The year 2020 has been brutal for retail, especially given the number of companies that have filed for bankruptcy in the wake of the coronavirus pandemic. But if there's one period of the year retailers can typically look to for a revenue boost, it's the holidays.
Or is it? Despite the holiday crunch and a major event like Black Friday on the horizon, traffic in retail stores is expected to decline by up to 25% this year compared to last year, reports ShopperTrak.
Of course, that's not necessarily dire news. A drop in foot traffic doesn't necessarily mean retailers won't enjoy their share of revenue in late November and much of December. It could very well be that consumers opt to take their business online, what with the nationwide surge of coronavirus cases making shopping in stores and malls a precarious prospect. But if a drastic drop in store traffic does translate to missed revenue projections, we could have a lot more bankrupt retail chains on our hands following the holidays -- and a lot more store closures to worry about.
Investors can't afford additional closures
If a sluggish holiday season results in additional store closures, retail REITs, or real estate investment trusts, could find themselves in crisis mode. Malls have already lost a number of big-name retailers over the course of the past eight months, and that extends to department stores, which constitute an even greater problem. Department stores typically serve as anchor tenants for malls, drawing in customers with their vast selections while enticing other stores to sign leases. If department stores have a lackluster season and close down afterwards, it could drive some malls into bankruptcy.
Of course, there's another risk to consider, too. If retailers see a surge in online traffic, they may choose to close stores in the coming year, not out of financial necessity, but as a strategic cost-savings measure. It's generally less expensive to fulfill warehouse orders than pay rent for a mall spot, stock store inventory, hire sales associates, and cover the overhead that comes with operating a physical location. If consumers make it clear they're more interested in shopping online than in stores, retailers may abandon malls and shopping centers even if cash flow isn't an issue, leaving operators to grapple with extensive vacancies.
Lending to investors' fears is the fact the U.S. economy is stuck in a recession, so some consumers may be looking to cut back on holiday spending this year. Then again, a lot of travel plans are being canceled due to the pandemic, so consumers may opt to divert those funds to retail purchases instead.
The Millionacres bottom line
All told, the upcoming holiday season could have a serious impact not just on retailers themselves, but on mall REITs as well. Investors will need to sit tight and hope consumers are inspired to get into the holiday spirit, which, for better or worse, often means stretching themselves to their financial limits and buying up a storm.