UBS Estimates 100,000 More Retail Stores Will Close by 2025
The U.S. retail industry appears to stand to lose 11% to 17% of its total store count by 2025, according to a report by Swiss bank and money manager UBS that brokers and analysts say is a sound estimate.
The report sent to clients of UBS' advisory program last week predicts that in the next five years 100,000 retail stores will close nationwide and that e-commerce's penetration will rise to 25%, from 15% last year. The number of closed stores could rise as high as 150,000, depending on the speed with which e-commerce cuts into traditional retailers' domain.
The winners in this scenario are expected to be big companies with sophisticated online operations and logistics networks, including Walmart, Target and Amazon, which are poised to sop up the market share left behind by other retailers going dark.
"Our overarching belief is that the big will get bigger," UBS analysts wrote in the report obtained by CoStar News. UBS did not immediately respond to a request for comment from CoStar.
Consumers' embrace of online retail is a long-standing trend but has been accelerated by the spread of coronavirus, or COVID-19, which has led to stay-at-home orders to curb its spread that have halted nonessential business. The crisis has been a boon to Amazon, Walmart and other large players, however, who are able to operate as essential businesses selling groceries and other basic staples.
Abby Corbett, a managing director and senior economist for CoStar Analytics who authored CoStar's national retail report that came out on Thursday, said the firm's forecast squares with her own outlook.
"I think it's quite realistic," Corbett said in an interview with CoStar News.
She concurred that the virus had sped up adoption of online shopping, and added that it drastically shortened the runway for traditional retailers attempting to adapt to the new order.
Before the coronavirus pandemic, "there was a chance for them to pivot into omnichannel retail or rationalize their store count," Corbett said. "A lot of these retailers were in a precarious financial position to start with. [The pandemic] cut that timeframe from one to two years down to two months."
Thorny Problem
Jay Luchs, vice chairman at the Los Angeles office of brokerage Newmark Knight Frank who handles national retail deals, said on Friday he wasn't surprised by the numbers UBS put forward, but that his main concern for the time being was helping tenants and landlords find a way to survive in the immediate future.
Both sides are willing to make compromises at this point, he said, though rent forgiveness or deferral only solves part of the problem. Tenants need to somehow hold onto their workforce and suppliers, in addition to their physical space, and that is a thorny problem of its own that could bring retailers to the breaking point. In any case, major changes are ahead, he said.
"Whenever it is that we go back out in public, it's going to be different," Luch said. "Things aren't just going to go back to the way they were. I think in the next one to five months we're going to find out who is going to make it and who isn't."
No subcategory of retail is expected to be unaffected, according to UBS' baseline predictions, though some will fare better than others.
The firm projects that if 100,000 closures occur, the losses will be most pronounced in the apparel and accessories sector, which could lose about 24,000 locations; the consumer electronics sector, which may lose around 12,500; and the home furnishings sector, which could see around 11,300 locations go dark.
Retailers like these make up a significant portion of enclosed malls' tenant rosters, and subsequently UBS anticipates the shuttering of around 100 regional shopping centers as well.
The retailers who are expected to see the least impact are home improvement stores, which could lose just under 3,600 locations, and autoparts stores, which are predicted to lose 600.
Corbett added that the pandemic kicked the legs out from under retail categories that previously were "going gangbusters" before the crisis, like fitness chains, restaurants, salons and other experiential retailers who were seen by landlords as resistant to the influence of online trade. Those businesses, which will have difficulty enforcing social distancing and other other expected requirements, are likely to be the last to reopen as states gradually lift stay-at-home orders.
She said there was room for some hope with respect to mom-and-pop stores, however, if they can make it through the pandemic. When restrictions on public life ease, consumers may prefer to shop local boutiques they know well, that are close to home and not likely to be inundated with scads of people.
"It's a psychology thing," Corbett said. "They're probably not going to run back to the big shopping malls. They're going to stay closer to people and things they're familiar with. It's the comfort zone factor."
