E-Commerce Growth Helped Retail Beat Expectations

March 10, 2021

E-commerce retail sales helped to drive and stabilize retail activity in 2020, with the online shopping market experiencing a decade worth of growth in just a few months, according to research from Moody’s Analytics. Sales hit a peak in the second quarter, waning by the end of the year, but Moody’s says that the e-commerce gains catalyzed by the pandemic are here to stay.

E-commerce sales grew from 11.8% of total retail sales at the end of the first quarter to 16.1% at the end of the second quarter. This activity waned somewhat in the third quarter as brick-and-mortar businesses re-opened, with e-commerce sales falling to a total of 14.3% of total retail sales. At the end of the year, e-commerce sales remained at a record portion of total retail sales.

The retail market in general outperformed expectations in 2020. Online shopping certainly helped to prop-up sales volumes, but brick-and-mortar retail sales recovered rapidly as soon as social distancing restrictions were lifted. However, sales volumes varied largely based on the property type.

Neighborhood and community shopping centers actually saw increased sales revenue in 2020. These centers are often anchored by grocery stores, pharmacies or other essential businesses that were open through the duration of the pandemic. Vacancy rates for these properties only increased 30 basis points in 2020. On the other hand, vacancy rates at regional malls surged, growing 10.5% in 2020. Retail bankruptcies and store closures drove the dislocation in the asset class.

Vacancy rates will likely continue to grow through 2021 as many retailers have announced plans to reduce store footprints. Approximately 40% of CFOs surveyed say they are reevaluating their real estate footprint this year, as high unemployment rates and stalled COVID-19 vaccination strategies have brands girding for a lengthy period of reduced consumer spending. In addition, the US remains over supplied with an average of 24 square feet per person versus 4 square feet per person in Western Europe. These two trends could drive increased vacancy rates this year.

While the retail market outperformed expectations and recovered quickly, retailers had carried a significant portion of CMBS defaults with 17% of retail assets delinquent on payments or in default. Moody’s speculates that more retail defaults may be on the way. Forbearance policies in many ways are delaying the inevitable, and could result in a large spike in distressed retail assets sometime this year.

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