Monday Morning Scoop - Retail's Resilience Defies E-Commerce Takeover Predictions

Retail’s Resilience Defies E-Commerce Takeover Predictions

It was supposed to be over once the pandemic set in. Everyone was buying via e-commerce. Who needed retail stores? The future would be all touchless online buying and delivery with no need for retail locations.

As Mark Twain reportedly said about a premature story that he had died, “The report is greatly exaggerated.” Quite the opposite.

The Financial Times reported last week that open-air U.S. shopping centers have been seeing “historically low levels” of vacancies. CoStar data said only 6.2% of such space was available for lease — the lowest level the firm had seen since 2006. Landlords have gained pricing power to raise rents on renewals.

Burlington Stores, Ross Stores, and TJX added 339 stores in the past year. Walmart plans 150 over the next five years. Nordstrom Rack, a smaller and more focused Nordstrom brand, saw an 8.5% year-over-year increase in the number of its stores.

“I would say real estate is tight,” Michael Hartshorn, group president of Ross Stores, in a November earnings call. “There’s not a lot of new centers being constructed. And for us, there’s increased interest from other retailers and the types of real estate that we typically prefer.”

There had been a pre-existing story of the industry’s weaknesses, about what was perceived to be wrong.

“They would say, ‘Retail is overbuilt. Retail is struggling. E-commerce is going to take over brick-and-mortar retail,’” Brandon Isner, Newmark’s head of retail research, told the Financial Times. “And really none of that has ended up to be true.”

Again — a greatly exaggerated report. Retail in the past had gone through cycles. There were clear reasons this time why e-commerce took off so sharply during the pandemic. Many stores were closed. Millions were scared of becoming ill.

The social urge to be among people is strong and to assume it would be permanently packed away after a year seems naïve in retrospect. People wanted to get out of their dwellings. Of course, they would return to stores as part of getting back to life.

Not all retail is doing well, of course. Enclosed malls have seen rising vacancies. Party City and Big Lots have both filed for bankruptcy after long periods of closing underperforming stores.

But no industry moves in unison and, in many ways, 2025 looks like it could be a good year for retail property owners.

By: Erik Sherman
Source: GlobeStreet