Impacted by several rounds of business shutdowns and the rise of e-commerce, the retail sector lost 12,200 stores in 2020. And this year, things can get much worse as several chains are hanging by a thread in view of renewed restrictions and a persistent decline in sales.
Even successful companies are experiencing financial strains, as foot-traffic in physical stores has been continuously dwindling and, therefore, compromising the recovery of the sector and making retailers rethink expansion plans in the brick-and-mortar segment. In fact, mall-based retailers have been struggling long before the health crisis struck in America, but the consequent recession has remarkably accelerated a process that was anticipated to happen over the course of an entire decade. Most of the pain experienced in the sector remained concentrated in mall-oriented companies.
For those that somehow made it through 2020’s catastrophe, there are no guarantees that they will be able to keep engines running long enough to reach the light at the end of the tunnel. Meanwhile, shopping malls have now a record 159 million square feet of emptied retail space, which puts the average retail vacancy rate at 5.7% this year.
Although shopping malls only represent 8% of the retail sector, they are about to see expanding vacancy rates as they have a high concentration of clothing retailers that are experiencing a significant decline in sales. More than 60 major clothing retailers already filed for bankruptcy and many others announced significant reductions in the number of locations and staff members, however, the toll wasn’t just felt in the clothing segment. Pretty much all brick-and-mortar retailers that have been competing neck-to-neck with online retailers such as Amazon are now on the path to an irreversible downfall.
Big food retailers including Walmart and Target have seen their profits skyrocket during the health-crisis-induced recession, but on the other hand, small food chains and restaurants have been smashed by government-mandated shutdowns. The National Restaurant Association informed that more than 110,000 establishments, or 17% of all U.S. restaurants, are closed permanently or long term, according to a November survey of 6,000 restaurants and 250 supply-chain businesses.
With additional restrictions being introduced every day it passes, it has become evident how big corporations have been capturing an even larger share of the market, while small chains are being wiped out from the U.S. economic landscape.
New York City is one of the big cities that have fared far worse than the national average. According to the Real Estate Board of New York, all 17 major Manhattan retail corridors have experienced a decrease in average asking per-square-foot rent from 1% to 25%. The New York industry trade group signaled that this represents “a substantial slowdown” not only in the city’s economy but also on its real estate market.
That is to say, the retail apocalypse has been so devastating that its effects are trickling down to the real estate market of several big cities. The splendid bubble the commercial real estate market is in right now is being largely fueled by rental debt and mortgage defaults, and as more stores close permanently leaving commercial properties increasingly empty, landlords have been forced to make several concessions to be able to find paying tenants and avoid the foreclosure of their buildings.
So knowing that growing unemployment rates are likely to push consumer spending further down and tight restrictions will keep impairing the recovery of the sector, this year we’re likely to watch the death of many of our beloved businesses. When Americans are once again encouraged to leave their homes, they’ll find a post-apocalyptic scenario on the streets. The stores that once portrayed the story of the U.S. strong economy are being destroyed and replaced by a ravaged landscape of empty buildings. America has fallen into an economic rock-bottom and it will unstoppably drag its businesses and workers into it. The catastrophe has just begun.
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