Brick-and-mortar retailers are seeing increased traffic as the nation’s economy continues to rebound from the COVID-19 pandemic, but one financial expert says they need to be savvy moving forward.
Ben Johnston, chief operating officer with Kapitus, a New York-based firm that provides financing to small businesses, said stores looking to remain vital need to be attuned to how people are living their lives now as opposed to pre-pandemic.
He cited clothing as an example.
In pre-pandemic days, many employees arrived at the office in business attire. But now things are more informal, thanks to remote ZOOM sessions, so clothing stores should probably reduce their inventory of business attire and focus more heavily on casual apparel.
Jeannie Disalvo, an interior designer at Urbanism Furniture in Costa Mesa, said there’s no substitute for seeing products first-hand that you can touch — and sit down on.
“I had a young couple come in who were looking at sectionals,” she said. “They found one they liked but couldn’t afford it, so they ordered something online. When they got it, it was scratchy and stiff as a board, so they sent it back and came back here and bought something from me.”
Urbanism Furniture gets new merchandise every day, and many of the products are made in Los Angeles, Disalvoso said, so customers don’t have to wait for the sofas, chairs and other home furnishings to arrive from China or elsewhere.
Johnston said e-commerce has also fueled more impulse buys among consumers, so physical stores would do well to have those kinds of items on hand.
Lastly, he said businesses are sometimes in a better bargaining position to negotiate lease rates since some retail spaces have remained vacant since the onset of COVID-19.
Burt P. Flickinger III, managing director for the retail consulting firm Strategic Resource Group, said major players have taken advantage of empty big-box space.
“Petco has been getting a lot of great stores that way,” he said. “And companies like Costco and Target are getting better locations with more customer traffic, and they’re paying less in rent.”
That has reduced vacant rates. Data from Avison Young show the retail vacancy rate for the second quarter of 2022 was down across Southern California markets. In Los Angeles County, the rate was 5.8%, while Orange County stood at 4.6% and the Inland Empire’s rate was 7%.
Johnston said Kapitus has seen a significant uptick in activity among brick-and-mortar retailers.
“There has been a strong rebound in applications for credit over the past year,” he said. “We’re actually getting back to the same level we saw just before the pandemic.”
Data from Kapitus show the company received 1,880 credit applications from retailers in August 2022 compared with 1,174 a year earlier. Business seeking credit are typically looking to expand their operations, add additional locations, hire more workers or buy needed products and supplies.
On a larger scale, figures from the Department of Commerce show U.S. retail sales hit $6.6 trillion in 2021, a 17.9% jump from 2020. And brick-and-mortar sales grew faster than e-commerce for the first time ever, with physical store sales growing by 18.5% versus e-commerce growth of 14.2%.
More recent data for the second quarter of 2022 showed overall retail sales topped $1.7 trillion through June of this year, a 7.2% uptick from the same period in 2021. That outpaced e-commerce growth, which totaled $257.2 billion and rose 6.8% year-over-year.
Brick-and-mortar retail — which was already struggling with such major players as Macy’s and Nordstrom weathering declines — got further hammered during the early days of the pandemic when businesses were temporarily shuttered and people sheltered at home to avoid exposure to the virus.
The lockdowns saw more people turn to Amazon and other e-commerce sites. Consumers have grown to love the convenience of buying online, but a growing number have returned to in-store shopping.
Joe Gomez, CEO of Tango Down LE, which owns the Commando Military Surplus store on Main Street in Newhall, can attest to that. His shop had an advantage, as it was deemed an essential business during the early days of the pandemic and could remain open.
But he’s still seen a significant increase in foot traffic over the past year.
“All of the stores on Main Street are saying the same thing,” he said. “People are tired of shopping online and want to support local businesses.”
Johnston ties some of the increased in-store shopping to relaxed COVID-19 restrictions in the workplace.
“More and more employees are venturing back to the office, and that’s bringing back a population to parts of cities that might have had a fall-off in foot traffic,” he said. “We’re still finding our footing in how people will work in the future.”
Flickinger said the success of brick-and-mortar stores depends largely on the types of products they sell.
“If it’s consumable or pet-related, it’s doing great,” he said. “If it’s consumer electronics, computers or office supplies … not so great. Clothing and sporting goods aren’t doing so good, either.”
