Will the Hard-Hit Service Retail Rebound From the Pandemic?

Primarily, the pandemic has accelerated ongoing trends in retail, but there is one area that has been set off course: the service industry. In the last cycle, retail owners bet on service-based daily-needs retailers as a defense against e-commerce. This includes boutique fitness studios, nail salons, hair salons and dry cleaners. These retailers are among the hardest hit by the pandemic.

The Black Creek Group recently looked at retail trends to emerge during the pandemic. “The one thing the pandemic has changed is the service industry,” Mike Moran, VP at Black Creek Group, tells GlobeSt.com. “The pandemic has forced people to change their habits when otherwise it would have take a longer period of time. The jury is still out about whether or not customers will be comfortable returning to small boutique fitness classes or nail and hair salons that require close contact. COVID will have an effect on those businesses because it is where transmission would be high.”

A focus on service-based retailers was part of the core investment strategy for many retail owners. “Those were really the back on which we built the new retail world because those services are ecommerce defensive because you can’t do that stuff online,” says Moran. “In our retail portfolio, we have seen that those uses really filled space and pushing rents and picking up where traditional retail had gone largely online. If those customer patterns return to normal after COVID, I think we will be in a similar spot, but we will have to wait and see on that.”

In the short-term, these businesses will continue to struggle, but in the long-term, Moran expects activity to return to normal. What is unclear is how long it will take consumers to rebound. “I do think that people will go back to the shopping patterns that they had prior to COVID, but I think that in the short-term, there will be a lingering fear and aversion to getting sick,” says Moran. “One of the overarching themes, I think, will be consumers’ desire to get back out into the world and be with other people. Once we can do that stuff again, I think there will be a desire to return to life as normal.”

The disruption to the service industry is the biggest change in the retail sector. Primarily, the pandemic has only accelerated existing trends. “My general view is that the pandemic is predominately an acceleration of trends that we were already seeing prior to the pandemic,” says Moran. “We were preparing for and contemplating many of these trends in our day-to-day decision making prior to the pandemic. The biggest impact has been that the pandemic has brought all of these to a head much quicker than we had anticipated. A lot of the fundamentals that we look at are largely the same.”