Editor's Note: This story is part of a series about the pandemic's impact on retail in 2020, and what it means for 2021. Find the rest of the stories here.
As the White House and Congress work out yet another COVID-19 economic relief package and medical experts try to figure out what variants of the coronavirus mean for the effectiveness of vaccines, people are trying to just hang on until things get back to normal.
That goes for businesses, too. If some that have been hit hardest by the pandemic — restaurants, movie theaters, event venues and hotels — can make it through to the other side, they'll pick up where they left off. Their customers seem ready, with signs of pent-up demand to dine out, travel and enjoy some entertainment that doesn't involve their televisions.
"It's different for movie theaters and restaurants that would have been just fine without the pandemic and are now struggling dramatically," David Robinov, managing director at real estate capital advisory firm Ackman-Ziff, said by phone. "If you can flip a switch — the pandemic is over, everybody's vaccinated — I'm going, tomorrow night, for dinner and a movie. Do I own Netflix now, yes, I've had it for 12 months. But you know, my preference is still dinner and a movie. But I would say that the pandemic has accelerated the evolution of the retail industry."
For companies that run stores and sell goods, whatever was happening in retail before the pandemic has been sped up, disappeared or doubled down, making a "return to normal" pretty much impossible, Robinov and others say.
"Retail is constantly changing, and we're not going back to anything like we've ever known before," Sanford Stein, founder of Retail Speak, said by phone. "We saw trends compressed from seven to 10 years down to, in some cases, nine months or a year. So there has been an acceleration, a purging, that ultimately would have taken place, and has just taken place a whole lot faster."
Remembering the before times
The situation retail was in pre-pandemic had a name: the "retail apocalypse."
"Getting back to normal" for retailers, in other words, means a return to an industry already in flux, with demand shifts among categories of goods, consumer habits altering the physical landscape, and financial pressures that kept bankruptcy courts busy and store closures rampant well before last year.
The biggest category movement has been in apparel, where sales growth has waned for years, especially in office garb and formalwear. In 2020, that came to a head for retailers like Brooks Brothers, Men's Wearhouse, Ascena, Gap Inc. and department stores. Some of those went bankrupt last year, most permanently shrunk their physical footprints and all have disappeared to some extent from the traditional enclosed mall.
Mall operators are facing a reckoning, with Green Street analysts last year describing a level of disruption they had been expecting over five to 10 years instead taking place over just two. That's leaving empty space: Last year, the national retail vacancy rate was up to 10.5% in the fourth quarter, the highest since 2013 (as was the third quarter's 10.4%), according to Moody's commercial real estate arm Reis. The mall vacancy rate in particular rose another 0.4% to 10.5%, the highest in more than two decades.
Thanks in part to the pandemic accelerant, there's "trouble brewing" even at upper-tier malls that once seemed immune to the problems of lower-tier ones, according to a recent report from S&P Global Market Intelligence. Two of those, Simon Property Group and Brookfield, have gone so far as to take the unusual and potentially risky step of getting into the retail business directly.
Back to the future
For most retailers, then, there would be little advantage to returning to what was, even if it were possible. But there's opportunity.
For one thing, many landlords have become amenable to more flexible lease terms and a more open, cooperative partnership with their retail tenants. The chaos of the last year has led many retailers to rethink the size of their footprints and the locations of their stores, which BMO Capital Markets analysts say means more rational brick-and-mortar operations.
The pandemic also forced more retailers, even small, local ones, to institute flexible options like online sales and curbside pickup that have resonated with their customers and are likely to remain a selling point. All retailers have had to find new efficiencies in their operations, and many proved that they can be nimble. That was seen when they smoothly incorporated shopping and cleaning protocols that allowed their stores to function during the pandemic, according to Katie Thomas, who leads retail think tank Kearney Consumer Institute and studies consumer trends.
Perhaps most profound is that retailers will be meeting up with a changed consumer, who for a year now has slowed down and taken a look around, observers say. Many discoveries made during the pandemic, like the enjoyment of cooking and outdoor activities, will become lasting endeavors and therefore lasting opportunities for some retailers, according to Stein. Sustainability is more in focus than ever, and will likely continue, he also noted.
And, while much of the money that some consumers have been able to save (thanks to government relief and little fun to spend it on), will flow to restaurants, travel and other experiences, many retailers will also benefit as people change their wardrobes once again, Robinov said.
"We've all experienced something together like a war or a depression or a natural disaster, and it's brought people together," Stein said. "I do feel that we are going to see a lot of new niche concepts. The whole idea of national brands and the homogenization of brands and the look-alike is over, and it's a chance for the indie retailer to get traction, survive and prosper. They have to be authentic. There has to be a connection to the community."
This could be a rare advantage for local and smaller retailers, but presents an opportunity for all retailers if they can adapt, Thomas said.
"Those brands that really lost their sense of self to consumers, especially at big organizations, just really underestimate the need to actually listen to your consumers," she said. "It takes figuring out better feedback loops and actively soliciting feedback. Some retailers will rise and other ones will still sort of struggle to find their footing."