BEYOND THE GLOBAL HEALTH CRISIS · Victoria's Secret Chico's Gap The Children's Place GNC Walgreens Bath & Body Works CVS Stage Stores Bed Bath & Beyond J.C. Penney Macy's Sears Pier

Store closings emerge across the country. Following the health crisis, the retail market will evolve as a record number of locations permanently shutter. While the impact on the sector will be sig-nificant, the pandemic accelerated a trend that would have likely played out over the next few years. Prior to the shutdown, an ad-ditional 1 percent of retail sales were shifting to e-commerce from bricks-and-mortar each year. After spiking to nearly 20 percent of total sales during the health crisis, online retailing is anticipated to account for 18 percent of sales when the economy fully reopens. As the retail market adjusts to a post-pandemic environment, the im-pact will amount to an approximately three-year shift forward on the move toward online purchases.

Prominent chains resize to reflect changing landscape. Several re-tailers have announced store closures or filed for bankruptcy protec-tion due to the pandemic. Many were already on shaky footing heading into the recession, including Pier 1 Imports, which is closing all 936 locations. Concepts that are consistently found inside or near region-al malls have been disproportionately impacted by the health crisis. Among the notable mall brands that hastened closings in North Amer-ica are GNC, Gap and Victoria’s Secret. Prominent anchor tenants are also closing stores during bankruptcy protection. In most cases, the shift by consumers away from malls to more experience-based lifestyle centers would have eventually forced these closures.

Operators poised to adapt. A shakeup in the market will be met by operators and retailers that have a history of evolving to reflect changing trends. Following the health crisis, recognizing the dif-ference in permanent and temporary shifts in consumer behavior will be paramount to restoring property performance. Beyond con-sumer behavior, several other factors will need to be considered. The permanence and scope of remote work, movement away from central business districts, and transition from the core live-work-play developments that were prominent during the last cycle will all play a role in how many locations permanently close and how to adapt them. The depth of the downturn and timeliness of a medical solution could exacerbate or dampen the amount of tenant shuffle and consolidation that ultimately emerges.

Health Crisis Accelerates Previous Retail Trend; Change in Consumer Behavior Hinges on Economy and Medical Solution

* Through JuneSources: Bureau of Labor Statistics, U.S. Census Bureau

Per

cent

of T

otal

Ret

ail S

ales

Nonstore Retail Sales Spike

5%

10%

15%

20%

25%

20*171411080502

Mon

tlhl

y P

erce

nt C

hang

e

Less Volatility in Limited-Service Concepts

-50%

-25%

0%

25%

50%Full-Service Workers Limited-Service Workers

Bil

lion

s

Restaurant Sales Will Take Years to Return

$30

$40

$50

$60

$70

$80

Eating and Drinking Grocery Store

Jun.Apr.Feb.Dec.Oct.Aug.Jun.


Establishment Pre-Health Crisis Locations

Food & Beverage Places 650,000

Full-Service 400,000

Limited-Service 250,000

Hotels/Motels 70,000

Clothing Stores 96,000

Theaters 5,800

Ret

ail T

rade

Job

s (m

illio

ns)

Retail Sales Return Ahead of JobsRetail Trade Emp. Total Retail Sales

12

13

14

15

16

JuneApr.Feb.Dec.Oct.Aug.$400

$440

$480

$520

$560 Total Retail Sales (billions)

BEYOND THE GLOBAL HEALTH CRISISBUSINESS CLOSINGS SUMMER 2020SPECIAL REPORT

SELF-STORAGE BEYOND THE GLOBAL HEALTH CRISIS: BUSINESS CLOSINGS

Restaurants among most vulnerable concepts. The inability to operate while social distancing will contribute to the shuttering of a significant share of the nation’s restaurants. Prior to the pandemic, approximately 650,000 privately owned eating and drinking estab-lishments were located across the nation, representing growth of nearly 21 percent since the global financial crisis. Estimating how many restaurants will permanently close should come into clear-er focus in the coming weeks as more stimulus is injected into the system and vaccine trials move into their final stages. Employment at restaurants is down 25 percent through June, indicating that the number of establishments that close should fall short of that level. Nonetheless, sporadic shutdowns will gradually lift the number of food and drinking places that permanently shutter.

