Investing in shopping center and mall REITs, or real estate investment trusts, isn't for the faint of heart in this day and age. Store closures have increased since the start of the pandemic, and the fear is that the trend will continue, leaving shopping centers and malls with vacancies to fill and revenue gaps to make up for.
Of course, one factor that will dictate whether stores continue to shutter is the extent to which consumers opt to shop in person versus online. But if stores can't stock enough inventory to meet customer demand, shoppers may go elsewhere.
Such is a problem many retailers are facing in the near term, and Bed Bath & Beyond (NASDAQ: BBBY) is no exception. The home goods retailer's shares plunged more than 28% the morning of Sept. 30 after the company reported it saw a huge August decline in shopper traffic.
But a lack of in-store shoppers isn't the only matter plaguing Bed Bath & Beyond. The retailer is also grappling with supply chain issues that are impacting its inventory and eating into its profits. In fact, the company recently slashed its revenue and earnings outlook for the year in light of anticipated inventory issues. And unfortunately, it won't be the only chain to land in that unfortunate scenario.
A turn for the worse
Bed Bath & Beyond was in the process of making a comeback before lackluster sales figures in August changed its outlook for the worse. The retail giant has been sinking resources into remodeling its stores and introducing new in-house brands -- efforts that paid off during the previous quarter.
But things took a turn for the worse over the summer. For one thing, the delta variant hit, and as a result, fewer consumers turned up at physical stores. That dealt Bed Bath & Beyond a harsh blow during the back-to-school season, when families commonly shop for college goods.
Of course, the delta variant has the potential to slam all of retail. But the bigger challenge in the coming months could be a glaring lack of access to inventory due to holdups overseas.
Over the past number of months, flooding issues in shipping hubs like China have prevented inventory from reaching U.S. retailers. Meanwhile, many factories have been shuttered in Asia due to coronavirus outbreaks. The result? Retailers are already paying more to access inventory, and they're already looking at massive delays that could easily trickle into the holiday season.
Last year, many consumers increased their spending during the holidays, opting to spend more on physical items and less on experiences due to the pandemic. This year, consumer sentiment may be comparable. The delta variant is still surging, and the pandemic is far from under control.
But if retailers can't stock enough inventory, they won't see the revenue surge they're hoping for. And so Bed Bath & Beyond is in no way unique in this regard. While its shares may have taken a hit, other retailers may, too, downgrade their outlooks due to issues with supply. That would, in turn, be bad news not just for their shareholders but also for real estate investors with money in shopping center and mall REITs.
The Millionacres bottom line
If the upcoming holiday season is truly sluggish due to supply chain issues, a string of additional store closures could ensue. That's not the sort of news real estate investors want to hear following a year when so many retailers dropped like flies.