Adaptability. That one word seems to separate the haves and have-nots in the retail sector. It was certainly true prior to COVID-19 when consumer-press headlines blared the death of retail at the hands of internet shopping. And today it proves the key to the market’s resurrection post-pandemic.
As Marcus & Millichap explains in its recent Research Brief: “Core retail sales jumped 8.2 percent from February to March as stimulus checks hit residents’ bank accounts, with every major retail category advancing. Year over year, retail sales jumped 17.9 percent, though many retailers were forced to close during March 2020 as fears of COVID-19 spread across the nation.”
IREM Senior Vice President Mindy Gronbeck, CPM®, is riding the wave of that resurgence, although the four million square feet of retail assets in her charge showed much less upheaval than market watchers might have expected. In fact, she reports the overall occupancy rate in her retail stores dipped only slightly from the pre-pandemic level of 96 percent her firm, Hawkins Companies, AMO®, enjoyed.
“We’re at 94 percent now,” she says. “We didn’t have any major closings, other than a couple of small tenants that relocated or simply didn’t renew.”
Not surprisingly, the secret to that success, or at least part of it, can be attributed to an up-close and personal approach to management. For those retailers that failed, frankly, the writing was on the wall long before COVID. “We worked with every single tenant we knew could last if we could just get them through this year,” says Gronbeck. “So, our occupancy hasn’t really changed.”
The team listened to the needs of tenants, she says, and worked with them to find relief funding. “From day one after COVID hit, we were working 12-hour days for six weeks, taking calls from tenants,” the Boise, ID-based Gronbeck explains. “Our tenants are treated with utmost care, and we don’t give pat answers. We listened to their needs, reviewed their financials and helped them through.” This despite the number of smaller stores that were left with no choice but to close when they “lost all of their workers,” and the big-box retailers who simply issued notices that they weren’t going to pay their rent.
“Most of the big boxes, the major retailers, sent all of their people home too,” she recalls. “So, there was maybe one person on board to handle all retail locations around the country.” In some cases, it took the Hawkins team weeks to locate the one or two people who were left in charge.
“Most of our tenants work to business plans based on a certain volume of people coming into their stores, and that just wasn’t there,” she says. “But, as long as they were talking to us and getting whatever help they could through funding sources, we could work with them. And that’s one of the reasons we have the occupancy we have.”
Hawkins Companies didn’t come out totally unscathed, however, Gronbeck expects at least some rent deferrals to be paid back over the next year or two to offset losses.
A question of adaptability
Success in retail became a matter of adaptability long before COVID-19. Gronbeck says it’s too simplistic to assume the internet was killing brick-and-mortar. As often as not, closures were the result of an inability to adapt to new ways of shopping, or simply bad management. Those that could create an experience and embrace so-called omnichannel strategies lived to fight another day.
That day came with the pandemic, and once more, retailers had to adapt to new consumer habits. “I love my Amazon same-day shipping as much as anyone,” she says. “But there are still things I want to touch and feel. As long as retail tenants are willing to change and adapt to the new buying habits of Americans, the right retail will not die. People want to have a shopping experience.”
In simple terms, one point of adaptation last year came in the form of curbside pickup and online or phone orders. Success was also a matter of what the retailer was selling. Entertainment venues and restaurants took serious hits, Gronbeck says. Sporting and outdoor-equipment retailers did well, as did pharmacies and grocery stores. Ditto gym-equipment retailers and home-improvement and office-supply stores.
The IREM executive committee member remains optimistic, especially now with the increasing frequency of vaccines sweeping the country. Even the beleaguered entertainment venues and eateries are expecting a solid resurgence by the holiday shopping season.
“Today, many of our retailers have hit their pre-COVID numbers,” she says. “Not all, certainly, but those that got on board quickly and adapted are the ones doing better.”
Better, but not perfect. Many retailers still need to get their online orders on track. Often over the past year, though in-store sales slumped, online numbers peaked. “One store was down 30 percent over 2019, but their online sales were up 900 percent,” she reports. “You have to look at the big picture, and we have to figure if those sales are being recorded in the store where the merchandise is picked up. This will be important from a leasing standpoint as we continue to recover.”
If there is a note of caution in Gronbeck’s outlook, it comes in the issue of minimum wages. With unemployment dipping now to a more acceptable six percent, some retailers, especially restaurants, are having trouble staffing up.
“They have to raise wages to get people,” she says, adding that even a kid “bussing tables has to get paid $15 an hour. You raise your wages, you have to raise your prices and all of a sudden people start thinking twice before they come into your place.” Given the economic hardships of the past year, raising wages might just be a case of injury on top of injury.
That hot-button issue surprises many of her colleagues when she brings it up. “They think we’re out of the woods,” she says. “I’m incredibly optimistic. But we’re not out of the woods just yet.”
“As long as retail tenants are willing to change and adapt to the new buying habits of Americans,” says Gronbeck, “the right retail will not die. People want to have a shopping experience.”