It's fair to say 2020 was a miserable year for retailers -- and for the real estate investors who suffered financially in the wake of widespread store closures. Last year saw a record number of retail bankruptcies, and while that hasn't been the case in 2021, shopping centers and malls are still grappling with high levels of vacancies.
In fact, retailers need a strong holiday season to recover from the blow of 2020. And so far, there are a number of factors getting in the way of having that happen.
First, supply chain issues are causing huge bottlenecks and are forcing retailers to pay a premium to procure the goods they need to fill their shelves. These holdups are also creating an inventory shortage for some retailers, which is something they can't afford during the holidays.
Secondly, inflation is causing the cost of everyday goods, like gas and groceries, to rise exponentially. And that could leave consumers with no choice but to scale back on holiday spending to compensate.
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But despite these challenges, things are actually looking up for retailers this year. In fact, the National Retail Federation (NRF) recently reported that holiday sales are not only expected to rise this year compared to 2020 but also should do so at a rate of up to 11.5% on a year-over-year basis. But will that actually do real estate investors any good?
It could be a strong season after all
While it's true that inflation and supply chain holdups are challenging retailers this season, it's also important to acknowledge that the U.S. economy is in a much strong place now than it was during 2020's holiday season. These days, unemployment is far less rampant. In fact, companies have been so desperate to hire that they've taken to offering incentives like higher wages and sign-on bonuses in an effort to lure workers in.
The result? U.S. consumers may have a lot more money to spend during this year's holidays, even with stimulus checks being off the table and inflation levels being where they are. In fact, disposable personal income has increased by 4.1% this year, reports the NRF, and that's apt to lead to a notable uptick in spending.
Will solid holiday sales prevent store closures?
They might. And to be clear, that's what real estate investors -- particularly those with money in shopping center and mall REITs -- are banking on.
But whether an uptick in holiday spending impacts store closures will ultimately hinge heavily on the way consumers shop this year. If consumers opt to largely stay out of stores and make most of their purchases online, it could drive more retailers to rethink their strategy in 2022 -- and lead to some retailers closing less-frequented stores to sink more resources into digital sales and order fulfillment.
Adding chaos to the mix is the new coronavirus omicron variant, which could keep consumers out of stores in the coming weeks, as well as the weeks or months following the holiday season. And so while a potential uptick in holiday sales is a good thing for retailers, it may not benefit real estate investors as much as they'd like.
