Another Challenging Year For Retail Sector

This year could be another challenging one for the retail sector, but retailers that survive should be well positioned for the future.

“Many of the challenges retailers faced in 2019 will likely continue into 2020,” said CoreSight Research Founder and CEO Deborah Weinswig. “E-commerce continues to take share from physical retail, while a host of direct-to-consumer brands are busy building relationships directly with consumers.”

Weinswig noted the retail sector could see one “silver lining” to the growth of e-commerce. “Old-school retail is adapting to e-commerce encroachment and getting more in tune with shifting consumer tastes, so the survivors should be better able to compete,” she said. “Consumers want e-commerce, buy online-pick up in store services and speedy free delivery, and retailers are working to meet these expectations. With established store footprints digital natives could never hope to match, traditional retailers that can successfully reinvent themselves as multichannel retailers stand to prosper amid the ongoing challenges.”

In addition, consumers are buying more than they used to. On Thursday the Commerce Department reported retail sales increased 0.3 percent in December over November. And overall retail spending was up 5.8 percent year-over-year in December, reaching a 16-month high , Wells Fargo Securities said.

But Barbara Byrne Denham, Senior Economist with Reis, New York, said the fourth quarter could have been the start of a declining retail market. “For more than two years we had remarked how the retail statistics were defying anecdotal reports of a ‘retail apocalypse’,” she said. “But recent data shows that the scales may have tipped as both the retail and the mall vacancy rate increased in the quarter.”

Byrne Denham said retail rents grew a “scant” 0.1 percent during the quarter while mall rents were flat. She noted restaurants added 292,000 jobs last year, fitness companies added 23,000 jobs and spas and salons added 25,400 jobs, however. “Thus, the retail climate is not as bleak as the store closures would lead one to believe, but it does continue to shift toward entertainment and services-oriented companies,” she said.

Net retail absorption equaled negative 175,000 square feet in the fourth quarter, largely due to the closing of Kmart stores in 13 metros including two stores in Philadelphia, two in central New Jersey and two in Norfolk, Va. that accounted for 585,000 square feet of new vacancy in those three markets alone. Construction equaled 543,000 square feet, the lowest quarterly completion total since 2011.