The coronavirus pandemic has dealt an unquestionably harsh blow to retailers over the past eight months. Since March, dozens of well-known retail chains have filed for bankruptcy, and many are planning permanent store closures that will impact malls and shopping centers alike. That damage extends to department stores, a number of which have also filed for bankruptcy.
It's clear retailers need a serious surge in revenue if they want to be able to stay in the game. With the holidays coming up, there's an opportunity to compensate for lost revenue earlier in the year, when many stores were forced to shutter temporarily in an attempt to halt the spread of the coronavirus.
In fact, for many retailers, Black Friday is pivotal in the grand scheme of their annual sales. While it's easy to argue the day itself is just a bunch of hype, the reality is that the right price points and marketing could help many retailers come out as winners during what's commonly the busiest shopping day of the year.
But this year, the Black Friday crowds may not show up -- or at least not to the extent retailers want them. And that's the sort of blow they may not manage to recover from.
The CDC issues a warning
Earlier this fall, the Centers for Disease Control and Prevention (CDC) released guidance on holiday shopping, expressly stating shopping in crowded stores just before, during, or after the Thanksgiving holiday constitutes a higher-risk activity, as it classifies attending any crowded event.
For context, that warning was first issued in September, at which point coronavirus cases, though multiplying quickly, were not popping up at as fast as they've been the past couple of weeks. Between that warning and the fact 32% of consumers already don't feel comfortable shopping at malls, retailers may be in for a financial shock when the crowds they'd typically be welcoming on Black Friday opt to stay home instead.
Of course, many shoppers will shift their attention to online purchases, which ultimately serve the same purpose of pumping money into the businesses that need that cash to keep operating. But that shift could be dangerous for real estate investors. If absent crowds lead to sluggish in-store sales this holiday season but online sales skyrocket, retailers may opt to progressively close down physical locations to reap savings while focusing more resources on their e-commerce models. Retailers just want to make money, and it doesn't matter where that money comes from. But for those invested in real estate -- think mall REITs, or real estate investment trusts, in particular -- store closures could result in serious losses.
That said, another scenario might play out: Consumers might scale back on holiday shopping altogether, both in stores and online, due to the economic crisis. If that happens, the end result will be the same for real estate investors -- they'll risk losses if retail stores are forced to close down due to a sluggish holiday season.
Only time will tell how well retailers fare on Black Friday. But the fact the CDC has discouraged customers from hitting stores doesn't bode well.