Just when we thought news on the retail front couldn't get worse, H&M (OTC: HNNMY) announced it will be closing 250 stores in 2021 due to the impact of the coronavirus pandemic. The Swedish retailer has 5,000 stores worldwide, which means it plans to shutter 5% of its locations after seeing overall sales decline during the third quarter of 2020.
But ultimately, H&M is following in the footsteps of other retailers who are slowly but surely taking their businesses online. Many consumers shifted to online purchases during the pandemic, and even as the U.S. has largely reopened, physical stores must adhere to capacity limits to ensure customer safety.
It's unlikely that situation will change soon, which means many retailers are apt to get a boost from online sales during 2020's fourth quarter. That too could pave the way for additional store closures, even among those that aren't struggling terribly.
The news from H&M certainly isn't shocking. But for real estate investors, it's yet another harsh blow in a year where the bad news just seems to keep coming.
Retail closures could be the death knell for malls
Shopping malls were sluggish before the coronavirus crisis, but in the wake of the pandemic, their future is highly uncertain. Throughout the country, malls risk losing key tenants in the coming months as more retailers make the strategic decision to shut down less-profitable locations and shift toward a more cost-effective e-commerce model.
While H&M has not announced which stores it will close, a number of them will probably be U.S.-based. And that means malls will need to say goodbye to another popular tenant.
At the same time, the loss of H&M isn't the same blow as the loss of department store tenants, which anchor malls and frequently take up multiple floors' worth of space there. But H&M isn't a small store, and replacing it as a tenant could prove extremely challenging at a time when so many retailers are making plans to pull out of malls and shopping centers. Throw in the fact a number of notable retailers have filed for bankruptcy in 2020, and it puts mall operators and investors in a very precarious spot.
Of course, malls may begin to recover once the pandemic comes to an end and the prospect of in-person shopping is not only less daunting but actively desired. But many retailers like H&M planned to focus more on online sales before the coronavirus outbreak hit hard, and given the events of the past six months, they're apt to be even more motivated to concentrate on e-commerce. And if store closures continue at a rapid clip, shopping malls might really find themselves with a dangerous level of vacancies.
The bottom line
Mall operators should start getting creative in anticipation of even more store closures coming. H&M could end up being just one of many retailers that pulls the plug on in-person shopping in the very near future.