You're probably not surprised to hear that the pandemic made 2020 the single most brutal year on record for physical retail stores. Some, like supermarkets, hypermarkets, hardware stores, and many dollar stores, had the distinct advantage of being considered essential. In fact, many dollar stores and hardware stores flourished during that time.
The story was less rosy for nonessential retailers. Many that were already struggling with the shift to e-commerce went under, and those left standing faced significant doubt that they could carry on through such grueling circumstances. But now CoStar Group reports that retail space closures are expected to hit their lowest level in over a decade this year. Is it time for retail investors to break out the bubbly, or is it too little, too late?
Breaking it down
CoStar Group expects only a quarter of the retail space lost to store closures last year to follow suit this year, down to 40 million square feet from the whopping 160 million square feet closed last year. This would make 2021's closures the lowest seen since the company began tracking this metric in 2008. CoStar also indicated that in-store sales had risen 15.9% from pre-pandemic levels by June.
According to Commercial Observer, CoStar senior consultant Kevin Cody says the dramatic reduction in closings is due in part to the gradual reopening of office buildings, with returning workers visiting surrounding shops. Vaccinated people are also feeling safer going out.
Of course, the fact that so many retailers have already succumbed to the pandemic, leaving only the strongest standing, is a huge factor as well. And now many retailers that have fared well are taking advantage of the slower pace of closings and the reduced rent opportunities created by so many vacancies to expand to more locations. Brands announcing plans for such expansions include Burlington, Macy's, Target, Aldi, Ulta, Sephora, and numerous dollar or bargain-priced retailers.
Leasing out space at bargain prices is not an ideal situation for retailers, but if this growth trend continues, they'll soon be able to start raising rents again in response to demand.
The Millionacres bottom line
While it's unfortunate that the reason we're losing so few retailers right now is largely because we've lost so very many already, this dramatic drop in retail closures from last year is still excellent news, especially given the number of retailers ramping up store openings to fill the space. More occupied mall and shopping center spaces will mean not only increased rental income but also more foot traffic for existing stores, increasing the odds they can remain open.
Of course, how the coronavirus pandemic progresses going forward will probably be the biggest single factor determining what happens next in retail. But this drop in store closures is still a huge win. It means that the retailers that have made it this far have certainly been doing something right and can use what they've learned to refine their strategies for navigating this unusual climate even further. It also gives commercial investors a reason to celebrate -- and be hopeful for better things to come.