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‘We’ll see significant amount of retail closures’ into next year: analyst

Nick Shields, senior analyst at Third Bridge Group joins Yahoo Finance’s Julia La Roche and Adam Shapiro to discuss the holiday shopping season and the coronavirus' impact on retail.

Video Transcript

JULIA LA ROCHE: As we wrap up the holiday shopping season, here to discuss the trends that we're seeing across retail, whether in brick and mortar or e-commerce, is Nick Shields, Senior Analyst at the Third Bridge Group. Nick, thanks so much for joining us. I'd like to go ahead and dive right in here.

We know, of course, given the backdrop of the global pandemic, social distancing, folks staying at home, that brick and mortar is going to be off this season. But let's dive in there and explore that, and who's going to be hurting the most?

NICK SHIELDS: Unsurprisingly, unfortunately, it's the department stores. I mean, you probably know as well as I do they've been suffering for years. Department-store foot traffic could be down as much as 40% to 50% year on year, and that's not even coming from that good of a base, if you will. You know, last year we saw foot traffic down significantly from the prior year as well and during the holiday season.

You know, categories such as apparel are a little bit better. You know, from the conversations we're having with experts, we hear, you know, 30%, 40% down year on year. So that would be, you know, names like Foot Locker, Gap, Old Navy, companies like that. And beauty is performing a little bit better, down around 20%.

The interesting thing is that you'll see-- you know, one significant foot-traffic differences between, you know, mall versus off-mall properties. So, you know, mall properties, even if they are in class A malls, are still struggling significantly with foot traffic during the pandemic and, you know, amid a lot of closures on these C and D malls. You know, even A malls are not spared from the suffering and the pain, if you will.

ADAM SHAPIRO: Nick, let's talk about the suffering and the pain because going into the pandemic-- correct the metric, but I think we'd have analysts come on who would say that regarding brick and mortar, there was 2 to 1 overcapacity, that there was a necessity to cut the amount of retail space. Is that still the case? Because the pandemic, I would imagine, has accelerated it, and it might be even greater now than 2 to 1.

NICK SHIELDS: Yeah, I don't know if it's greater than 2 to 1, but there's certainly still a massive overcapacity at the store level that you're seeing. You know, from the conversations we're having with experts, we think through the end of next year, if not longer, we'll see a significant amount of retail closures. This will hang over the sector until well after the pandemic, you know, maybe even into the later parts of 2022, if you will.

Really what you're going to see is a lot of these C and D mall properties and even some strip centers, you know, close down, and, you know, the retailers that are in those stores will have to relocate.

The other interesting trend we've seen over the last couple of years is the conversion of mall-based properties into mixed-use developments, you know, some apartment buildings, some outdoor strip centers, things like that. So I think you'll see that into 2022 and, you know, quite frankly, even longer.

JULIA LA ROCHE: Nick, one trend that I've experienced-- obviously we've seen e-commerce just on a tear. The key word coming up, omnichannel. I've now experienced curbside during some of my visits to the suburbs, and I really like it. So what kind of opportunity does that pose for retailers and a challenge for those that haven't quite gotten a hold of that?

NICK SHIELDS: Yeah, absolutely. I mean, you know, first of all, you know, retailers want more and more sales to be done on the curbside-pick-up front because, you know, your margins are better than your pure online shipping-- or your pure online order.

You know, you're sort of seeing a bifurcation in retail. I mean, you know, companies like Target have really invested for years in buy online, pick up in store and omnichannel infrastructure, whereas some other retailers, notably the department-store sector but some other sectors as well, just have not invested there because they haven't had the cash. And, you know, for the retailers like Target but, you know, some other ones as well, you can see as much as 50% of their online orders this holiday season to be picked up in stores.

And, you know, to your point, people like it. It's pretty convenient. The retailers that are good at it have mastered it where you, you know, pull up outside the location. You press a-- you open the app and say you're there, and then they go and they put it in your trunk, and you go on your way. It's a pretty simple, easy process that, you know, a lot of consumers are sort of waking up to for the first time during the pandemic, but, you know, we could see double-digit growth in buy online, pick up in store sectorwide over the next couple of years coming out of this as well.