The Coronavirus outbreak has hurt a lot of retail businesses, but the “retail apocalypse” term being thrown around might not apply to all of them, writes Seeking Alpha’s Jonathan Weber. While there’s a chance 15,000 stores could be closed throughout the United States in 2020, it’s likely that retailers who were struggling before the health crisis occurred will be impacted the most. Stronger brick-and-mortar retailers have a better shot at a quicker recovery and long-term success in the future.
Retailers succeeding, or struggling, amid Coronavirus vary by type
Dollar store retailers like Dollar General and Dollar Tree have seen their revenue grow steadily during the last few decades, according to Weber. Dollar General plans to open 1,000 new stores in 2020. Specialty retailers have also found more success than their counterparts who sell a variety of items. Beauty retailer Ulta for example has expanded over the last decade and auto parts dealer Autozone has added 1,500 stores in that same span. However Bed, Bath and Beyond continues to struggle.
Department stores have had to scale back on the other hand. Retailers like Macy’s, Kohl’s and Nordstrom may likely have to reduce their store count—a stark reminder of Jim Cramer’s “Mall Armageddon” warning on CNBC last fall. All of these retailers underperformed the broad market during the last decade, in part because their products can be sold online. Other physical retail locations that sell products that can be bought online, like books, have suffered a similar fate.
Meanwhile, there are retailers that are enjoying success from a profitability standpoint, but are not expanding their store count. Popular retailers like Target, Home Depot, Wal-Mart and Lowe’s are in the enviable position of online shopping not impacting them—a rarity in the retail industry these days. Remember most of these retailers remain open. A big difference from stores like Macy’s which are shut tight.
What does all of this have to do with connectivity, 5G, and new technology? Stores that provide the best customer experience are likely to do better in this environment and having the ability to understand who is visiting their stores (when they were open), enticing them with offers and beginning to think about AR/VR are more likely to thrive. Ultimately it’s about the customer experience and there is no better way to enhance that than with new tech over a fast wireless connection.
What Coronavirus’ impact on retail means for REITs
Much like with retailers, this crisis is impacting commercial real estate companies differently. Stores are closing, but high-quality real estate is still in demand, according to Seeking Alpha. It’s the lower quality real estate that’s being abandoned because tenants are deciding it does not make sense to run stores in those spaces anymore.
High profile mall operators like Simon Property Group and Brookfield Property Partners typically own properties in well-populated, urban areas. These areas have a lot of customers who are still shopping at their stores on a regular basis. Malls located in less populated with customers who don’t have as much disposable income are not getting the same foot traffic and the stores are feeling the effects.
Shopping centers meanwhile, are expected to continue to perform well—especially if a grocery store serves as the anchor. Grocery stores sell essential goods, unlike malls, so foot traffic will likely remain high, despite the crisis. Retail REITs that lease space to other essential tenants like pharmacies won’t be as impacted either.
“REITs such as Realty Income that have tenants such as these should thus be able to weather changes in the retail landscape well, without running into major troubles,” Weber wrote. “This was the situation a couple of weeks ago, where we see that brick-and-mortar retail is not a doomed industry at all. There are companies that have been winning and that are positioned to win in the future as well, whereas other players will continue to diminish. Companies with winning retail concepts and strong balance sheets should be able to weather this crisis relatively well, and a couple of months of lost rent revenues will not break the backs of stronger retail REITs.”