Full-service restaurants bear the brunt of the downturn. Nearly 400,000 full-service establishments operated before the pandemic, and many will struggle to survive. The average size of a full-service restaurant is near 5,000 square feet, though most occupy smaller footprints. These restaurants are more likely to struggle during a prolonged shutdown due to their inability to operate under social distancing guidelines or lack of outdoor seating. As a result, the per-centage of restaurants that permanently close will be greater than job losses. Nonetheless, more than 100 million square feet of space is in jeopardy of needing to be retenanted. Orders to reclose are also a looming challenge as a spike in cases threatens to overload health-care systems. Sunbelt states have been forced to reverse course on reopening to some degree as the number of infections surged.

Full-Service Restaurants Struggle to Manage Reduced Traffic; Fast-Food Concepts Face Brighter Outlook

Limited-service restaurants well positioned to weather health crisis. Many fast-food restaurants were able to remain open during the broad shutdown during April and May. As a result, employment in the sector is only down 17 percent. Drive-thrus, curbside pickup and little competition from full-service concepts have buoyed the industry thus far. However, many independent locations that had difficulty getting PPP loans or those without the backing of a corpo-rate office that has more accessible lines of credit have permanently shuttered. Franchisees, meanwhile, are expected to show mixed re-sults, though some of the closings come on the heels of pre-existing financial weakness. With only 250,000 establishments at the begin-ning of the downturn and an average footprint of 3,000 square feet, far less limited-service space is at risk.

Investors can expect larger range of cap rates. Until a medical solution is identified and widely available, which could come before the end of the year, price clarity will remain elusive for a wide vari-ety of restaurants. Single-tenant, net-lease properties with national credit tenants will garner plenty of attention from investors due to uncertainty in other commercial real estate sectors. However, a sig-nificant decline in all transactions during the second quarter will limit the amount of exchange capital flowing into these properties during the second half of the year. Deal-seeking investors may find opportunities to repurpose permanently closed restaurants, partic-ularly in less-trafficked business districts. Lower demand for mom-and-pop restaurants may also provide investors above-average re-turns through rigorous due diligence.

Perc

ent o

f Tot

al R

etai

l Sal

es


5%

10%

15%

20%

25%

20*171411080502

Mon

tlhly

Per

cent

Cha

nge


-50%

-25%

0%

25%


Billi

ons


$30

$40

$50

$60

$70

$80




Perc

ent o

f Tot

al R

etai

l Sal

es


5%

10%

15%

20%

25%

20*171411080502

Mon

tlhly

Per

cent

Cha

nge


-50%

-25%

0%

25%


Billi

ons


$30

$40

$50

$60

$70

$80




Sources: Bureau of Labor Statistics, U.S. Census


Hospitality industry needs a significant reboot. At the end of last year, approximately 70,000 hotels and motels were spread across the nation. Many of those were closed due to the global pandemic, result-ing in a 50 percent decline in employment from February to May. As some facilities resumed operating in June, the overall decline had tightened to 37 percent, though reopening will prove to be difficult for the sector. A sizable reduction in travel is anticipated until the health crisis is over as flights are avoided or restricted. Mandatory quarantines of 14 days in some locations may also hinder operations. The average vacation in Hawaii, for example, is only 12 days, limiting options for mainlanders to visit the tourism-dependent state. Con-trary to restaurants, where large concepts are expected to survive at a greater rate, smaller hotels should outperform. Motels will be favored this travel season due to the ease of room accessibility and increase in car tourism. Extended-stay properties that have kitchens will also perform well as travelers avoid restaurants. Apparel stores hit hard by pandemic. Although pent-up demand drove up sales 105 percent at clothing and clothing accessory stores last month, receipts remained 23 percent below the same month in 2019. Year-over-year spending will likely be lower in July as Sunbelt states tightened restrictions, including reclosing clothing stores in some locations. June employment in the sector, meanwhile, was down 41 percent from February, after falling by 62 percent during the first two months of the health crisis. Thousands of the nation’s 96,000 clothing stores will shut their doors permanently, though some of these closures were on the horizon prior to the crisis, in-cluding the Gap and other mall concepts. Smaller apparel stores and chains will record a disproportionate number of closures as competition from superstores siphons revenue.

