Signature Associates

Can retail recover from virus? Experts say future is murky

In 2019 there were 17 major retailers who filed for bankruptcy, including Forever 21, Barney’s of New York, Things Remembered, and Payless ShoeSource.

With 2020 just over seven months old, there already have been 26 major retailers that have sought bankruptcy protection, including J.C. Penney, Lord & Taylor, Neiman Marcus, and this past Tuesday, Stein Mart. And Retail Dive, an online retail news site that keeps a running total of retail bankruptcies this year, identified 19 other major store chains in danger of going under.

Locally, commercial real estate firm the Reichle Klein Group last month released its midyear retail market report for the Toledo area which showed the retail vacancy rate dropping slightly to 11.7 percent in June from 11.9 percent at the end of 2019.

But the report warned that many of the numbers were based on activity that occurred during a state lockdown sparked by the coronavirus pandemic, and that as it was being put together Ohio was just starting to reopen. The report stated that while its retail survey results didn’t register any pandemic-related distress among area retailers, “it is hard to imagine that future surveys will not. The accumulating number of bankruptcies among retailers and announcements of store closings telegraphs the trouble ahead.”

Harlan Reichle, managing partner of the Reichle Klein Group, said at the time he wrote that the retail clouds in the distance looked fairly ominous.

But as of mid-August, his firm’s agents have been involved in several retail positive leasing transactions that have surprised him.

“Last month and so far this month we had more transaction activity than you would suspect. And that’s a positive,” Mr. Reichle said. “On the other hand, with the pandemic being sort of prolonged, there’s just so much disruption out there and now you have the news about Stein Mart,” he added.

If large chains like Stein Mart and J.C. Penney felt the pinch, “You can just imagine there are a lot of smaller retailers or restaurants that are stressed,” he said.

The uneven flow — three new restaurateurs have signed new leases while other retailers are going under — makes it nearly impossible to predict what the situation will look like this fall, Mr. Reichle said.

“I don’t think this is a great time to make bold, certain predictions because it’s so fluid. I suppose the safe, obvious thing to do is predict bad things, but I just don’t know that it’s clear enough,” he added.

Elizabeth Holland, chief executive of Abbell Credit Corp. of Chicago, which owns the Westgate Village Shopping Center and is the landlord for the Toledo area’s only Stein Mart store, said in dire circumstances like the current pandemic, “the strong get stronger and the weak get weaker.”

It’s been known for some time that Stein Mart was struggling even before the pandemic, Ms. Holland said.

“I don’t know that it was a surprise” the company filed bankruptcy, she said. “Certainly post-covid any retailer that wasn’t under duress before feels themselves in distress now.”

The good news for Abbell is that it believes there will be retailers interested in Stein Mart’s 35,000 square foot space. “We’re not concerned,” Ms. Holland said. “We’re conservatively managed and we have significant resources. We’ll be looking to fill that space with the strongest tenant we can get and we have had inquiries about that space over the years.”

Pete Shawaker, a commercial Realtor at Reichle Klein, is inclined to agree with Ms. Holland.

“I’m probably seeing what I think is more stability than our report would indicate,” he said.

“I’m seeing nail salons and restaurants that I know were forced to be shut by the state for two months and who got (Paycheck Protection Program) money that allowed them to survive,” Mr. Shawaker said. “… So I keep commenting to people that I don’t know of any business that’s closed. They’re all basically hanging on.”

Just in the last week, Mr. Shawaker said he is working on new deals that are likely to close in January.

‘I don’t think this will be as bad as the 2008 financial crisis and recession because we’re all in this together and there’s no choice but to work together. The banks are working with everyone,” he said.

Sam Zyndorf, a real estate specialist at the Toledo office of commercial real estate firm Signature Associates, fully agrees that everyone is working together.

But that may be a problem in that it is just stalling whatever the final outcome of the pandemic will be, Mr. Zyndorf said.

Stein Mart’s and J.C. Penney’s struggles are one thing. “But I think the biggest concern to the local retailer is: what’s going to happen to the government, to the incentives? Once the incentives stop they’re facing the true reality, and not the artificial reality,” Mr. Zyndorf said.

“The problem, as I see it, is two-fold. What is the government going to do about benefits? And how does that affect employees and employers?” he said. “There will be a casualty rate, there’s no question. I know of two retail stores in Perrysburg that have closed and they’re not coming back. They’re done.

“I don’t have a prediction for the future because there’s too many variables. But I can tell you some retailers aren’t going to be here. They’re going to be done,” he added.

Steven Speranza, president of Tolson Enterprises, a Sylvania-based developer and retail, office and industrial property manager, also believes that government aid preserved many retailers and everyone from the tenant to the landlords, to the suppliers and the lenders pulled together to save retail.

But unless federal aid continues, there could be severe consequences in the retail sector, Mr. Speranza said.

“We’re kind of through that process and tenants have reopened. Now it’s going to be time to see how this all plays out how each particular (retailer) is able to adapt through the handcuffs they have on them with social distancing or whatever,” Mr. Speranza said. “That verdict will be rendered in the next three to six months.”

Mr. Speranza said department stores and interior mall retailers look to be the most in danger of failing.

“On a national level, department stores and fashion-related businesses are under the biggest revolution, honestly. So I think they’re likely taking the first hit and really deep and really hard,” he said.

Next would be strip center retailers — restaurants, fitness centers, hair or nail salons, and any tenant that requires a lot of people to be within small premises, Mr. Speranza said.

To survive, some will have to adapt, use new technologies to reach the customer, and have resources or deep pockets to wait out the pandemic, he added.

“We feel like we’re only in the top of the fourth inning and we’re praying there won’t be extra innings,” Mr. Speranza said.

Developer Mario Kiezi, of MKiezi Investments, LLC, in Troy, Mich., said the pandemic has had a huge impact not just on retailers, but on retail trends. It has pushed older, debt-ridden retailing business models into bankruptcy and forced others to embrace new avenues of retail, like smaller stores and online shopping.

“For example, Burlington, formerly an 80,000 square foot retailer, recently relocated and downsized to 40,000 square feet. Kohl’s is subleasing space in its vast stores to bring other retailers in for more foot traffic,” Mr. Kiezi said.

Record sales have been recorded at several Quick-Service Restaurants, including Chipotle Mexican Grille, which redesigned its concept to accommodate an app-based pick-up service.

“The dust is yet to settle, but entertainment, fitness, and hospitality have a long road ahead. I’ve read that potentially 52 percent of full-service restaurants recently surveyed have noted that they may close in six to 12 months,” Mr. Kiezi said.

Yet even as some retailers have folded and deals killed — including AirTime Trampoline & Game Park, which planned to occupy space on Secor Road behind Chick-fil-A — replacements have jumped in quickly to obtain prime locations.

Mr. Kiezi recently sold a former Wendy’s location in Oregon to Culver’s — a Quick Serve chain that plans to open several area restaurants. The price was $1 million.

“With the right location, visibility, and market, it is still possible to make deals,” he said. “…Many retailers and QSR restaurants are willing to pay top dollar to be on the best site.”

Posted By: The Toledo Blade on August 16, 2020.  For more information, please click here to read the source article.

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