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The hits keep happening in traditional retailing, and not in a good way. Pandemic-forced store closures have helped push troubled retailers like Pier 1 (OTCMKTS: PIRRQ) over the edge.
The iconic purveyor of home goods was already in bankruptcy when it asked a judge last week to let it close its remaining 500 stores and shut down for good.
The 58-year-old company associated with malls and suburban shopping centers cited COVID-19 as a final nail in its corporate coffin, and it's not alone in pinning its misfortunes on the pandemic.
The growing list of virus victims includes Tuesday Morning (NASDAQ: TUES), the discounter that announced this week it would close two-thirds, or about 230, of its stores in a Chapter 11 reorganization.
One-time department store titans -- and suburban mall anchors -- Neiman-Marcus and JCPenney (OTCMKTS: JCPNQ) have also joined the corporate restructuring list, as has Office Depot (NASDAQ: ODP) and even Hertz (NYSE: HTZ), the nation's largest renter of cars and occupant of commercial strip-center spaces across the country.
Epic fail on aisle 9
Overall retail sales collapsed a record 16.4% in April -- the first full month of the coronavirus pandemic in America -- including a one-month drop of nearly 30% at department stores and nearly 90% at clothing stores, according to Census Bureau figures.
In-store retail has been on the wane for quite some time, of course, but this proved too much for too many to not question the future of commercial real estate for investors across the country.
The best way forward may be to think big and small, says Tony Cho, a Florida developer of multiple ventures, ranging from planned neighborhoods to Zen retreats.
Developers who are "poised to win"
Cho also says the collapse of these retail giants is not simply a casualty of the coronavirus but also a result of e-commerce's now decade-long conquest of brick-and-mortar stores, a process that's only going to further accelerate going forward.
"What does this mean for the commercial real estate industry? You're going to have to get a lot more creative, be willing to deploy a lot of capital, and think long-term about how to use the vacant big box and smaller retail space," Cho told Millionacres.
"We're talking about what's going to be thriving 10 years from now, not one year from now. Developers who are thinking about mixed-use, densification, new essential use-cases like health clinics, affordable housing -- this is what's poised to win," he said.
(Check out this Millionacres article about a West Coast opportunity zone specialist who also sees health care facilities as the natural new occupants for large-scale retail space across the country.)
On the road to retail's graveyard
"Hertz, Office Depot, and Pier 1 are just the latest victims and join once-prominent chains like K-Mart, Sears (OTCMKTS: SHLDQ), Circuit City, Borders, and other household name brands on the road to retail's graveyard," Cho adds.
"The concepts that will survive are retailers with irreplaceable authenticity and magnetism, beyond generic food and beverage and entertainment, or the 'treasure hunt' concept provided by outlet stores that offer better prices than what consumers may be able to find online, such as TJ Maxx and HomeGoods," Cho says, noting that supermarkets and sellers of essential goods are "safe for the time being."
That essential nature is all that's keeping many strips from going entirely vacant as the stress on traditional malls has now been extended to what Cho calls "power centers" in suburban areas.
According to Cho, "It's a domino effect -- when your anchor store closes, it allows for smaller retail stores to trigger co-tenancy clauses and rethink their footprints."
"If I'm an investor, I'm looking at affordable right now"
These empty spaces need to be filled with new concepts, such as "indoor/outdoor concepts, last-mile logistics that cater to rapidly evolving supply chains, or mixed-use, done through public-private partnerships," says Cho, co-founder of the Magic City Innovation District in Miami's Little Haiti neighborhood as well as ChoZen Retreat in north Florida and president of ChoZen Ventures, LLC.
He says landlords and cities need to get together to plan housing and targeted retail in these areas, too, creating mixed-use neighborhoods that will help curb suburban sprawl, keep tax dollars at home, and breathe new life into commercial-only zones that are now abandoned or soon will be.
"There is a huge demand in urban centers and inner suburbs for workforce housing," Cho says.
"If I'm an investor, I'm looking at affordable right now. The economic impacts of COVID-19 are only going to increase the need for mixed-income housing. We either commit to this and make it pandemic-resilient or we force folks into the single-family rental market and hours of commuting."
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