What Online Shopping Could Mean For Smaller Retailers

Online shopping on Black Friday hit new records this year despite an overwhelmingly gloomy economic outlook, with shoppers spending more than $9 billion the day after Thanksgiving and $11 billion on Cyber Monday.  And what’s more, the National Retail Federation says holiday shopping sales will likely rise by between 6% and 8% over last year’s figures to hit a number north of $960 billion.

So what do those staggering online shopping numbers mean for smaller brick-and-mortar retailers that are reliant on foot traffic for sales? Well,  turns out there’s some data for that.

“One clue to answering these questions can be found when looking at a fun fact about the tenant mix at neighborhood center retail properties,” says Trepp’s Vivek Denkanikotte in a new report. “When analyzing the top-five largest tenants for these properties, five of the 10 are exposed to budget-oriented retailers: Dollar Tree, Family Dollar, Cato, Dollar General, and Big Lots. Even if consumer spending declines going forward, the trend of higher-income consumers trading down is likely a net positive for neighborhood retail.”

To aid in that analysis, Trepp analyzed neighborhood retailers that reported financial data for the past three full years of 2019 through 2021, focusing on total revenue, total operating expenses, and net operating income, with respect to the square footage occupied.  Denkanikotte found that while numbers dipped “significantly” during 2020, all metrics sustained increases in 2021 and surpassed pre-pandemic numbers as well.

“It remains to be seen how the 2022 financials will perform given how much interest rates have increased in 2022 and that inflation did not peak until mid-2022,” he says.

Denkanikotte also is eyeing CMBS data for clues, noting that while delinquencies for the overall market and in retail in particular “soared” in the immediate aftermath of COVID-19, they have been on the decline since.

“The gap has been reducing since delinquencies peaked in June 2020, and though overall distress has returned to pre-COVID levels, retail delinquency rates still sit relatively high,” he says. “This could be due to the emphasis on e-commerce that resulted because of COVID, negatively impacting more commercial properties in retail compared to other property types.”

Ultimately, he says, whether the boost in online sales over Thanksgiving is indicative of a shift away from in-person shopping or is instead an outlier  ”will have grand implications for commercial real estate investment.” But “for now, we can only speculate,” he says.

Notably, more than 122 million people visited brick-and-mortar stores in person over Black Friday weekend this year, an increase of 17% over 2021 figures, according to the NRF.  The organization’s CEO Matt Shay told CNBC last month that the data shows consumers are eager to shop in stores again.

“Consumers are out shopping, but they’re out shopping when they see deals and when they get the promotions that meet what it is they’re looking for, and so you can get them engaged, but you’ve got to deliver value and price,” he said on a media call with reporters, according to CNBC.