Having recently examined the future of the office sector it is now time to ask: What does the future hold for the retail segment and what impact will this have on the retail real estate market? Retail parks could well emerge as the biggest winners of the current crisis, while the retail sector as a whole (and inner-city locations in particular) are struggling. The boom in online retail, on the other hand, is hardly surprising. At the same time, home delivery services and Click & Collect stations represent promising strategies for supermarkets.
Brick-and-mortar retailers have been complaining about the pressures created sustained growth of the e-commerce sector and there has been widespread skepticism about the future viability of inner-city department stores such as Karstadt for years. Such concerns can no longer be swept under the carpet. In the United States, almost 10,000 highly frequented shopping centers were forced to pull down the shutters in 2019. In Germany, the coronavirus lockdown that was first imposed on German high streets in March could sound the death knell for many retailers: During the five-week shutdown, in-store retail sales fell to zero – for everyone except food retailers. Initially, the most optimistic market observers were predicting that consumer behavior would quickly get back to normal once stress were allowed to open again, but such confidence now seems to have been misplaced. Although shops have reopened, consumer sentiment still leaves much to be desired.
According to a TW-Testclub survey for the German clothing industry’s Textilwirtschaft magazine, sales in brick-and-mortar fashion stores in June 2020 were lagging 22% behind the previous year’s level. The sector has been particularly hard hit by the cancellation of so many events and, according to the survey, shopping centers and inner-city high streets suffered the largest sales declines while specialty stores and retail parks remained mostly stable.
Based on the first shoots of recovery, it is now possible to forecast emerging trends and predict which brick-and-mortar retailers should be able to recover most quickly and which will require far-reaching strategies to get the tills ringing again. The retail segment’s latest developments confirm the pre-coronavirus findings of the HAHN Retail Real Estate Report 2019/2020: Expansion officers at Germany’s leading retail groups, real estate investors and major lending banks are all convinced by the excellent price-performance ratio of tenants in retail parks. During the Covid-19 pandemic, these locations have become even more attractive: large, well-spaced stores have few problems implementing strict physical distancing regulations and their “out-of-town” locations provide ample parking and allow for easy access by private car, which is emerging as a virus-proof means of transport. If anything, the coronavirus crisis has merely accelerated pre-existing trends in the retail sector, landing new body blows to retail concepts that were already struggling to survive.
For shops in urban centers, the fight to survive is not getting any easier as consumers remain reluctant to loosen their purse strings despite the reduction in sales tax. Hardly anyone is convinced by the prospects of a V-shaped recovery any more and Stefan Genth, CEO of the German Retail Association (HDE), expects sales to decline by EUR 40 billion in 2020.
So what should retailers do? The next steps depend almost entirely on how long the retail industry has to comply with corona-related restrictions, such as physical distancing, limits on customers in stores, etc.. The longer the restrictions remain in force, the greater the potential gains for online retailers. The food retail sector, which has so far been one of the winners of the crisis, cannot afford to be complacent: The coronavirus crisis has driven a significant increase in the share of online food purchases, as Jennifer Güleryüz from Savills outlines in the following chart:
The discounter Netto has been experimenting with a pick-up service and the Rewe supermarket chain has opened hundreds of new Click & Collect pop-up stations, explains Güleryüz. According to Savills, the accelerated digitalization of the supermarket sector is also likely to have an impact on the real estate industry. As supermarkets become more like urban warehouses, pick-up stations are expanded and drive-in counters are set up for contactless Click and Collect services, the whole industry will be disrupted.
“I expect bankruptcies even among larger chain stores and international retailers. The crisis is so international, s rapid and so unrelenting that anyone without a well-developed multi-channel strategy won’t stand much of a chance,” fears Lutz Sdhilbach, Deputy Head of Asset Management Germany at JLL. Real estate investors and asset managers are therefore well advised to engage constructively with their retail tenants in order to develop the strategies that will allow them to make the most of the industry’s restart.