It's fair to say that 2020 was a brutal year for retailers. Many retailers lost revenue when consumers stopped visiting stores and cut back on spending to combat their economic fears. The situation got so bad that dozens of well-known brands were forced into bankruptcy.
Of course, some retailers came out ahead in the wake of the pandemic. Big-box stores have thrived over the past year and a half, as have discount stores that were a draw for shoppers on a budget. And online retailers like Amazon certainly emerged as winners during the health crisis.
But many physical stores saw foot traffic take a beating. In fact, there was a point last summer when almost one-third of consumers were fearful of entering an enclosed shopping mall.
In recent months, things seemed to have been improving for retailers, and in June, foot traffic at malls finally began nearing 2019 levels. But now, the delta variant is threatening all that progress. And that's something real estate investors need to be mindful of.
A big step backward?
It took many consumers a lot of time before they felt comfortable with the idea of shopping in person again. But now, the delta variant is wreaking havoc not only on people's health but also on their minds.
The CDC's announcement that even fully vaccinated people should once again start masking up in public was an unwanted wake-up call that signifies just how serious and dangerous this new variant is. And now, investors in retail REITs (real estate investment trusts) and mall REITs have every right to be concerned that the delta variant will strike a blow to physical stores.
In the coming months, health concerns could once again keep shoppers out of stores. So could masking requirements.
Many people don't enjoy shopping in a mask, and it's going to be hard for consumers who got used to shedding those masks to start donning them again. Right now, most U.S. cities have not taken the step of imposing indoor mask mandates. But some retailers are, on an individual basis, requiring them. Throw in the fact that masks have become so politicized, and there's a good chance stores will lose a lot of customers by enforcing these safety policies.
Of course, if consumers are too afraid or annoyed to shop at stores, they're apt to shift over to digital shopping. And while that might serve the ultimate purpose of pumping revenue into the retailers that need it, it could also lead to store closures once non-prime locations start experiencing a dearth in business. The result? Even more store closures -- and even more mall and shopping center vacancies.
Now, the good news is that not all consumers mind putting on a mask to enter a store, and some may even welcome that change. Also, the fact that much of the U.S. population is vaccinated means that consumers may not be as skittish about in-person shopping as they were around this time last summer when vaccines weren't on the table.
But all told, just as the delta variant has the potential to hinder office building and hotel recoveries, so too might it set retailers back at a time when they can't afford another hit. And that's something investors will need to brace for.