Last year, retail sales took a hit as stores were forced to shutter during the pandemic and economic uncertainty caused a lot of consumers to cut back on nonessentials. That's been a point of concern for real estate investors, particularly those with money in shopping center and mall REITs (real estate investment trusts).
Sluggish retail sales always have the potential to fuel a string of store closures. And at a time when so many consumers are already favoring digital sales, that's not a good thing.
In August, though, there was some positive news to emerge on the retail front. U.S. sales increased 0.7% from the month prior, according to the Census Bureau, which is a major improvement over the 0.8% drop economists were anticipating. But while rising sales numbers in August are no doubt a good thing, that momentum may not last as 2021 drags on.
Things could take a turn for the worse
In August, there were improvements in a few key sales categories. Furniture store sales increased 3.7%, while clothing sales rose 0.1%. And grocery store sales were up 2.1%.
On the other hand, sales at restaurants and bars were flat in August. And that's troubling given the number of food establishments that have already permanently closed their doors in the wake of the pandemic. If restaurant sales remain sluggish, more eateries could close, leaving commercial landlords with vacancies to fill. And as the weather turns colder, dining establishments could see fewer patrons if coronavirus fears keep people from eating indoors.
But restaurants aside, retail sales figures could start to slip in the coming months for a couple of key reasons. First, there's the delta variant. We don't know to what extent the outbreak will get worse, but as cases continue to surge, the likelihood of job loss and restrictions only increases. That could really do a number on retailers heading into the holidays.
And speaking of the holiday season, sales numbers could end up disappointing later this year as supply chain issues threaten retailers' ability to offer up enough inventory to meet consumer demand. Flooding issues overseas have battered transportation systems in Europe and Asia, causing a host of shipping delays that could easily trickle into the end-of-the-year holidays. Plus, COVID-19 outbreaks have already caused numerous factories to shutter, thus adding to delays.
In fact, consumers are already being warned that come November and December, they may not be able to get their hands on the goods they want. That may, to some extent, have prompted an uptick in retail sales in August. But it could also mean that fewer consumers will be making purchases as the holiday season gets closer.
The bottom line
Rising retail sales were a good thing to have happened last month. But real estate investors shouldn't be too quick to breathe a sigh of relief. If the coronavirus outbreak worsens and shipping woes intensify, things could take a turn for the bleak right in time for the holiday shopping boom, leaving retailers in a very bad spot to close out the year.