Experts say retailers are closing as a result of ‘spending pullbacks’
In a recently held webinar, real estate executives advised that waves of store closures are likely to continue into next year.
More store closures loom in the months ahead due to a “still-underappreciated degree of distress in American retail,” said Andy Graiser, A&G Real Estate Partners’ co-president, in a recent online panel discussion.
“Reduced discretionary spending is really becoming the biggest issue for retailers,” said Graiser said, pointing to a “disconnect” between landlords’ positive perceptions of retail performance and “how volatile and troubling this situation really is.”
“I see a lot more distress this year than I expected,” Graiser continued. “We’re getting a lot of phone calls, and it’s hitting every sector.”
The webinar Graiser participated in, entitled “Market Outlook — Insights on Retail, Consumers, REITs, NNN & Shopping Centers,” focused largely on consumer behavior and retail chains’ financial health. Moderator and Telsey Advisory Group CEO Dana Telsey kicked off the discussion by pointing to more careful spending across “a wide range of income levels.” Telsey noted that “trading-down behavior” continues to bolster traffic at discounters such as Walmart and Costco.
The retail real estate investment trust (REIT) Simon is just one example of a landlord that has “talked about how consumers are still shopping, but have pulled back on everyday spending,” said panelist Linda Tsai, part of Jefferies’ REIT Equity Research Team. “They’re holding out to save for occasions like holidays, birthdays and experiences. Overall, Simon has seen outperformance in its outlet business.”
Graiser predicted continuing retail distress into the middle or end 2025. Citing the recent liquidations of 99 Cents Only and Conn’s HomePlus, he noted that more retailers could suffer the same fate in the year ahead. In addition, many healthy to moderately healthy retailers have already announced large store-closing program, Graiser noted.
Lack of access to capital is part of the problem, panelists said. Troubled retailers need to have enough money on hand to fund their operations and, if the time comes, pull off a Chapter 11 bankruptcy restructuring, panelists explained.
“I’m concerned,” Graiser said. “The bankruptcy has to move quicker than ever, putting increased pressure on all the professionals involved.”
To stay competitive, today’s retailers also need more capital for the likes of remodels, higher labor costs and the infrastructure required for expected conveniences such as buy online and pickup in store, said panelist Joey Agree, president and CEO of Agree Realty Corp.
“This is a have-or-have not environment,” said Agree. “It is more critical for a retailer to have a big balance sheet and be in the ‘have’ category. We’re seeing that across sectors.”
But some retailers are responding to opportunities created by the churn. Graiser pointed to the reemergence of “designation rights,” an approach that was more commonplace back in the 1990s.
“A retailer comes in, buys a large number of leases [in a Chapter 11 auction], puts itself in the shoes of a bankrupt company and can then assume or reject those leases,” he explained. “It creates great optionality, flexibility and growth opportunities.”
Retailers also are showing a greater willingness to move into spaces that are smaller or larger than their typical prototype.
“You’re seeing more flexibility in the square footage, just because of the lack of supply [of available real estate] out there,” said Graiser. “But this doesn’t come without significant costs.”
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