The year 2020 has been an unquestionably terrible year for retail. Not only have dozens of well-known chains filed for bankruptcy, but a number of popular department stores have been taken down in the course of the pandemic, leaving malls and shopping centers to grapple with impending vacancies. And let's not forget the struggle commercial landlords are having just to collect rent. Even major retailers with access to capital are falling behind on payments, sparking lawsuits and other ugly consequences.
Of course, the fear among real estate investors is that if retail closures continue to escalate, malls and shopping centers will start going bankrupt. Such was very recently the case for CBL & Associates (NYSE: CBL) and Pennsylvania Real Estate Investment Trust (NYSE: PEI), both of which just filed for Chapter 11 bankruptcy protection.
It's therefore encouraging to see some good news come out of the retail space. Arts and crafts hub Michaels (NASDAQ: MIK) has reported a positive second quarter. When we dig deeper, it's easy to see why.
How Michaels has fared during the pandemic
Back in March, when nonessential businesses were forced to shutter temporarily, Michaels had no choice but to follow suit. The chain was soon downgraded by S&P and its outlook appeared bleak.
But lo and behold, Michaels actually did quite well for itself during its second quarter, reporting an 11.1% net sales increase. Granted, Michaels did see a 353% uptick in e-commerce growth, but it's also seen success in its brick-and-mortar stores, which were able to reopen in early July. Since then, the retailer has launched a new incentives program to reward customers who shop there frequently. It also adapted to the pandemic, offering services like curbside pickup to help consumers shop safely.
With millions of Americans being stuck at home, there's been a crafting boom at play. Just as sourdough starter pictures have flooded the internet, so too are consumers knitting and scrapbooking their way to relief from the insanity that's been 2020. And Michaels is thriving due to the fact that people have more time on their hands now than ever before -- and need as many distractions as they can get.
That said, the pandemic has also perhaps led some people to get more creative with generating income. Driving for rideshare companies and picking up restaurant shifts have long anchored the gig economy, but in a COVID-19 world, they're not the safest way to earn an extra buck. As such, some gig workers may be falling back on their crafting skills and creativity to earn money on the side -- and Michaels is their go-to place to stock up on supplies.
Finally, the remote learning trend has left more parents to oversee schooling at home and keep their children entertained during after-school hours so they can hold down their jobs. And nothing keeps a set of kids occupied like a Michaels haul.
The Millionacres bottom line
All told, Michaels is the type of retailer with the potential to thrive for the remainder of the pandemic, good news for real estate investors. At a time when so many establishments are at risk of closing, Michaels is seemingly thriving, which means one shopping center mainstay may not be going anywhere for quite a while.