It's no secret that the coronavirus pandemic has battered retailers, forcing many well-known names into bankruptcy and driving up store closures. That's been bad news for real estate investors. Now, malls and shopping centers alike are dealing with high vacancy levels, which have impacted their bottom line.
The silver lining, however, is that off-price retailers have managed to thrive during the pandemic. At a time when so many consumers were forced to cut back on spending due to economic woes, retailers offering discounted pricing saw their revenues pick up. And now, many are making plans to expand.
For example, Burlington Stores is planning to open 100 locations in the near term, with the goal of expanding to 2,000 U.S. locations in the long run. Meanwhile, Ross Stores has already opened 30 new locations this summer and aims to add around 60 new stores during the 2021 fiscal year.
But while off-price retailers may have a strong outlook at present, two factors could turn things around -- and not in a good way.
Earlier this summer, things seemed to be headed in a positive direction as far as the pandemic was concerned. COVID-19 case numbers had dropped substantially, and vaccines became widely available to the public.
But then the delta variant took over. Now, the highly transmissible variant is causing a surge in cases that's overwhelming hospitals in areas with low vaccination rates. And the fear is that states and cities could resort to pandemic restrictions if the situation worsens, which could include reduced capacity at stores or temporary closures of nonessential retailers -- a measure put into place during the early stages of the outbreak.
If off-price retailers become subject to such restrictions, it could hurt their revenues in a very big way. And if that happens, some retailers might alter or scrap their expansion plans at a time when shopping centers are notably desperate for tenants.
2. Supply chain issues
Supply chain issues are already threatening to shake up the 2021 holiday season. If retailers can't get their hands on inventory, their revenue is apt to take a hit.
Flooding issues have already resulted in a host of shipping delays from distributors overseas. And those delays could carry into the remainder of 2021. Not only might that impact inventory levels, but it also could force discount retailers to raise their prices -- a risky move that could alienate consumers in the near and long term.
Should investors be worried?
Right now, off-price retailers have the potential to save shopping centers, but the extent to which they're able to thrive in the coming months will hinge on the above factors. If things improve on the pandemic front, further restrictions may not become necessary, potentially sparing off-price retailers from losses in revenue. Meanwhile, if key supply chains manage to make headway, this year's holiday inventory shortage may not be as bad as anticipated.
All told, there's still reason to believe that off-price retailers will continue to do well. At the same time, it's important to acknowledge that the above challenges could constitute a setback at the very least.