How will COVID-19 impact retail & dining sectors?
Updated: May 23, 2020
While the near- and long-term impacts of the COVID-19 pandemic on the real estate market are not yet known, we can expect that they will be profound. Given the rapidly evolving nature of this situation, even industry projections made in late March/early April seem simplistic — it is likely that, as we achieve a leveling of the curve and begin to implement reopening plans, our present understanding of the impacts of this crisis will continue to evolve.
Based on where we currently stand, below are some observations and questions about changes that may occur in the retail and dining sectors as a result of the COVID-19 pandemic:
With the anticipated failure of smaller retailers lacking financial resources to navigate long-term closure, expect an acceleration in the conversion from bricks and mortar retailing to online shopping, especially for specialty goods and apparel.
Widespread unemployment impacts of the pandemic will focus near term spending on essentials over luxury items. As the economy recovers, we’ll be more able to tell whether the pandemic experience has significantly altered the amount and distribution of our retail and entertainment spending as well as whether our current social distancing practices influence what we deem to be adequate footprints and configurations for gyms, theaters, grocery stores, restaurants, etc.
Many major department stores were struggling before the closure of non-essential businesses and are unlikely to emerge from this crisis in a financially stable position. Look for them to flood the outlet market with surplus merchandise and further contract their real estate holdings and/or seek bankruptcy protections.
Grocery delivery services were growing considerably before the presence of COVID-19 and have exploded in popularity during the last two months. The extent to which shoppers will continue to use these services post-pandemic is unknown, but this calculus may alter the space utilization of grocery stores in the future — the current layout of stores encourages impulse buying by in-person shoppers but is inefficient from an Instacart personal shopper perspective. Will groceries adjust their front-of-store/back-of-store space allocation to better accommodate the remote shopper? Will adjustments be made to aisle widths to allow better social distancing/one-way shopping?
Some restaurants have been able to remain open, if not profitable, during state-mandated shutdowns through curbside pick-up and delivery services. But, as restaurants reopen – anticipated at 50 percent capacity for some time – how many will be able to balance largely fixed operational costs against reduced revenues? With higher prices, servers in masks, and restaurants lacking the buzz and people watching we’ve previously enjoyed, will diners return? It’s quite likely that restaurants overall will experience a more permanent shift towards the delivery/take-out business and with that a potential shift in focus away from expensive entrees meant to be consumed immediately out of the kitchen.
In the near term, some retailers may institute appointment shopping, where customers select an exclusive shopping time and are followed by an employee who sanitizes everything they touch. Such measures may make consumers feel safe, but will probably not attract window shoppers who might make impulse purchases.
Numerous retailers have gone above and beyond during this crisis –offering free delivery and reduced pricing, providing free meals to front line workers, donating profits to hospitals and food pantries, etc. – and their customers have taken note. Expect businesses that have displayed social responsibility to be rewarded by their customers in the future.
There is incentive for retail and restaurant landlords to provide rent flexibility in the year ahead as businesses reopen and retool, possibly through revenue sharing.