Department Stores and Retail Traffic: There's No Time Like the Holidays

Department stores and their investors are anticipating a great holiday season at their properties after a pandemic-long slog.

Pre-pandemic, there was a fairly widespread sentiment against the continued value of the department store. And with news around store closings and bankruptcy proceedings dominating headlines in the last year and a half, it’s clear that the pandemic hasn’t done the sector any favors, according to a recent report from Placer ai.

Yet, the tide does appear to be turning with key trends working in the sector’s favor ahead of the holiday season.

Visits on the Rise

Comparing visits to 2019 shows just how challenging the situation was for leading department stores in early 2021. In February and March, six top department store chains saw visits down 34.5% and 25.9% on average, respectively, when compared to the same months in 2019. 

Yet, by August that average visit gap was down to just 6.7%. While the sector saw a step back in September with the visit gap increasing to 13.1%, by October the average decline was just 2.4%—the best it has been since the start of the pandemic’s retail impact.

And the success appears to be fairly widespread, with luxury-oriented department leaders and those targeting the middle seeing equally significant improvements in visit levels. This is all the more significant for brands like Macy’s and JCPenney, where store closures create a situation where declines are almost guaranteed.

Good Timing

The timing here is critical. Visits rose across the chains by an average of 10.9% in October, a huge step forward considering September saw a decline of 15.8% compared to August. And this is incredibly important, as visits are growing into a critical holiday season where players across the department store spectrum will be seeing a unique combination of trends that could drive a very successful season.

The combination of pent-up demand for the holiday retail season, declining COVID cases, limitations on international travel, and the success of this past Back-to-School season all speak to the potential for a big season. 

Gym and Theatre Traffic Improving

And traffic is improving for malls in general, which gives department stores an added, albeit indirect, boost along with the holidays.

Sandy Sigal, President and CEO, NewMark Merrill Companies, tells GlobeSt that the Placer data is “very consistent” with what it is seeing across its 80+ community and neighborhood centers in the three states in which it operates, which are California, Colorado and Illinois.

“We are seeing many of our tenants with their highest sales since occupancy, and we are seeing traffic in many centers in excess of 2019 (pre-COVID),” Sigal said. “Today the issue is not demand, but supply, and how to fulfill it. Whether it is chefs and servers or just having goods in stores, there are definitely issues with quality of service and selection that will impact this quarter’s sales if not their traffic.

“Also, the traffic gains are not across the board. As a group, our gyms are still down 25% pre-COVID and our movie theaters are down almost 50% over 2019, although that number has been getting better as we enter the holiday season.”

Agora: Exceeding Pre-Pandemic Numbers

Cary Lefton, CEO, Agora Realty & Management, tells GlobeSt, “Our visitation numbers on our retail properties, based on Placer, show that our current visitation numbers are at or exceeding pre-pandemic levels.

“We anticipate more visitors will visit our centers this coming holiday season than what we experienced prior to the pandemic. We see an increase in consumer confidence and personal financial resources which will contribute to higher sales volumes this coming holiday season.

Lefton said he has noticed, per Placer, that there are a greater number of shoppers visiting its retail tenants such as Ross Dress for Less and others.

“Based on these trends, we believe their in store sales to be extremely strong in Q4. Our grocery store tenants continue to experience strong sales because there remains a reluctance to indoor dining and inflation is impacting family budgets further limiting the ability to afford the luxury of eating out.”

Lefton said in his portfolio that sit-down restaurants are still struggling to achieve pre-pandemic sales volume.

“The breakout winners have been our smaller quick-food service tenants that have and continue to benefit from online services such as Doordash, Grubhub and Postmates.

“These services have provided a value-add component to our tenants enabling them to compete with national chains as well as survive the pandemic,” Lefton said.

All other retail service-oriented tenants in our centers appear to have now stabilized, he said. Lefton added that his retail centers in Nevada, compared to those properties in California, “appear to be rebounding more quickly.”