Resurgence of COVID-19 stalls recovery in retail sales

Global Real Estate Perspective, November 2020

The recovery in retail sales that was observed from May through August has stalled in many major global retail markets due to the resurgence of COVID-19 cases. High-frequency indicators, including footfall and published credit card spending data, point to a recent slowdown in retail spending. Notable exceptions are countries that have been able to keep the virus under control, such as Mainland China and Taiwan.

Source: Google COVID-19 Community Mobility Reports

Retailers continue to adjust their operations to navigate the unclear outlook. In addition to strengthening their wider omnichannel platform, retailers have adopted click-and-collect and ‘Buy Online Pickup In Store’ (BOPIS) services more widely, including fully-automated stores, to allow for a quick collection of purchased goods.

Major retail markets are expected to see more churn in occupiers as weaker operators downsize their store portfolios. Well-capitalized operators and new market entrants are selectively looking for expansion opportunities in prime retail locations, albeit with sufficient lease flexibility, and in more affordable out-of-town locations that have seen a stronger recovery in footfall and sales than prime shopping destinations.

A longer-term perspective: A continuing bifurcation in performance

Many retailers in categories that were already struggling, such as department stores or apparel, will find it difficult to stay relevant even after social restrictions ease, with the shift toward new tenant mixes intensifying. Downsizing of store portfolios among weaker operators is likely to have a pronounced impact on underperforming and lower-quality locations, while rent structures will continue to evolve as physical stores and online platforms increasingly merge. In tandem, new entrants and well-capitalized retailers continue to selectively look for expansion opportunities in some markets.

Retailers are adjusting their operations to adapt. With sustainability still high on the agenda, several global retailers are looking to meet targets for becoming a fully circular business and moving forward with plans to sell used and repaired products, ranging from clothing to furniture items. Other retailers are offering consumers the option to rent products in an effort to grow and diversify revenue in uncertain times.