The Pandemic Has Created a Bifurcated Retail Market

COVID-19 is an unusual virus. For some, symptoms are mild or even non-existent and for others, it is deadly. The pandemic has hit retailers in a similar way. This year has brought massive retail bankruptcy announcements and closers along with success stories. While daily needs retailers, like grocery stores and pharmacies are the most obvious beneficiaries of the pandemic, but other retailers have managed to find solutions too.

“There are a variety of reasons some businesses succeed, and others toil in the current environment,” Alex Zikakis, president and founder of Capstone Advisors, tells GlobeSt.com. “Some Capstone Advisors tenants, by the nature of their business, have a very hard time performing their core business while adhering to the necessary guidelines brought on due to COVID-19. Examples of businesses struggling to adapt include gyms and personal fitness studios, nail salons and large format indoor restaurants. Others have attempted to pivot their business model with varying degrees of success such as cycle studios that offer online and outdoor classes or restaurants that can provide to-go or drive-thru services.”

Each retailer has also experienced the pandemic differently, with business declining for a wide variety of reasons related to the pandemic. This has created a unique set of challenges. “There are tenants that have been impacted by changing work patterns, such as dry cleaners, that have had a dramatic drop in business due to the increased number of people no longer working in offices or attending social events,” says Zikakis. “Tenant business models faring better, such as grocery stores and liquor stores, have done so because they meet a need right now—such as people are cooking and eating at home more often.”

On the other hand, remote work and less travel has driven an increase in sales for some retailers. “There are the businesses that have seen increased sales during the pandemic because people have more leisure time and are traveling less,” says Zikakis. “The boat, RV, bicycle, camping gear, fishing gear and surfboard industries have all done great. Another industry experiencing a customer boom during the pandemic is the veterinary industry as people have adopted dogs and cats at record numbers.”

There is no doubt that some of the changes born during the pandemic are temporary, but there will also be lasting effects. Technology adoption is among the latter. “The biggest permanent changes to retail are the increased adoption of technology,” says Zikakis. “According the IBM U.S. Retail Index, the pandemic has accelerated the shift to digital shopping by roughly five years, but the key point to remember is that this change was coming; the pandemic just caused it to arrive sooner.”

Capstone, however, doesn’t see the pandemic eliminating retail, and some of the shopping trends during the pandemic have supported that. “We are big believers in the necessity of physical retailers,” says Zikakis. “I think the biggest surprise for many people is how the pandemic has really brought home the importance of well-located, highly functional physical retail. During the early weeks of the pandemic, it was tough to get delivery windows for many items we were used to buying online. I believe most of the large-scale tenant bankruptcies we’ve seen this year are mostly retailers that would have failed in the next few years due to having outdated business models.”

It is no surprise to see that retailers with a strong omni-channel platform have been the winners in this event. The necessity of a balanced virtual and brick-and-mortar platform has been a trend for the last decade, and this event only underscored that. “Likewise, the retailers that have performed the best are those with a strong omni-channel marketing plan—not just physical locations, not just online sales, but multiple modes of sales and customer engagement,” says Zikakis. “Look at the performance of Walmart and Target—both retailers served their customers well by offering daily needs items, online delivery, curbside pickup and good old fashioned in-store shopping options.”