Virtually every aspect of the economy and industry sector have been disrupted by the global COVID-19 pandemic in 2020. The impacts are fashioning a few unexpected pleasant surprises, though. That’s no more evident than across the retail sector, which was already being reshaped by the ways consumers were buying products, expectations shoppers have about the type of experience they prefer when they visit a retail center, as well as the emergence of an array of online shopping options.
The pandemic has fueled an already burgeoning e-commerce trend to record sales growth in the second quarter. The Department of Commerce reported that U.S. retail e-commerce sales for the second quarter of 2020 was $211.5 billion. That represented an increase of 31.8 percent from the first quarter of 2020. Total retail sales for the second quarter of 2020 were estimated at $1,311.0 billion, a decrease of 3.9 percent from the first quarter of 2020.
Second quarter 2020 online shopping increased 44.5 percent from Q2 2019, at the same time total retail sales decreased 3.6 percent – a drop that was entirely offset by online spending. E-commerce sales accounted for 16.1 percent of total sales in Q2 2020 and the quarter’s remarkable e-commerce performance was more than triple the growth recorded in Q2 2019 as well as Q1 2020. By comparison, online sales have grown from 6.5% of total retail sales in 2011 to account for 20.8% in 2020.
Pandemic Shapes, Reshapes Retail
The coronavirus pandemic may have simply magnified a trend that was already underway. Still, online shopping is projected to continue growing, and it is also expected to produce interesting shifts for retailers as well as retail owners, developers and investors.
Kidder Mathews Damian Sevilla, a retail specialist in Seattle, noted retail’s struggles were evident before the pandemic including severe challenges for apparel and soft goods retailers in brick-and-mortar settings, especially in metro or CBD locations. Restaurants in oversaturated markets like Seattle face an even tougher road ahead, he notes. There were pockets of retail “limping along,” with services and gyms among the most active categories. “Gyms moved to reduce their footprints and shifted to more catered, small class personal trainer models,” said Sevilla.
He also notes urban retail has a “long recovery” ahead and predicts that “until people start going back to work, travel is safer, gatherings are permitted, and safe, downtown CBD’s of major cities will be closed or operating at reduced capacity for at least another nine months.”
A bright spot on the retail landscape was the emergence of tertiary markets and suburbs, which experienced rent collections in the 80-90% range. That positive activity reflected the fact that those markets feature mainly grocery-anchored neighborhood centers. But that isn’t the only retail market shift occurring.
Among the ways the retail sector is changing are adjustments to incorporate online purchases into the process. For instance, while many physical store locations began reopening in May, consumers continued to buy online in record numbers, but interestingly they elected to pick up purchases in stores or at newly introduced curbside pick-up spots.
Kidder Mathews Michael Navarro, a retail broker in Irvine, said, “Aside from the obvious trends, I am forecasting that equity from private capital sources will pour into new omni-channel retail and service start-ups. Capital will shift away from big-box, department store, category killer tenants.”
Navarro predicts these new format stores will include warehousing; fulfillment; direct to consumer sales, encompassing pick-up, curbside, drive-thru and in-store ordering online, not to mention, online business outside the store.
Impact of Amazon Prime Day 2020
Amazon Prime Day, the annual online shopping extravaganza created by Amazon, performed better this year than last. Amazon reported this October’s Prime Day was the best on record since the event started in 2015. Amazon reported $10.1 billion in global Prime Day sales this year compared to $7.16 billion last year, a 45.2% increase.
Sevilla said, “I’d call that a big impact. It was a record setting event, but the brands were so Amazon focused that some of the products were “shopped” more than they were in years past.”
Prime Day has become a fixture among the retail buying seasons, along with Black Friday, Cyber Monday, Back to School and the traditional Holiday shopping season. But Prime Day shoppers are maturing along with the event, too. Sevilla, points out, “Interestingly, more diligence and ratings defined the purchases this year.”
Kidder Mathews Gary Baragona, Director of Research, points out Amazon’s Prime Day 2020 was a big hit for small businesses, as well. “One of the biggest takeaways that Amazon is highlighting from Prime Day is that small businesses and the like reigned in over $3.5 billion in sales over the two-day sale,” said Baragona. “That’s up roughly 58% from last year, marking the biggest shopping event from Amazon yet for third-party sellers. Shoppers also managed to save an impressive $1.4 billion, as well.”
Holiday Shopping Season Shifts
Sevilla added that among the shifts in shopping patterns is the fact that “many consumers are shopping now or early, trying to avoid big crowds at stores.” While that may have been partly as a result of concerns over COVID-19, it is a theme retailers seem to be embracing. He points out that vendors have increased their Black Friday access and moved sale prices to earlier. Those adjustments may have allowed some consumers to complete their holiday shopping earlier than ever before, he noted.
But other differences and changes are occurring at stores sites, as well. John Austin, a retail broker with Kidder Mathews in Sacramento, shared what he’s seeing in two retail categories, grocery and the health and fitness club sector.
“Grocery stores are seeking retrofits or requesting new centers to be designed with interiors to accommodate customers who ordered online and call ahead for receipt of their groceries in the parking lot at the pick-up areas,” said Austin.
The challenges he notes are twofold. First, stores must find ways to accommodate unattractive and clumsy areas, which are typically inside staging areas. Secondly, more short-term parking spaces or more dedicated spaces are required, which can be especially sensitive and problematic in urban areas.
Retailers are working to address those challenges though. Austin cites a new center in Northern California in which he’s involved that’s in the middle of being designed. “The project is incorporating prominent and easy-to-use auto and pedestrian pick-up areas. That will involve using doors for vehicle pick-up and windows in the store frontage for pedestrians to pick up prepared foods,” he said.
Inside the store among the changes underway include looking at creating broader aisles, providing broad outdoor sidewalks for social distancing and “in-common” outdoor dining areas. While Austin points out the increased CAM costs of expanded dining areas are a consideration, “we feel it’s worthwhile now and may be a government mandated requirement at some future date.”
Other considerations for retail centers include figuring out how to deal with less parking as a result of increased growth in home delivery. That’s created a need to redesign parking lots, segregating pick-up areas from short-term parking areas, as well as directional signage improvements, Austin points out.
Retailers must also learn how to design spaces to accommodate larger holiday crowds. “Limits on how many people can be in a store at any one time is anathema to the retail industry,” said Austin.
In the case of the gym facilities, Austin notes California’s Title 24 energy saving requirements need to be relaxed in order to allow gyms to return to fuller operations. Facility owners believe a more porous building with stronger air circulation systems would be safer. He said, “Conversations are underway on this subject within the political arena, and we will not be surprised at new legislation focused on altering the design of building envelopes.”
The design of the exterior walls on the proposed gym in which Austin is involved includes broad swaths of windows that actually open to bring in air from outdoors at the same time air circulation systems are operated at maximum capabilities. The facility also includes more skylights that can open and help increase air flow, as well. As cities and planning departments learn more about the enhanced benefits of these changes to help deal with the spread of COVID-19, it is expected more changes can be introduced at gym facilities, notes Austin.
Government entities are already starting to shift their perspective on post-pandemic shopping center design. “One city that for 12 years resisted allowing drive-through QSRs is now relenting because they understand it is a way to design and deliver the safest shopping center possible,” said Austin.
Retailers and shopping center owners are expected to continue to seek and find solutions to the issues presented by the global COVID-19 pandemic. Despite the massive disruption this year, the continued adoption and expansion of e-commerce will push the industry to adapt and adjust into the future. Retail clearly isn’t dying it is just finding life in new places.