Pivot: What Retail Will Look Like Post-COVID-19

05/13/2020

Will retail survive the coronavirus pandemic? Yes, now is the time to rethink how we do business, writes Rappaport President, Henry Fonvielle.

Efforts to flatten the infection curve of the novel coronavirus (COVID-19) outbreak and pandemic include worldwide social distancing and national lockdowns. Putting aside the contentious politics of this, there is no argument that business, including retail, has been hugely affected. Around the world, and here in the United States, retailers and restaurants have seen their income stream dry up overnight and in most cases been mandated to close their doors, leaving owners cash-strapped and employees in dire states.

In fact, the world of work across all industries has fundamentally shifted in an extremely short period. Telecommuting has gone mainstream, and businesses based on face-to-face service – including retail, entertainment, and food services – have been challenged and, potentially irrevocably, changed.

Our retailers are facing extremely tough times. I will not diminish these troubles with platitudes. Many of these businesses are largely cash-based, with projected cash-flow patterns, and minimal financial cushioning. Without the regular flow of foot traffic, some may not survive.

Having said that, we at Rappaport hope and believe that in the long term, once we’ve weathered this storm, the retail sector can use their newly honed skills to pivot towards more efficiency and rework their offerings. The longer we battle COVID-19, the more entrenched these “workarounds” and modes of working will be. Even in the short-term, we are questioning what the “new normal” will be for retail in a post-coronavirus world.

I drew together some of our top executives and experts in our firm, who collectively represent decades of experience in retail to outline the shifts we have already seen, and those that may become the new normal, post-pandemic.

Emerging and sustainable trends

Leasing Representative, Michael Leon points out that many retailers are working with reduced hours, carefully controlled customer numbers, and offering extended and contact-less delivery. Additionally, workers in high-contact businesses (like salons, for example) have to use more personal protective equipment (PPE) for customer safety. “Until the threat of the virus recedes entirely,” he says, “I expect these trends to continue.”

Bill Dickinson, Executive Director of Brokerage at Rappaport says that some of the clearest changes can be seen in the broad adoption of online ordering, and options like curb-side or window pick-up. And, Dickinson says, these trends are likely here to stay. One new element he would definitely like to see remain is the surge seen in “kindness and caring”: from public to businesses, from staff to owners, from service providers to their loyal customers – the human kindness evidenced throughout this crisis would be a welcome new normal.

Leon agrees, adding: “We owe a lot to our front-line healthcare and emergency workers, and I hope that is not soon forgotten.”

Design and process adaptions

Some more (literal) concrete changes are also likely to stay when the health crisis abates. Dickinson, for example says that restaurants are thinking of “smaller spaces, and more flexible spaces”, as well as how they prepare themselves, design-wise, for future issues. “We have a client considering a store in D.C. that is pick-up window only, with no customer access. Another [client] is a restaurant that wants no interior barriers, so they can spread out the tables as required,” he explains.

Ciao Osteria is a popular Italian eatery at Centrewood Plaza in Centreville, VA. Owner Sal Speziale told us that it is “a new world” for them, saying: “We were doing hundreds of dinners on a weekend night, with long queues of people awaiting tables, and high demand. When we open up again, it will be entirely different. We have currently set up for pick-up service, and started deliveries which we had never done before. This means that we’ve had to shift to having a complete meal ready to serve in a single go, rather than a succession of courses spread out over a couple of hours.”

Another smart and agile example comes from Zach Mote, of Water’s End Brewery at Dillingham Square in Lake Ridge, VA. With some foresight (gleaned by watching the shutdowns in other states) and creative thinking, they were able to pivot to a drive-thru or “brew-thru” operation as soon as the notification to close came from the governor. Mote explains: “We felt this was a clear and efficient way to serve a customer if we couldn’t stay open for walk-ins, and that people were comfortable with the drive-thru format. We had set it up the day before and had already taken photos and videos for social media. We also put some paid advertising into social, to ensure our customers knew we would be able to serve them in this new way. And we actually had a decent sales day despite the lockdown.”

Now, Mote is looking forward. They were already planning a second taproom venue at Potomac Festival in Woodbridge, VA, and the design for that must be reconsidered to be flexible enough for an uncertain future. “We don’t know when we will be able to open, or to what occupancy, and we don’t know how customer behavior might be changed,” he says. “So we will have to be creative in how we offer customers to-go options, as well as sit-in in the medium to long term.”

Timelines and expectations

Jim Farrell, our Executive Director of Leasing & Brokerage, says he expects lockdown restrictions “will start to ease in May and June”. He adds: “Given there won’t be a vaccine for at least a year, and there’s presently no fail-safe treatment, consumer demand will be low with gradual growth over the course of the next nine months.”

Thereafter, Senior VP of Operations, Katherine Shiplett believes that we will see a slow ramp-up in retail and restaurants. “People will be cautious and considerate about their return to ‘normal’. Of course, that means more downtime and potential struggles for smaller stores, whereas the larger chains are better able to weather the store. On the operations side, the team is focused on maintenance and keeping that curb appeal, so that we can support the return of retailers as much as possible when they are ready to open their doors again.”

Leon concurs, saying: “The data coming from Germany, China, and other countries that have implemented limited retail re-openings indicates a slower ramp-up period. That doesn’t mean re-opening will play out the exact same way in the United States, but retailers should be conservative in their projections.”

On the backend, here at Rappaport, we are still open for business. “And that includes signing long term leases,” says Leon. Flexibility is key, and we are supportive and responsive in that. “We are working with tenants to account for any changes in permitting, rent commencement, and store opening dates as it relates to delays caused by the pandemic.”

Financial planning

Another change that most would like to see stick around is longer-term financial planning, with more “wiggle room” for unforeseen events. As Dickinson explains, “it has come as a shock to all of us that the majority of the tenants in the retail space operate with very limited financial reserves. We all knew that margins were thin, but the lack of reserves to weather this storm is shocking.”

This is underlined by Mike Howard, Executive Director of Brokerage: “Financially-speaking, this pandemic has shown how vulnerable some businesses are. What does this mean for business and financial planning? I think this issue is not just one that impacts a retail business, it impacts every member of our society and we all need to start planning for life altering events and make sure we have the financial resources to ride out any storm.”

Tech-led

Owners and occupants whose pivoting has included a strategic digital shift are also well placed for the future. Susan Bourgeois is an Executive Director of Leasing & Brokerage at Rappaport. She believes that many retailers have already showcased their innovative sides. “Lazy Daisy, at Central Park in Fredericksburg, VA, is using Facebook Live for customers to shop in their stores, as well as work in groups on their craft to-go kits. AR Workshop is throwing virtual DIY Parties and Weight Watchers is using Zoom for their meetings.”

Additionally, Howard points out that fast casual tenants with a “strong app-based ordering system have been more successful in executing on a streamlined delivery and carry out model.”

Conclusions

Yes, these changes have been profound, fundamental, challenging, and eye-opening, but collectively our experts agree that – contrary to some overblown ‘think pieces’ – retail is not dead.

This is how retail evolves, explains Howard. “I predict that there will be a brick-and-mortar growth from digital native brands. And unfortunately, there will be a lot of vacancy, and this will create an opportunity for some of these brands to expand their footprint beyond just online sales.”

This is a manifestation of the crucial concept of pivoting to meet new needs and demands, new types of customers, and to overcome new challenges, but as Farrell explains “people crave human connection, and once they know it’s safe, consumers will be venturing out in large numbers again to shop and dine.”

#togetherwearestronger

Stay safe and well,

Henry Fonvielle, President