The coronavirus pandemic changed consumer shopping habits in a very meaningful way. At the height of the crisis, roughly one-third of shoppers were scared to set foot in a mall, and while visiting stand-alone stores may have been a more comfortable experience, many consumers opted to start making purchases online instead. That pattern extended to not just clothing and apparel but also to everyday items like groceries.
In fact, e-commerce grew 30% in 2020 across the U.S., according to a report from research firm Forrester. That's the fastest growth rate for the sector since 2002. But in spite of that, things should turn around for physical stores by 2024. And that's very good news for mall REIT (real estate investment trust) investors.
Mall investors shouldn't give up hope
The events of the past year were brutal for shopping malls, many of which were losing tenants before the coronavirus outbreak even began. But the pandemic also drove a lot of well-known chains into bankruptcy, resulting in store closures malls can't afford. Throw in the fact that so many consumers also shifted to digital shopping, and it paints a pretty bleak picture for mall REITs and the people who invest in them.
In fact, a number of retailers are already making plans to shutter underperforming stores in the wake of the pandemic to focus on digital order fulfillment instead. That may be good for their business, but it could leave malls with widespread vacancies to grapple with.
Thankfully, though, e-commerce isn't expected to dominate too much longer. Forrester reports that come 2024, 72% of retail sales will take place in physical stores, not online. Furthermore, the firm estimates that 66% of non-food-and-drink sales will occur offline by 2024.
Of course, given the shift to e-commerce, it does make sense for retailers to figure out ways to cater to online and in-store shoppers so as to retain their loyalty on both fronts. Many retailers have already, in the course of the pandemic, improved their shipping options and started to offer BOPIS, or buy online, pick up in store.
At the same time, based on Forrester's projections, it's clear that shutting down stores left and right isn't something retailers should be doing right now -- and hopefully, they won't. In fact, if Forrester's estimates are spot on, malls could potentially see an influx of tenants within the next few years, which would, in turn, put some sluggish properties on a very different trajectory.
The Millionacres bottom line
All told, real estate investors with mall REITs in their portfolios shouldn't lose hope that the sector will recover from the events of the pandemic in time. While e-commerce may be the easy, convenient way to shop for a lot of people right now, consumers are also getting antsy after having spent almost a year and a half cooped up at home. At this point, the idea of shopping in stores may hold more appeal for the social aspect alone. And that, too, could drive more physical store sales in the near term.