2020 was a brutal year for retail closures. Thousands of stores shuttered in the course of those 12 months, largely due to the impact of the coronavirus pandemic. And the damage isn’t done yet.
Given that the pandemic is still raging, we could see a massive amount of retail closures and a clear shift to online shopping in the course of 2021, even if things do improve on the coronavirus front. In fact, Moody’s projects that ecommerce will grow 14% to 15% this year, even with store operating restrictions lifting with the widespread rollout of coronavirus vaccines.
Online shopping already exploded this past holiday season, and now, many consumers are just plain used to the idea of digital commerce. Given the convenience it offers, that alone may keep shoppers out of physical stores even once it’s safer to enter them.
All of this raises the question: Should investors ditch retailers and focus on warehouses instead?
Why warehousing is a solid near-term bet
Many retailers were in the process of shifting focus to digital sales even before the pandemic, but the coronavirus outbreak expedited an already developing trend. It costs more money to operate and maintain physical stores than it does to stock warehouses and ship goods to customers.
Warehouses, by nature, tend to be relatively low-maintenance properties. Physical stores need to uphold a certain aesthetic, but warehouses aren’t looking to please — they simply need to be spacious, well-lit, and properly ventilated. That alone makes them a cost-effective, appealing option for retailers whose physical locations are a mixed bag. In fact, in the coming years, it’s likely that more and more retailers will be quicker to close down underperforming stores and divert those resources to digital sales, making warehousing a safer bet for investors.
Of course, warehouse construction may need to evolve in light of the events of the past 10 months. The coronavirus outbreak has certainly highlighted a number of safety concerns that exist outside a pandemic. Cramped working conditions and poor ventilation could produce unsafe working environments even in times when the world isn’t crippled by a devastating virus. That’s something investors will need to account for.
But from a basic demand standpoint, we’re likely to see more and more companies rely on warehouses in the coming years while physical storefronts will, most likely, continue to dwindle. And that’s why investors these days would be wise to divert some of the money they’d normally sink into mall REITs and focus on warehouse and industrial REITs instead.
Let’s also not forget that some of the most thriving businesses today — Amazon (NASDAQ: AMZN), Walmart (NYSE: WMT), and Target (NYSE: TGT) — all rely heavily on warehouses and fulfillment centers. These companies are likely to continue dominating, and so investing in the buildings that make their success possible is a pretty good bet at a time when store closure statistics keep getting increasingly dire. In fact, in the coming years, we may start to see dying malls give up and convert to massive distribution centers. Those who get in and invest before that boom could make out quite well financially.