US Insights

Coronavirus closures hit the mall

Tiffany Hogan

Senior Analyst

Retail 03.23.2020 / 09:00

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Retailers taking the biggest hit from COVID-19 are largely based in the mall.

Talk about kicking an industry when it's down.

The retailers taking the initial sucker punch from the effects of COVID-19 are those largely based in the mall. With shoppers warned, and in some states forbidden, to gather in large numbers, malls are mostly empty regardless of whether the stores are open. In a matter of mere days, more than 30,000 stores from the most prominent chains have closed across the country, on top of the forced closure in several states and shut down of Simon Properties’ entire mall fleet. This is having an outsized impact on department stores as well as other discretionary retailers that rely on in-store sales, consumer confidence, and low unemployment to drive growth.

Retail Store Closures

To say the outlook for these retailers is challenging is an understatement, but all are facing the same challenges: remaining relevant and staying financially afloat until they can re-open. It is safe to say there will be retailers that will not weather this storm well. Here are the questions we think are important to answer to understand which retailers are best positioned to fare better.

How are they talking to their shoppers?

Setting the tone is tricky: how to sell discretionary goods to shoppers whose focus is restocking their pantry? Many retailers are offering extra discounts and free shipping to remove any initial purchase barriers. Those going the extra mile have changed tack quickly, abandoning seasonal messaging to focus on providing more relevant content relevant to folks working from home or taking on the extra role of educator for kids home from school.

Shoppers are also looking for transparency and empathy from retailers. How are you supporting your employees? Cleaning your stores? Are you just as confused as I am? Shoppers say it is important to connect with the brands they shop, which might be even more important to them in times of uncertainty. While these efforts may not drive short-term sales, they’re more likely to drive long-term brand affinity when shoppers remember that these retailers cared about their sanity more than their wallets.

What is their digital capacity?

Last year, in the US, 76% of apparel was sold in stores. There is no way all that revenue will shift directly online, especially in times of uncertainty when shoppers are already likely to be pulling back on discretionary spend. And even if stores re-open in two weeks (as many are planning, at least as of now), store sales are unlikely to rebound that quickly. Which retailers have the digital tools and distribution capacity to keep up with a sustained increase in online demand? Additionally, much of the inventory these retailers were hoping to sell was already in or headed for stores. Do they have the infrastructure to get that merchandise to warehouses, or to ship it directly from stores to avoid any potential inventory issues? A good proxy will be the performance of Bath & Body Works, a mall-based retailer that also happens to trade in America’s hottest commodity: hand sanitizers.

Can they take a margin hit?

No matter how successful their online business is, these retailers were counting on stores to sell the vast majority of their products. The longer these stores stay closed, the less value their seasonal merchandise becomes, which will force major clearance, sell-off to the secondary or off-price market (read as: more stock for TJX) or more than likely, a combination of both. With margins already under pressure from a generally competitive environment, which retailers are equipped to recover from short-term margin suppression into regular full-priced selling? How would sustained clearance impact their brand image?

What is their cash position?

It’s not only consumers that are thinking about that stash under the mattress. With revenues likely to take a significant short-term dip, which retailers have the funds to essentially bail themselves out and keep the business moving as usual? For some retailers, this will be the only statistic that matters in the near term as they fight to keep the doors open to businesses that were already struggling.

Source: Kantar

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