What does the future hold for retail?

Retail centers in suburban markets are recovering faster as hardware store or grocery-anchored neighborhood retail centers have been the most resilient while residents spend more time at home. Pictured above is Cherry Hills Marketplace, a community retail center in Greenwood Village anchored by Trader Joes, TJ Maxx, Home Goods, Sierra Trading Post and Ace Hardware, which is being marketed for lease by CBRE.

Jon Weisiger
Senior vice president, CBRE,
jon.weisiger@cbre.com

While retailers have been impacted by the COVID-19 pandemic, year-over-year U.S. retail sales are up 0.6% (August 2019 to August 2020) including e-commerce. When excluding e-commerce, U.S. retail sales were down, but only by 0.5% year over year. Each product type has been impacted by COVID-19 differently. Generally speaking, the sales at neighborhood grocery centers and community centers have fared well as consumers have shifted to spend more on groceries than dining out. Malls have been slower to rebound in foot traffic as many consumers adapted to the convenience of online shopping, curbside pickup and easier access to open-center formats instead of closed formats. Retailers themselves have accelerated their plans to improve their order online and pickup in-store presence. We also have witnessed an impact on retailers in urban environments – with street retailers in the central business districts anticipated to have one of the longest roads to recovery due to a slow return to office towers and lack of business travel and tourism. However, there are segments of retail that are performing well and trends we expect to continue after the world recovers from the COVID-19 pandemic.

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What retailers are performing well? Sit-down restaurants, bars, department stores, apparel retailers, gyms and entertainment have been some of the concepts hit hardest by the pandemic. So far in 2020, approximately 9,000 U.S. national and large retailers filed bankruptcies, but only 4,250 actual retail stores have closed, as of Sept. 16. While there is a common misconception that bankruptcy triggers all store closures, to the contrary, many retailers file for bankruptcy to reposition themselves financially, and they still are able to maintain a physical store presence. Most of the bankruptcies seen are higher-end retailers and specialty tenants, as well as several restaurants and bars. That said, there are some chains like Stein Mart, Dress Barn and Pier 1 Imports that are in the process of closing all locations, while other chain retailers like Chuck E Cheese, 24 Hour Fitness and Bar Louie have declared bankruptcy, but closed only some locations that were underperforming.

Nationally, U.S. retail sales showed strong gains from the second to third quarter.

Retailers in downtown Denver are struggling because those stores rely primarily on office occupancy, business travel and foot traffic. We are noting that community power centers and neighborhood retail centers with a wide breadth of offerings are rebounding more quickly as home improvement, sporting goods, grocery, health/personal care, automotive services and home furnishings are some of the categories that are driving retail growth. Retail centers in suburban markets are recovering faster as hardware store or grocery-anchored neighborhood retail centers have been the most resilient as residents spend more time and energy at home. These neighborhood retail centers have the greatest opportunity to maximize outdoor space, pad sites and drive-thrus. Adjoining stores benefit from the foot-traffic driven by the anchor tenants. Many fast-casual and quick-serve restaurants, especially with drive thrus, are actively adding stores in the market. Additionally, we are seeing strong activity for gas/convenience, car wash expansions and retail banking.

Also performing well are discount retailers, such as Burlington and TJ Maxx, which can satisfy the consumer’s desire to shop while also allowing them to be mindful of reduced discretionary income.

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Overall, Denver is seeing fewer store closures compared to other markets because retailers still have confidence in Denver’s consumer base and strong population growth. We are seeing unprecedented residential growth in the suburban Denver markets, which again bodes well for retailers in the suburbs.

What retail trends will continue? As the pandemic continues, retailers are rethinking aspects of their business operations for the long-term. While disruption has been ongoing in the retail industry for the better part of 10 years, COVID-19 has accelerated retailers’ response and adaption of new concepts, launching a significant period of innovation for the industry, which we have not seen since the introduction of e-commerce. We have seen brands who had online presence ramp up, while slow adopters have begun to experiment in the online environment.

We also are seeing reversal of some retail restrictions put in effect prior to COVID-19. Before the onset of the pandemic, several Denver area municipalities had initiated bans on drive-thrus. With modified shopping operations, cities are starting to reevaluate zoning laws to factor in drive-thrus, curbside delivery and pickup areas, operations which we expect to help retail rebound.

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Several retailers also are working to combine retail showroom with fulfillment services as they are pushing more curbside pickup and as delivery continues with online shopping.

What about the 2020 holiday season? CBRE predicts the U.S. will experience an extended holiday retail season with shoppers beginning their holiday purchases as early as October. With an earlier start to the traditional holiday shopping season, retailers can spread out demand to prevent overtaxing supply chains and to control crowds as consumers seek early promotional sales.

This season, brick-and-mortar sales will slow as retailers face an unpredictable holiday season with cautious consumers balancing the spirit of seasonal shopping with COVID-19’s impact on the economy and accessibility to physical stores. However, total retail sales will increase from unprecedented e-commerce growth. E-commerce sales will more than double the record growth set in 2019, furthering the structural shift toward multichannel retailing. Retailers must prepare for a second surge in online spending this year, following the lockdown-related surge in April and May, to manage inventory and control shipping and delivery costs.

There’s no denying the retail sector is facing an unprecedented slew of challenges, but we have seen amazing examples of retailers stepping up to the plate to remain competitive in this environment. Further, the Front Range is uniquely positioned to see its retail sector recover quicker than other markets due to our more stable employment base and growing residential population. We know the road to recovery is long, but I personally believe there are few better places to travel right now than in Colorado.

Featured in CREJ’s November 2020 issue of Retail Properties Quarterly

Edited by the Colorado Real Estate Journal staff.