Marc Cuniberti: The second death of retail
I have written three articles in the last 15 years or so addressing the changing environment of retail sales. The first article was called “The Death of Retail,” penned in 2007. I forecast the collapsing of mom and pop stores as result of big box stores like Costco and Walmart.
The next article was penned in 2017 entitled “The Death of the big box store” detailing online outlets pressuring the big box stores, much like big box pressured mom and pop.
The latest article penned in early 2020 followed up on the “Death of the big box……” notating the ongoing battle for customers between big box and online retailers and how big box stores were setting up their own online conduits to compete with the online giants.
One such success story is Walmart, whose online presence has given Amazon a run for its money. I also detailed in the last two articles that, coupled with the on-location retailer struggles, the commercial real estate property markets would also suffer as both the mom and pop stores and then the big box stores vacated their leased properties.
The COVID-19 shutdowns have only exasperated the exodus from retail locations. That said, I find it an easy conclusion that the commercial real estate market will be in serious trouble, even if a vaccine is found and the country reopens. My opinion of course.
I forecast 25% of all U.S. small businesses are done for. CNN claims 60% of closed businesses will not reopen. Indeed, in my small town, the number of businesses with “closed permanently” signs dot the landscape everywhere I go.
Along with the businesses that have closed and the property owners that find themselves in financial straits due to vacating tenants, the moratorium on evictions have put landlords of both commercial and residential properties under even more duress.
Without debating the politics of such decrees, the combination of online competition, vacating tenants and the handcuffs of an eviction hiatus may spell real disaster for the commercial property marketplace.
Although many of us prefer to buy local and support our community, just yesterday I experienced a real-world example of why in-store retail outlets are struggling to keep customers.
Looking for a large squeegee to spread asphalt, I visited two local hardware stores. One was a small local chain and the other a large franchise. I spent over 30 minutes driving, parking and going inside to discover both were out of stock. I then called two more local stores. That resulted in five minutes on-hold on each call, only to find out they too were out of stock.
In total, I had wasted about a total of 45 minutes and half a gallon of gas. I went home and spent three minutes locating and ordering the item online which will arrive in three days.
Need I say more and can you blame me?
Adding more worry for investors, real estate investor trusts (REITS) are a favorite (or were) income holding for investor portfolios. REITS typically had paid sizeable dividends and distributions making their yields very attractive. Since the shutdown however, many have been hammered mercilessly as investors drew the same conclusion I did: many stores will be closing and lots of renters aren’t paying.
The devastation heaped on American small businesses due to the shutdown is unprecedented. In a creative- destructive moment, this will benefit the largest of corporate retailers who have deep enough pockets to weather a shutdown while their smaller brethren go broke. These large corporate franchises will likely grow even larger as they absorb their smaller competitors. They will also garner new customers from the now defunct mom and pops, further strengthening their corporate balance sheets. These companies will also benefit from having more negotiating power to ask that their current leases be reduced due to decreased demand, putting even more pressure on commercial real estate landlords.
The combination of all these events spells out something wicked this way comes for the commercial real estate market. Of which I would sum up my opinion on this market as: I wouldn’t touch any part of it even with somebody else’s ten-foot pole.
Opinions expressed here are author’s alone, are opinion only, and not those of any bank, investment advisory firm or news media company. Nothing stated is meant to insure a guarantee of any kind, or to be construed as individual investment advice. Neither Money Management Radio (“Money Matters”) nor Bay Area Process receive, control, access or monitor client funds, accounts, or portfolios. For a full list of the services Marc Cuniberti provides, please contact him directly. California Insurance License #0L34249. Insurance services offered independently through Marc Cuniberti and not affiliated with any RIA firm or entity. 530-559-1214.
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