Retail Facing Structural, Not Cyclical, Challenges
Because the retail sector’s challenges are structural rather than cyclical, the sector continues to struggle despite strong economic fundamentals, said Cushman & Wakefield, New York.
The U.S. unemployment rate remains at a very low 4.1 percent and consumer confidence reached an 18-year high in February. Though both are positive signs for a strong retail market, store-closure announcements continue. Nearly 4,500 store closures have been announced already this year; Cushman & Wakefield predicted this figure will exceed 9,000 this year. The top retail categories in contraction mode include consumer electronics, apparel, department stores and sporting goods, most of which are typically tied to mall or power center locations.
“The first quarter of any year is traditionally when retail closure announcements accelerate,” Cushman’s first-quarter Shopping Center MarketBeat report said. “[This year] was no exception, despite the strongest holiday shopping season since the Great Recession.”
But keep two things in mind when you see all those store-closure headlines, the report noted: “First, perception is worse than reality; not all of the news is negative.” Some retail sectors are growing, but expansion announcements do not garner nearly as much attention as closure news.
“Second, the issue is not about consumers not spending money; rather it is the radical shift in how they are spending it,” the report said. “In addition to the acceleration of eCommerce, the nation’s overbuilt retail marketplace is competing with shifting consumer spending patterns–Americans have become more value-conscious, and younger generations are placing more importance on experiences than commodities.”
Cushman predicted the gap in performance between mall classes will widen as closure announcements continue. Class A malls will continue to attract tenants. “In fact, anchor closures at trophy or class A malls present opportunities for landlords to attract new, more relevant tenants such as food halls, experiential concepts or other trendy new retailers at current rents.” Class B malls will look at non-traditional tenants and innovation to survive and tenants that have traditionally occupied high-end malls will increasingly look to class B malls as an option, causing definitions of center types based on tenant mix to blur. “Class C malls will not survive, and closures will increase in 2018 and gain momentum through 2020,” the report said.
Closures of the weakest malls will likely start to increase in the second half of this year. “The reinvention of these dying malls as mixed-use projects will gain momentum in 2019 and beyond,” the report said.
