The Pandemic Underscored the Importance of Essential Retail

Before the pandemic, retail investors and developers were targeting daily-needs or ecommerce-resistant tenants. The category was broad, including everything from grocery stores to restaurants and pharmacies. After the pandemic, the same class of stores have become known as essential retail, and it has become a clear category.

“The pandemic highlighted the difference between essential and non-essential retail and, not surprisingly, the product type that emphasizes essential retail has fared much better,” Dan Villalpando, a partner at Cox, Castle & Nicholson, tells GlobeSt.com. “Businesses believed to be essential to daily life, such as grocers, home improvement stores, pharmacies, banks and gas stations, have generally been allowed to remain open, which is obviously the most critical component to turning a profit.”

Non-essential retailers were on the other end of the spectrum, suffering business loss and forced closures. “Non-essential retail, such as apparel, salons, gyms and movie theatres have been forced to close for much of the year, and projects where those types of tenants serve as anchors have suffered the most,” says Villalpando.

Grocery stores were at the top of this hierarchy, and owners of grocery-anchored shopping centers generally saw better performance of the overall retail center. “During the pandemic, consumer priorities have shifted to focus on basic needs, such as food, and grocery stores have generally benefitted,” says Villalpando. “Indeed, traditional grocers Albertsons, Kroger and Publix have all had a strong 2020 despite the circumstances.”

It is important to note that the pandemic didn’t catalyze this trend bbut accelerated it. Grocery-anchored shopping centers were already an investor favorite before the pandemic, and several grocers were already expanding. “In 2019, one of the larger growth sectors in retail is specialty grocers, such as Whole Foods, Trader Joe’s and Sprouts; another is discount grocers like Walmart Neighborhood Market,” says Villalpando.

On the flip side, the pandemic has finally launched the online grocery business, which had struggled to get off the ground. “The pandemic has accelerated the growth of online grocery shopping, largely out of necessity due to customer safety concerns,” says Villalpando. “In addition, the acquisition of Whole Foods by Amazon continues to spark change in the grocery sector, and some experts predict that consumers may get even more comfortable ordering groceries online in 2021.”

The pandemic also highlighted obsolete retail categories in the non-essential categories. Prior to the pandemic, malls were already struggling, and the events of 2020 pushed them over the edge. “During the past year, traditional enclosed regional malls have struggled, likely because shoppers have been unwilling, or unable, to brave the enclosed spaces that make up most indoor malls,” says Villalpando. “Overall, owners of regional malls in non-affluent areas, mainly class-B and C malls, have had to adapt to stay relevant.” This is an example of non-essential retail that may not come back from the pandemic.