Just when we thought news on the coronavirus pandemic front was starting to turn around (thanks, big pharma), the third week of November has brought about a surge in COVID-19 cases -- and it's not even over. With over 11.3 million cases counted to date, it's clear that the pandemic is not letting up, and while some states are beginning to impose added restrictions, the situation is unlikely to improve dramatically in the coming weeks given the timing of the holidays.
Speaking of the holidays, typically, this is the time of year that retailers look forward to the most -- namely because of the revenue potential involved. This year, however, things may look very different, and retailers may need to brace for a rather lean 2020 holiday season.
Will shoppers cut back?
The National Retail Federation reports that consumers plan to spend $997.79 on gifts, food, decorations, and other non-gift purchases during the holidays this year. That sum may seem substantial, but it's actually a $50 drop from the previous year.
Shoppers across the board may have to be more frugal this year due to the economic crisis the pandemic has spurred. The U.S. unemployment rate, though not as dire as it was back in April, remains high, and job insecurity abounds. All of that could easily translate into a serious decline in consumer spending at a time when retailers, who have been struggling since the pandemic began, can't afford it.
Let's also remember that the logistics of a raging pandemic might keep shoppers away from stores. If cases continue to explode, the sheer number of people who are ill or in quarantine could impact in-store sales. Throw in the fact that retailers will have capacity limits to follow and the fact that nearly one-third of consumers no longer feel safe shopping at malls, and it paints a rather bleak picture for retailers at a time when they could really use a lifeline.
Can retailers survive a sluggish holiday season?
Given the challenges of in-store shopping this winter, some consumers may choose to make their purchases online rather than battle mall crowds. If they go that route, retailers may not notice much of a difference in revenue. But if shoppers opt to cut back this year, even modestly, it could spell disaster for the countless retailers who are effectively hanging on by a thread.
If the 2020 holiday season proves far less fruitful than retailers are hoping for, 2021 could kick off with an uptick in store closures. And that, in turn, could drive shopping centers and malls toward financial ruin. Without tenants, shopping centers and malls can't operate, and given the pace at which retailers are already shutting down, commercial landlords and real estate investment trust (REIT) investors alike can't afford another hit.
Of course, the surging pandemic could actually produce the opposite effect -- consumers tired of being cooped up in their homes could end up overspending this holiday out of sheer boredom. Also, a lot of people are canceling travel plans this season. That's bad for the hospitality industry, but it may benefit retailers if consumers divert funds their way.
Ultimately, it's tough to predict how retailers will fare this holiday season. At this point, the best investors can do is sit back and hope for the collective spending spree that typically defines this time of the year.