Is 2020 the Apparel Apocalypse?

“What are you wearing?” It’s been a common question in America’s daily vernacular, yet in 2020 — the year of dressing casually to work from home — it has never been less relevant. For those of us in the retail real estate industry, particularly owners of shopping centers, understanding the years-long downturn in apparel shopping has caused us to rethink what we will do with all the leasable area devoted to this retail segment.

Much has been written about the demise of retail stores caused by the emergence of online shopping over the past decade and enhanced by the pandemic. While we know that in-store apparel discounters such as TJ Maxx and Ross have been a bright spot in retail, their full price counterparts have been poor performers. COVID-19 has driven more shopping online and consumer have found out what goods work well purchased online and what does not. Apparel and shoes are a mixed bag. Sometimes online buys are great, and other times they result in returns, as buyers need to touch and try on products to understand the quality and get the right fit. There is no doubt that internet shopping has had an effect on brick-and-mortar retail, but that doesn’t tell the whole story.

Joel Mayer, Lowe

The decline in full-price apparel shopping has mirrored lifestyle changes. Simply said, nobody has two — or more — wardrobes anymore.  The casualization of the workplace eliminated the need for an array of professional clothes, delivering a major hit to the market for full-priced apparel.  According to a 2019 study by OnePoll, 78 percent of U. S employers have adopted casual dress every day. The pandemic, which has forced people to work from home, adds another layer to the decline in apparel needs that is likely to continue as 53 percent of people now plan to work from home more often post-pandemic, according to a recent Accenture study.

In 1979, clothing accounted for 6.2 percent of U.S. household spending. Four decades later, it is less than half of that, according to the U.S. Department of Commerce. However, the amount of retail real estate focused on apparel has not reduced accordingly, creating an imbalance that is playing out daily in the full-price apparel retail sector.

So far in 2020, 27 retailers have filed for bankruptcy with more than 80 percent of those connected to apparel. In terms of square footage, the reduction in apparel footprint could be even greater when factoring in non-bankruptcy store closures.

What has replaced apparel spending? As the graph shows, spending on experiences, such as travel, restaurants, entertainment and technology are top choices. The data confirms trends that we have observed over a long period. Online shopping has contributed in recent years to declining in-store sales, but changes in spending habits have been brewing for a long time.

Accepting the need to replace retail, some retail property owners are working to adapt. Clearly, a considerable amount of retail space needs a new purpose. Some say, retail is not overbuilt, it is “under demolished.” But what comes after the wrecking ball?  Mixed-use development is a natural solution and one that seems to resonate with consumers. It is now generally accepted that adding other uses such as a hotel, office, residential, medical or recreational elements can reposition properties into more engaging and active centers for consumers.

Mixed-use environments have become increasingly popular as much of the adult population in the U.S. says it is very important to have daily destinations nearby. Further, young suburban families often desire the convenient lifestyle of a walkable mixed-use property. Overall, as shown in the chart below from ICSC, 78 percent of adults would choose to reside in such a community. Many retail centers are ideally located to be redeveloped and respond to this trend.

The pandemic is forcing owners and investors to re-evaluate properties, even those that were already the focus of redevelopment, as survival will require more aggressive action. A combination of the right retail and new development is one solution. We have found at our mixed-use properties that there are still viable options for retail leasing such as food, wellness, personal services, arts and culture. As the head of Lowe’s Retail reVision group, we are creating a path forward, drawing on our expertise in mixed-use development coupled with broad-based retail experience to re-invigorate flagging properties.  As vacancies mount, now is the time to get on track for the future.

About the author: Joel Mayer leads the Retail reVision platform at Lowe, a national real estate developer, investor and manager, with nearly 50 years of experience in real estate, including multifamily, office and hotel properties. Retail reVision brings this vast experience coupled with Joel’s multiple perspectives as a retail investor, developer and tenant to repositioning retail real estate.

 

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