.[1] Online grocery sales have increased since March 2020, basket sizes have soared while store visits have slowed until recently. According to the National Grocers Association, in-store grocery trips are almost back to pre-covid levels. Online grocery sales are expected to grow long-term, but now that grocers are adopting mandatory mask policies, customers are increasingly comfortable going back to the store.

Home improvement is a sector with intrigue. Sales have been steady and foot traffic is up 21% year over year. People are spending most of their time at home and thinking about how they can improve their space. In economic downturns, people tend to tackle home improvements themselves. Research indicates that some consumers are even spending their vacation in their backyard.

Brand loyalty is shifting. Many retailers use loyalty programs as a means to retain customers. During the pandemic, consumers have shopped at 60% more stores than they normally do to find essentials during the early phases of the pandemic. Some retailers are leveraging this to build a new base.

Dining as we know it may never be the same. Restaurants are perhaps the greatest casualty of COVID-19. Industry leaders predict that 40-50% of restaurants will likely permanently close due to the pandemic[2]. Those that can are pivoting what they sell, while others are shifting formats. Starbucks is introducing small pickup/take out stores in urban markets, adding drive thru’s where they can and launched Starbucks Delivers.

However, the diverse demand restaurants rely on has disappeared from corporate lunches to date night. New restrictions on capacity may be insufficient to make the numbers work, even when supplemented by takeout. I recently had a discussion with several restaurants who indicated if inside dining is still limited to 25% of capacity in October, they too will likely close. Staffing and resources are also proving perplexing. Some operators cannot afford to bring staff back, some staff are unwilling to return. Many are having to reengineer their supply chains to manage inconsistent traffic and minimize waste.

I spend a good bit of my time tracking retail trends and solutions, including what cities are doing to support their retail base and fill vacancies. Understanding the pre-covid and post covid landscape is imperative. I inventoried retail vacancy for several clients at the outset of the pandemic to develop a benchmark against post-COVID vacancies. Optimistically these vacancies present an opportunity to reposition and re-tenant, to create a merchandise mix that is current.

Federal Realty creative approach to curbside pick-up.

I have also been monitoring best practices. Flexibility is paramount. Community and elected leaders have embraced a range of solutions to support retail from moratoriums on evictions to relaxing tax payments, license fees and parking. One of the most common is changes to outside dining. “Streateries” as some are called range from closing entire streets to provide seating by converting parking spaces for tables.

Crisis often fosters innovation. In 2019, thirty retailers declared bankruptcy. As of July 2020, 47 retailers had filed for bankruptcy, and that number is expected to rise to 60 by years end. Most of these are not a surprise, merely accelerated by COVID-19. With over 15 million square feet of vacant retail space[3], we can expect to see innovative and creative solutions to fill that space. Just as we can expect innovative approaches to retail.

Many have asked if malls have a future. Malls will be with us for a while, whether you think that is a good thing or not. Here is some of what we are seeing.

In select suburban markets, these retail monsters are essential, and many are successful. Those with strong anchors in strong markets such as King of Prussia out of Philadelphia or Tysons Corner in Northern Virginia are thriving. In smaller markets, malls commonly meet needs beyond shopping, serving as a social and gathering space.

Most of the important things in the world have been accomplished by people who have kept on trying when there seemed to be no hope at all.”—Dale Carnegie

Mall landlords with empty anchors are implementing innovative approaches to tenanting and even adding nontraditional uses. Examples include grocers, co-working, distribution space, and even residential. A former Sears store at Morgantown Mall in Morgantown, WV. is being replaced with WVU Medicine, the largest health care system in West Virginia. The former store is being converted into a logistics, distribution, and fulfillment center for items like personal protective equipment (PPE) and medical equipment. Other anchors are being converted from retail-to-industrial, including toward last-mile fulfillment and BOPIS (buy online and pick up in store).

While we continue to move through the shutdown, I will continue to track data and trends, and I am inspired by what I see and hear. I close with a quote from James Cook, Americas Director of Research, Retail at JLL based out of Indianapolis, when asked what we should expect to see in the first quarter of 2021:

Anything fun will thrive, also expect to see a great deal of bounce back in apparel and food and beverage due to pent up demand.”

Sounds good to me.

[1] In May 2020 sales of food at home, exceeded sales of food out of the home  for the first time since March 2016.

[2] A recent report from Yelp says Sixty percent of restaurants that shut down during the pandemic are now closed for good.

[3] JLL International

Catherine TimkoCatherine Timko is the founding principal of The Riddle Company, an economic development marketing firm, and serves on the Senior Advisory Board of  Econsult Solutions. The Riddle Company works with communities and companies across North America and positions them to effectively compete.


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