Howard Swint: How COVID-19 might reshape retail

In regions of the world where the COVID-19 pandemic has struck most severely, brick-and-mortar retail stores have been devastated.

Seemingly overnight, the primary competitive advantages associated with catering to local foot traffic have disappeared, impacting greatly demand for prepared meals in restaurants and merchandise typically found in malls.

Consumer products that used to benefit from sales associated with physical contact — such as cosmetics, clothing and shoes — have seen demand incrementally shift to online retailers based on the progressive severity of regional outbreaks.

In fact, distinct consumer purchasing patterns have already emerged ranging from early in-store buying of health and wellness products to widespread hording of staples and hygienic supplies that strained supply chain logistics.

More importantly, in the middle phases that witnessed the stockpiling of shelf-stable foods and emptied shelves, customers necessarily shifted demand for consumer packaged goods typically found in big box and grocery stores away from local suppliers and in favor of e-commerce businesses.

While these trends are still playing out, forecasts suggest that where the spread of the virus has already peaked and lockdowns are lifted, new patterns of retail trade have emerged with consumers now even more reliant on e-commerce for their day-to-day needs.

Aging baby boomers fearful of infection from both the current wave of contamination as well as a potential second wave are driving the shift away from in-store purchasing and, with the economic fallout, forecast to be further hamstrung by decreased purchasing power.

This trend alone could have a tremendous impact on brick-and-mortar retail stores throughout the United States, even in regions that previously enjoyed comparatively prosperous economies.

But for West Virginia with its lagging economy and population both aging and declining, it could prove devastating, especially for small retailers that don’t participate in online commerce, provide home delivery or take part in the “click and collect” trends centered on fulfillment centers.

Even large businesses could be impacted. In most markets, the retail sector is already saturated with local merchandisers who collectively have to compete with e-commerce giants and their vast economies of scale.

Properties like the Charleston Town Center could be hardest hit, as it has already lost three of its four anchor stores that no longer generate foot traffic for the smaller in-line stores — the very businesses that are supposed to provide the lion’s share of lease revenue for the property.

That the mall has already slipped into receivership once and is now backstopped by U.S. Bank could help insulate the property to the new retail reality; however, should the last remaining anchor, J.C. Penney, succumb, then pressure will mount to get out from under the property no matter the booked loss.

Paradoxically, that eventuality could help see the property finally sold to a new owner with a much smaller financial basis that would allow them to reposition the property as a destination facility with adaptive reuse potential of the former anchor buildings.

The underlying economies of having existing shell-condition buildings of their size available for retrofitting are substantial, and if developed properly could translate into a giant boost of foot traffic for the entire complex.

That in turn, could help bolster the underlying feasibility of the proposed new hotel on the former Sears anchor site and further complement the offerings of the Charleston Coliseum & Convention Center.

On the other hand, the great retail disruption and its impact on merchandisers previously shielded from e-commerce competition could completely undermine the financial feasibility of new developments, especially those predicated on the local sales of consumer packaged goods and in-restaurant meals.

Case in point is South Charleston’s Park Place development.

Barriers to its entry into an already saturated retail marketplace were previously explained away by promoters who touted a specialty retail mix that would generate new demand from travelers along I-64.

Brushing aside the fact that exorbitant site preparations and construction costs would burden its retail tenants with the highest total cost of occupancy of virtually any retail operation in the entire state, developers boasted the creation of 1,200 full-time equivalent jobs with an annual payroll of $39 million.

Today, however, the very sectors that were to underwrite the Park Place development and somehow shield its entry into an already saturated retail sector — the travel, leisure and hospitality industries — are now projected to be the hardest hit by the COVID-19 crisis.

Frankly, the new normal that will follow the pandemic is far from known, but trends suggest that there will be a widespread and long-term economic impact driven in part by consumers who will expand broadly their online purchasing.

Accordingly, great disruption at the local level should be anticipated.

Speculative real estate developments reliant on retail sales should be paused before it’s too late, and redevelopment plans for the Charleston Town Center should be ready to go should the last remaining anchor store close, for many of the remaining in-line stores will surely follow.

Common sense and pragmatism suggest it’s better to plan for the worst and hope for the best.

Howard Swint is a commercial property broker who can be reached at howard.swint@colliers.com.

Funerals for Sunday, March 29, 2020

Clevenger, Ralph - Noon, Hodam Creek Cemetery, Hacker Valley.

Fox, Etta - 2 p.m., Blaine Memorial Cemetery, Cottageville.