Texas is Open But Are Retailers Nimble Enough?

AUSTIN, TX—As of today, the first phase is in place for Texas to reopen businesses while minimizing the spread of COVID-19. Under this phase, certain services and activities are allowed to open with limited occupancy.

By way of Executive Order GA-18 by governor Greg Abbott, all retail stores, restaurants, movie theaters and malls are permitted to reopen today. This phase will continue until at least May 18. The governor will continue to evaluate next steps for the state.

These retail store, restaurant, movie theater and mall services must limit capacity to 25% of listed occupancy. Within shopping malls, the food court dining areas, play areas and interactive displays must remain closed.

Local government operations including county and municipal government operations relating to permitting, recordation and document-filing services may reopen as determined by the local government.

Texas Department of State Health Services has recommended minimum standard health protocols for all individuals, all employers and employees, as well as industry-specific protocols for retailers, retail customers, restaurants, restaurant patrons, movie theaters, movie theater customers, museums and libraries, museum and library visitors, outdoor sports participants, single-person offices and low COVID-19 counties. These protocols are outlined in the executive order.

The governor also established increased occupancy protocols for certain counties with five or fewer laboratory confirmed cases of COVID-19. On an individualized basis, those counties may increase occupancy limits to up to 50% for restaurants, retail, shopping malls, museums, libraries and movie theaters upon meeting certain criteria. The county judge must certify and affirm to DSHS that standards have been investigated and confirmed.

Two of the most critical standards stipulate that a county must have had five or fewer COVID-19 laboratory confirmed cases on April 30, 2020 or at a later date, five or fewer active COVID-19 cases as verified by DSHS, and the county must have created a list of testing opportunities available in the county or the area.

Essential services such as farmers and ranchers, grocery and drug stores, banks and gas stations will continue to operate. Public swimming pools, bars, gyms, cosmetology salons, massage establishments, interactive amusement venues, such as bowling alleys and video arcades, and tattoo and piercing studios will remain closed through phase one. Nursing homes, state-supported living centers, assisted living facilities and long-term care facilities must remain closed to visitors unless to provide critical assistance.

Despite this order opening up certain retail operations, a recent report by Prologis indicates it may be slow going for retailers for the foreseeable future. Consumer habits may be slow to return, as evidenced by traffic on the first weekend of reopening in China, which remains well below pre-COVID-19 levels even with lifted restrictions. Preferences for home delivery and dining in could prove sticky, driving continued demand for grocery and essential goods.

“Many customers fulfilled daily needs retail with logistical real estate, at 60% usage and growing,” Chris Caton, head of Prologis’ research and analytics team, tells GlobeSt.com. “Amid partial or total lockdowns, there has been a focus on efficiencies in e-commerce like never before. E-commerce customers use three times more space than traditional logistics users. This has exacerbated demand and we expect that to continue months and years from now.”

March retail sales highlight the resilience and performance of logistics, according to the Prologis report. In fact, US retail sales revealed a sharp bifurcation of industry growth during the stay-at-home phase. Approximately 60% of these customers experienced growth, while 40% saw revenues decline. In total, logistics real estate industries outperformed the national average by 730 basis points, with a decline of 1.4% versus -8.7% for all of retail.

These new behaviors have created significant challenges in some industries. The most hard-hit industries will be auto sales, travel/tourism/conventions/entertainment, restaurants, department stores, aerospace/oil and gas.

However, segments of the aforementioned industries will likely also face challenges, particularly small- to mid-sized customers that despite government support don’t have the operational flexibility to handle a pandemic. Segments with a notable concentration of these retailers include transportation/distribution, food and beverage, and apparel/sporting goods.

Re-opening with limitations: Hard-hit industries are unlikely to return to business-as-usual for some time. Limitations on occupancy could keep revenue for many service businesses such as restaurants and entertainment venues depressed through the recovery period.

Discretionary goods follow typical cyclical patterns: When consumer confidence erodes, so does the likelihood of major and discretionary purchases. In general, auto, home goods, electronics/appliances and apparel/sporting goods businesses tend to record significant revenue losses.

Retailers that serve essential and basic daily needs historically have outperformed in terms of retail sales growth during recessions. An average peak-to-trough cumulative decline by category reveals strong growth in diversified retail, healthcare, and food and beverage expenditures.

In the recovery stage, those retailers that are able to adapt to new patterns of consumer behavior should increasingly focus on optimizing supply chains for the new normal, says Prologis.