Retail Bifurcation Is Not as Severe As You Think

Many believe that the pandemic has triggered a deep bifurcation in the retail market, with winners—like grocery stores and pharmacies—and losers. But, rent collection data shows that only a limited number of retail sectors have seen significant dislocation. Movie theaters and fitness centers are the two principal casualties of the pandemic.

“This is where the data is actually pretty clear that the bifurcation, so to speak, is fairly isolated,” Mark Sigal of Datex Property Solutions, tells GlobeSt.com. “There are only two segments that have been hit with what I call existential threats: movie theaters and gym/fitness centers. Here, the collections trends are divergent from their peers.”

Outside of these two retail segments, most tenants are able to make more than half of their rent payment, and overall, national tenants are paying more than 90% of rents, according to February data from Datex. “Of the remaining national retailers that we track, none is paying below 65% of their rent in the most recent report,” says Sigal. “We flag that as a yellow for those retailers, but for those in the red zone, the above two segments, the highest of them is around 50% of collections.”

Despite the struggles with rent payments, Sigal also expects these retail segments to recover rapidly once the economy reopens. “However, gyms will start to get healthy real quick, as people are hunkering to get back in shape,” he says. “Movie theaters are a bit more complex, for a number of reasons, including lack of top shelf inventory owing to delayed product schedules and direct to streaming initiatives by a number of the studios.” One positive sign that these retailers will recover is the growth of lifestyle retail at before the pandemic. “Lifestyle retail was the fastest growing retail segment pre-pandemic,” says Sigal. “People like to congregate is social spaces. That noted, different segments will recover at different paces post-pandemic, something the retail sales data that we track bears out.”

Sigal also notes that these numbers are only meant to apply to operational retailers, not those that have shuttered during the pandemic. As he explains, “My comments are not meant to ignore the numbers of retail chains that went bankrupt during the pandemic, but when it comes to collections, I am focused on the outlook for the living.”