Winter weather is something a lot of states are used to dealing with. But that doesn't mean it can't cause a host of disruptions. In fact, Wells Fargo (NYSE: WFC) analysts are now projecting a retail slowdown in February, due in part to harsh weather conditions throughout the nation. But that's a blow retailers can't afford right now.
Battling the elements
Extreme weather is already forcing some stores to shutter temporarily. Walmart (NYSE: WMT), for example, closed more than 500 stores as an unprecedented winter storm battered the South. Many of the Walmart closures are concentrated in Texas, which isn't used to harsh weather like its Northern neighbors.
But harsh weather can do a lot more than just force stores to close their doors to customers. It can also cause major supply chain disruptions, preventing shipments of goods from hitting stores when they're supposed to. In fact, late February is normally the time when retailers begin stocking spring merchandise in stores, so if those shipments are postponed, it could hurt revenue in a meaningful way. It can also delay the shipment and delivery of online orders, which many consumers are relying on during the coronavirus pandemic.
The timing couldn't be worse
During a normal winter, retailers would be better positioned to deal with weather-induced hiccups. But this year, retailers simply cannot afford another hit.
Many stores are still trying to recover from the first half of 2020, during which time nonessential businesses were largely forced to shutter in an effort to curb the coronavirus outbreak. Even those that have managed to open back up have dealt with capacity limits and sluggish foot traffic as safety concerns have driven many customers away from shops and malls.
In fact, a large number of well-known retailers had to file for bankruptcy in the course of 2020, which has already resulted in a terrifying number of store closures. And with an additional 10,000 stores expected to shutter in the course of 2021, all of this is very bad news for malls and shopping centers (and their commercial landlords), which can't afford to lose more tenants.
The good news is that retail giants like Walmart have the resources to withstand a temporary shutdown. But retailers with weaker cash flow are in a very different boat. If the harsh weather conditions we've seen over the past few weeks continue through late February and beyond, it could be enough to drive some retailers into bankruptcy or pave the way to additional closures. And that, unfortunately, is something real estate investors will need to brace for.
The Millionacres bottom line
For months, retailers have compensated for a decline in in-store traffic by shifting to digital sales. But if orders are repeatedly delayed, lost, or canceled due to weather-related issues, they'll really have a tough battle ahead of them.