Closure Season?
We may be through with CoVid, but it unfortunately is not quite done with us. The rise of the Omicron variant has sent infection rates soaring and forced many retailers to come up with contingency plans for dealing with absenteeism ranging from Macy’s temporarily reducing store hours to Apple and Walmart both closing locations in hard-hit areas (again, temporarily). There are emerging early signs of the latest wave impacting foot traffic and consumer behavior, with restaurants, gyms/health clubs, theaters and travel related retail bearing the brunt once again.
Of course, the best news of this wave is that while Omicron apparently is far more contagious than previous waves (it currently ranks as the fastest spreading virus in human history), it also is far less virulent—particularly for those that have either already been vaccinated or those whose immunities have been boosted by past exposure to CoVid. In South Africa, the Omicron wave has largely subsided—hitting its peak two to three weeks after first being detected. Early data from the UK (which was ahead of the US by two to three weeks in this wave) suggests that the peak may have subsided there also. But at least the next two to three weeks, retailers and restaurants will have to face the challenge of significantly higher levels of absenteeism against the backdrop of an already difficult labor market. We see mandated closures as almost certainly off the table (at this point it would amount to political suicide), but the reality is that many small businesses may be forced into temporary closures due to labor challenges.
For traditional mall retailers, this may not be as difficult a challenge as it will be for other categories if for no other reason than January typically is the slowest month of the year for most retail categories. Post-holidays, especially by mid-January when holiday returns and gift card activity has subsided, is usually about doing inventory. For retail real estate, this has traditionally been closure season… when store portfolios are reviewed and underperforming locations are closed.
This year is no different; two major closure announcements hit the market this past week. Bed Bath & Beyond is closing 37 of its stores—mostly impacting power centers. Meanwhile Macy’s announced which units it intends to close this year as part of the plan they announced in 2021 to close 120 stores through 2024. To date, they have closed about half that number—the most recent announcement is part of that move and does not reflect additional closures.
But here is the funny thing about closure season 2022; those were the only two major announcements of the past week. No doubt, there will be additional announcements heading into February. But this is the first time in nearly a decade where I have seen more store opening announcements in January than closures. In fact, the data suggests that store openings will roughly double the number of planned closures in 2022. If you throw in restaurants (as I do in my data), that number will at least be tripled with more planned unit growth today than I have recorded in the past seven years. In fact, I don’t just predict that store closures will be at the lowest levels since 2015 but that bankruptcies will as well.
For that prediction, as well as the remainder of my top ten trends for the year, you can check out the online seminar I did last week; “Retail 2022: From Crisis to Comeback.” This was the inaugural edition of the webinar series that I will be doing monthly on various topics going forward. This one was about macro economics and big picture trends. Future webinars will be deep dives into property performance, investment activity and analysis of key sectors like food and beverage, retail banking or apparel.
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You can download a recording of last week’s webinar here.
See you next week!
Garrick
