Retail Crisis Hits Small Shops the Hardest
Pent-up demand could save the day for one-store retailers after pandemic measures ease.
The retail sector continues to struggle as ongoing public health restrictions stifle operations of shops and restaurants in many states —even as total retail sales rebounded in June. California’s latest stay-at-home order, for example, mandates that bars, wineries and movie theaters must remain shuttered. In New York State and Connecticut, restaurants can resume dine-in service at 50 percent capacity—except in New York City, where indoor dining is banned.
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Property trades have remained sluggish amid the uncertainty. A survey by NAIOP, the Commercial Real Estate Development Association, found that 79.6 percent of U.S. members surveyed had witnessed no new retail acquisitions or development in July. Moreover, 51 percent of respondents said that at least one-quarter of their retail tenants had not paid rent in full and on time by midmonth.
Social distancing measures shuttered 55 percent of America’s non-food service retail space at the peak of the COVID-19 crisis, and hundreds of thousands of store locations are projected to close for good. Image courtesy of Greg Isaacson
While large chains—including Dunkin’, IHOP and Starbucks—are downsizing their store portfolios, the one-store companies will likely pay the highest price for the turbulence. Retail consultancy IHL Group projects that more than 443,000 store locations will close in the U.S. due to the effects of COVID-19, with the vast majority of them being small retailers from restaurants to hair salons. The figure includes nearly 338,000 one-store companies and just over 50,000 chains with two to nine stores.
But pent-up demand could give mom-and-pop retailers and their landlords a new lease on life once the crisis passes. “There’s never been a worse time to be a small retail business or a small restaurant in America than right now, but in six months there’ll never be a better time to start one,” said IHL Group Founder & President Greg Buzek during a recent webinar.
Sector Insights rotates among office/medical office, industrial, retail, multifamily, self storage and hotel/hospitality.
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