The coronavirus pandemic has been extremely unkind to retailers. Early on, many stores were forced to close temporarily due to local restrictions. By the time many of those restrictions eased, many customers were either scared to shop in person, spooked by the dreadful economy, or out of a job. As such, retail revenue took a major hit in 2020, to the point where dozens of well-known businesses filed for bankruptcy or shuttered altogether. In fact, it's estimated 8,741 stores closed permanently in 2020, according to Coresight Research.
But some say there's hope on the horizon. With coronavirus vaccines being rolled out to the public, retailers are hoping that once more people are inoculated and the pandemic begins to die down, life can return to some kind of normal and old shopping habits can gain traction. But while the mass distribution of vaccines could help struggling retailers to some degree, that alone may not be enough to keep stores open for the long haul.
Vaccines may only do part of the trick
While declines in retail revenue in 2020 can largely be attributed to the pandemic itself, let's not forget: A lot of businesses were struggling even before the coronavirus outbreak. A shift to e-commerce has been hurting retailers for years, and many were making plans to switch their focus to digital sales before the pandemic in an effort to keep up. In fact, there's still stiff competition from online retail giants like Amazon (NASDAQ: AMZN) -- competition that won't go away just because the pandemic ends. That alone could continue to hurt retailers for years.
Once coronavirus vaccines become available to the general public, we may indeed see a modest increase in foot traffic at stores. But the pandemic has caused widespread job loss and financial upheaval for a lot of people. That's not something consumers can quickly get over, and a jab in the arm won't help make up for a year of reduced income. As such, it'll likely take a more widespread economic recovery for retailers to enjoy the revenue surge they're hoping mass vaccination efforts will bring them.
Real estate investors should brace for a blow
Even if today's struggling retailers see a solid revenue boost in the near term as things improve on the pandemic front, remember that many consumers are used to buying things online these days. And from a retail perspective, it's cheaper to fulfill orders from a network of distribution centers than to operate individual retail locations. As such, even if things turn around for retailers, that may not necessarily prevent a post-pandemic uptick in store closures. And that's bad news for real estate investors.
Mall real estate investment trusts (REITs) have gotten hammered over the past year, and if more retailers make the decision to shutter locations in favor of sinking resources into digital sales, investors could end up with serious losses on their hands.
The good news is that malls don't have to limit themselves to retail tenants. They can expand their horizons and welcome clinics, private schools, and other viable businesses into the fold. But at their core, malls will continue to rely on retailers for a long time, and if stores continue to close, investors will need to grapple with a major vacancy crisis that ultimately hurts their bottom line.