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    Breaking News

    Retail's Worst Year... Ever?

    Expect store closures through 2025, says UBS.

    Retail
    Forget the fireworks, Macy's and other US retailers have nothing to celebrate.
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    Happi Staff07.03.20
    Wanna buy a retail REIT...cheap? These days, the Great Recession is looking, well, pretty great, compared to 2020, according to UBS Analyst Jay Sole. In a note to clients, he pointed out that going back over the past 20 years, the worst year for retail closures was 2009, when 2% of stores closed.

    "Our forecast calls for 2% of stores to close every year into 2025," said Sole.

    The UBS analyst isn't alone in his pessimistic outlook for brick and mortar retail.

    Coresight expects 20,000-25,000 major retailers’ stores to close in 2020, more than doubling the 9,821 closures last year. In addition, it expects 55-60% of the stores closed to be mall-based ones, putting even more stress on those generators of suburban sprawl.

    More bad news comes from Green Street Advisors, which predicts upward of 50% of mall-based department stores will close by 2021. If GSA is right, closures will impact more than 50% of the 1000 existing US malls, which count JC Penney (19% of mall-anchor space), Macy’s (some 18%), and Nordstrom, Dillard’s and Lord & Taylor (combined accounting for 20% of space) as their anchor tenants.

    Unity Marketing notes that as mall anchors leave, they will kick off existing mall tenants’ co-tenancy clauses that enable them to pay lower rent or even break their leases. The cascade effect will push many existing malls to the edge, according to Unity.

    According to UBS, there are  nine malls per one million US households—up from eight malls per million in 1980. Even if Credit Suisse's prediction comes true, that 25% of malls will close by 2025, that would leave six malls per million households; that's still an awful lot with so many consumers, even aging Baby Boomers, opting for online purchases. In fact, thanks to online purchases, in late March through April, Best Buy held onto 70% of sales, Nordstrom 65%, Gap nearly 60% and Kohl's 55%.

    Still, the shift to online can't make up for the retail losses in 2020, according to analysts. US retail sales will drop 6.5% in 2020 and may not recover to 2019 levels until at least 2022, according to Euromonitor International.

    “Consumers’ mindsets will switch to reduced consumption of non-essential items and anti-ostentation,” according to Euromonitor analysts. “Companies will focus on maintaining value sales, as consumers find themselves in a recessionary era with reduced discretionary income.”  

    At a time when corporations grapple with the problem of getting employees to return to the office, consumers may never return to shopping malls. Anybody wanna buy some real estate in Paramus, NJ?
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