The list of retailers filing for bankruptcy or closing stores this year is staggering. The COVID-19 pandemic certainly caused financial difficulties for many retailers and those who were over leveraged were forced to shut down permanently. An estimated 4,600 stores are closing in 2020, with the majority of retailers being department stores or physically located within malls. The list includes household brand names where customers shop on a regular basis.
During the pandemic and economic downturn, discount retail chains like T. J. Maxx, Marshalls, Ross and similar stores saw significant increases in same store sales. These off-price retailers were significantly outperforming apparel and department stores during the shutdown. These discount retailers have a solid value proposition with a wide selection of goods, competitive pricing and excellent store footprints. While the economy appears to be turning a corner, there are still concerns about high unemployment and the uncertainty of consumer spending. Consumers are highly focused on value and these companies deliver bargains from excess inventory sourced from other high-end competitors.
While discount retails certainly benefited in the short-term, they are also poised for longer-term success. The excess inventory from department stores that are closing will allow these retailers to continue to operate on higher margins and increased traffic. In states that have reopened, foot traffic to discount retailers has exploded with shoppers eager to shop and find bargains. The pent up demand, large selection of apparel and goods and the wide appeal to many different demographics make these one of the first shopping destinations for consumers. Another draw to these stores is that they are located outside of a mall and closer to their homes. With social distancing measures and lingering concerns about COVID-19, shoppers feel more comfortable in their own communities. Discount retails are often located in suburb locations where consumers can run into one store and be home within minutes.
Most notably, the majority of discount retailers do not have a significant online presence. While the majority of retailers aggressively pushed for online sales and eCommerce capabilities, these companies avoided it altogether. With the high turnover of inventory, a countless array of SKUs and lower margins, most of these retailers consciously decided to avoid online sales and focus on brick and mortar stores. This is a unique facet that creates opportunity for not only the retailers themselves, but also for strategic landlords who are looking for businesses that can’t easily be replicated online.
Developers and retail commercial property owners should take note. Those looking to offset retail store closures in other parts of their portfolio should focus on attracting, adding and retaining discount stores on their properties. Even if the economy fully recovers, having the diversity of these retail stores in the portfolio will help offset and even grow during any economic environment.
