Vaccines are in the arms of around a third of the country (at least the first dose), and people are thinking about returning to aspects of their old lives again, like shopping in stores.
But a reopening bounce for retail might not be a sure thing.
A new report from UBS’s retail analysts suggests that 80,000 stores will close in the U.S. over the next few years.
“We estimate that 80,000 stores will close by 2026 in our base case,” the report found. The worst-case scenario is 150,000 stores closing.
The “enduring legacy” of the pandemic’s effect on retail, as UBS puts it, is the push to online shopping, as fears over the coronavirus as well as stay-at-home orders to prevent transmission have kept many people at home.
The end of the pandemic will not be the end of retail’s troubles
But there is reason for some optimism for retailers, according to Barrie Scardina, head of retail in the Americas at commercial real estate company Cushman & Wakefield. Low rents, landlord and tenant cooperation, economic improvement, consumer confidence, stimulus, and other factors may boost things as we start exiting the pandemic nightmare.
But despite the prospect of getting the pandemic fully under control, UBS expects the shift online to continue. While the pandemic has been hard on stores, the analysts note that many did not close because of the broad business shutdowns to slow Covid-19 transmission. Online retail’s market share of the full retail landscape climbed from 14% in 2019 to 18% in 2020 – an uptick that hasn’t been fully felt by stores.
Other ways to measure this growth show a similar acceleration: Average household spending online has doubled in the past five years and spiked from $5,800 to $7,100 from 2019 to 2020.
Stimulus checks weren't the only thing helping stores. A shift from spending on goods to spending on services provided some relief for stores during the pandemic, and stores provide services more readily than their online counterparts. But like the government stimulus, UBS says the trend won’t likely continue.
At the same time as UBS thinks 80,000 stores will close by 2026, it sees the online market share rise all the way to 27%. But in this future, the landscape will look different in other ways. The analysts expect twice as many brick-and-mortar stores playing double duty – both selling and fulfilling online orders from the same location.
Another way things may change is what retailers are better suited for online and what really need to be in person. Some of retail’s changes might be explained in the long term by efficiency. For home improvement, grocery, and auto parts, for example, UBS doesn’t see much change on the horizon. But for apparel, electronics, and home furnishings, the in-person benefits of trying stuff on and seeing how they look and feel might not be enough to prevent a further shift online.
The forecast for malls is more dire. People have talked about the death of the mall for years, but things actually look particularly bad, with high vacancy rates and the lowest number of new net malls in decades. The mall vacancy rate rose to 10.5% in the fourth-quarter 2020 from 10.1% in the third quarter and 9.7% a year ago, according to Reis Moody’s Analytics.
“Malls will likely continue to provide a source of store closures going forward,” UBS wrote.
Cushman & Wakefield’s Scardina sees a more nuanced picture, however. Though she sees a similar outlook of e-commerce having disproportionate effects on apparel and other sectors, people who run malls and other centers do understand this and look to configure their physical locations accordingly, mixing traditional retail spaces with experiential spaces as well as restaurants and grocery stores.