Soaring Covid-19 Cases, Lockdowns Spell Trouble for Retail

As the coronavirus pandemic enters a new and deadly phase across the US, the retail sector appears poised to once again suffer losses as lockdown measures are stepped up.

New York, New Jersey and New Mexico already have instituted tighter limitations in the wake of increased hospitalization and infection rates, according to a new report from Marcus & Millichap. A number of counties across California also have started cracking down on behaviors that could lead to virus spreading. In the near-term future, more spots are expected to enact restrictive orders.

In addition, retail is entering this new phase in a weakened position with a vacancy rate that has climbed by 50 basis points to 5.5%. In fact, the vacancy for malls spiked in the third quarter to its highest level in two decades, according to research from Moody’s Analytics REIS.

“Most aid from the CARES Act dissipated over the summer and many retailers have closed due to the lack of revenue,” Marcus & Millichap explained. Those losses are anticipated to extend over the winter months as the ability to offer outside services decreases.”

Moody’s Analytics REIS’ senior economist, Research and Economics Barbara Denham, “These declines seem tepid given the state of the retail market in which retail sales have somewhat recovered from the abyss of March, but many consumers have been hesitant to shop indoors. Restaurants had better business over the summer than in the spring, but some indoor dining restrictions will hurt business as the weather gets colder.”

During the summer, and even throughout the fall, outdoor dining provided restaurants with a lifeline, but eateries in locations with colder climates may be hard pressed to attract guests, and maintain revenue, as well as payroll, without financial assistance from the government, said Marcus & Millichap. Other experience-based retail spots, such as gyms, will need government help too, in the form of a vaccine, to survive.

There is a silver lining for retail, however, Marcus & Millichap points out: Since the beginning of the COVID-19 crisis, the personal savings rate has risen significantly. It jumped to a record 33.6% in April before settling to 14.3% in September, which still is almost twice the long-term average.

Additionally, unemployment in October was 6.9%, which may sound high but it’s well below initial predictions by the Federal Reserve. Perhaps most significant, spending that’s been curtailed due to lockdowns is expected to translate into greater holiday retail sales. Indeed, the National Retail Federation predicts that holiday sales during November and December will increase between 3.6% and 5.2% over 2019 to a total between $755.3 billion and $766.7 billion.