Theater owners play waiting game. COVID-19 will not be the death knell for Hollywood, though many of the nation’s 5,800 cine-ma sites will have difficulty surviving. If a vaccine is not found, box office receipts could fall more than 80 percent in 2020 after totaling $11.3 billion last year. Both national and regional theater companies face the prospect of bankruptcy or buyouts. Independent theater owners may have few options if PPP loans expire before operations can resume. In the meantime, operators are considering temporary solutions in an attempt to survive the downturn. Pop-up drive-in movie theaters are appearing across the nation, including 150 lo-cations in Walmart parking lots. The number of drive-in theaters could more than double the number of pre-health crisis locations.

Motels and Extended-Stay Hotels Capture Demand From Road-Trip Vacationers; Theaters Await Ending to the Health Crisis

Acc

omm

odat

ion

Jobs

(mill

ions

)

Hotels Sta�ed Above Occupancy DemandsAccommodation Emp. Hotel Occupancy

0

1

2

3

4

Jun.Apr.Feb.Dec.Oct.Aug.20%

40%

60%

80%

100% Average D

aily Occupancy

App

arel

Job

s (m

illio

ns)

Chains Close, Apparel Jobs Slow to ReturnApparel Emp. Clothing Sales

0

0.5

1.0

1.5

2.0

Jun.Apr.Feb.Dec.Oct.Aug.$0

$6

$12

$18

$24 Clothing Sales (billions)

Box O�ce Sales Plummet in 2020

Box

O�

ce S

ales

(bill

ions

)

$0

$4

$8

$12

$16

20*19181716151413121110

* Year to dateSources: Bureau of Labor Statistics;

National Association of Theater Owners; U.S. Census

Price: $1,000

The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guaranty, express or implied, may be made as to the accuracy or reliability of the information contained herein. This is not intended to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be considered as investment advice.

Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics, National Association of Theater Owners, U.S. Census © Marcus & Millichap 2020 | www.MarcusMillichap.com

National Retail Division

Scott HolmesSenior Vice President, National Director | Retail DivisionTel: (602) 687-6700 | [email protected]

Prepared and edited by Steve HovlandSenior Editor, Senior Analyst | Research Services

For information on national commercial real estate trends, contact:John ChangSenior Vice President, National Director | Research Services DivisionTel: (602) 707-9700 | [email protected]

Chain Stores Accelerate Closures During Health Crisis


2020 Store Closings*

Furniture

GROCERY

Sporting Goods

Clothing andClothing Accessories

Health andPersonal Care

DepartmentStores

Furniture andHome Furnishings

Sporting Goods,Hobby,Musical Instrument& Book Sales

MiscellaneousStore Retailers

Electronics andAppliances Stores

Grocery Stores

Other GeneralMerchandise Stores

Closures

2,400+

1,500+

1,400+

1,400+

700+

300+

250+

80+

50+

Category Notable Companies

Signet JewelersVictoria's SecretChico'sGapThe Children's Place

GNCWalgreensBath & Body WorksCVS

Stage StoresBed Bath & BeyondJ.C. PenneyMacy'sSears

Pier 1 ImportsTuesday MorningArt Van FurnitureSur la Table

GameStopModell's Sporting GoodsA.C. MooreOlympia Sports

PapyrusO�ce DepotHallmark

AT&T

Earth FareLucky's Market

Bose

ClosuresCategory Notable Companies

2017 Closures

7,000

2018 Closures

5,800

2019 Closures

9,500

2020 Closures

8,100*

*Year to Date

Documents

BEYOND THE GLOBAL HEALTH CRISIS · Victoria's Secret Chico's Gap The Children's Place GNC Walgreens Bath & Body Works CVS Stage Stores Bed Bath & Beyond J.C. Penney Macy's Sears Pier