Location, Location, Location? How COVID-19 Could Shift Retail Destination Hot Spots

It’s an age-old mantra for retailers: “Location, location, location.”

But with COVID-19 upending life as we know it retailers with so-called “prime” retail locations may be feeling cheated.

“Businesses with a presence in high-rent, prime retail locations are feeling the pressure as tourism is currently on hold and travel restrictions in effect,”  Edited market analyst Kayla Marci explained, adding that there’s “no indication” of when foot traffic will return to pre-coronavirus levels on a consistent basis.

Months-long stay-in-place orders caused steep declines in travel throughout the spring, and despite stores reopening, virus-worried consumers are still leery to travel — particularly as cases spike in Southern states. What’s more, the United States has prohibited visitors from effectively all of Europe, as well as Brazil and China (at the same time, the EU has barred American travelers from entering its borders). According to an Oxford Economics estimate, the coronavirus-induced loss of Chinese visitor spending alone will result in a $10.3 billion blow to the American economy.

In addition to relying on tourists, retailers with urban storefronts on well-trafficked streets typically depend on purchases from working professionals, explained Placer.ai vice president of marketing Ethan Chernofsky. Many of those individuals are continuing to work remotely.

“While this likely doesn’t mark a turning point in the long-term vibrancy of cities, the negative effects could continue until the pandemic comes to a more complete end,” Chernofsky speculated, adding: “It’s impossible to tell how long these trends will hold but it’s obvious that cities benefit from travel and the presence of normal work routines.”

In New York City — an early U.S. epicenter of the coronavirus — tourism plummeted this spring. This marked a dramatic downfall from 2019, when the Big Apple played host to a record 65 million visitors from the U.S. and internationally. What’s more, many affluent New Yorkers fled the city.

With visits to Fifth Avenue blunted, Italian luxury retailer Valentino is suing to exit its boutique in the once-premier location, arguing that the “the social and economic landscapes have been radically altered,” rendering its business “substantially hindered, rendered impractical, unfeasible and no longer workable.” Meanwhile, department store chains Bergdorf Goodman and Saks have gotten creative, offering contactless services both virtually and at their Fifth Avenue flagships as well as same-day delivery to the Hamptons, where many well-heeled New Yorkers have chosen to ride out the pandemic. Other retailers are also catering to the Hamptons crowd, among them Paul Stuart and Jimmy Choo, both of which have opened up temporary shop in the area.

For now, Marci said these COVID-19 induced location trends “will remain important when determining new store locations.” With tourism at a near standstill, the pandemic has brought forth a “heightened sense of community that will continue,” she explained.

“Moving forward, businesses need to take a clustered, localized approach to new retail openings to tailor their brick-and-mortar offering and experience to the intentional community,” Marci said.

While urban storefronts are expected to feel the adverse effects of the pandemic for some time to come, Chernofsky said the rebound may come faster to mall tenants, as their struggles came from “state and brand enforced restrictions, as opposed to a fundamental shift in consumer behavior.”

“In fact, early data shows that as malls open up, visitors return. Therefore, the primary obstacle to a full recovery are lingering restrictions,” Chernofsky said, cautioning that “Until they are fully open, the overall experience that makes malls such a draw will be affected.”

Despite positive signs with regard to mall traffic, mall owners may find themselves with empty units, as numerous retailers — including probable anchors JCPenney and Neiman Marcus Group — have filed for bankruptcy over the past few months, precipitating store closures. While this might seem like bad news for landlords, Chernofsky said it could end up fostering “an especially exciting chance for some brands to test out an offline or mall-based presence.”

“This new reality is presenting an ideal time for innovative thinking,” he explained, suggesting that direct-to-consumer brands or product-oriented companies could test the brick-and-mortar waters. “The amazing element here is that this would likely be in the long-term best interest of malls. The more diverse the retailer selection is in any given mall, the more diversified each mall becomes creating less direct competition and more unique experiences in each one.”

Additionally, primarily mall-based retailers may want to consider renting at outdoor centers “even if it is just with an eye towards a greater level of diversification,” Chernofsky said.

Access exclusive content