Heading into 2020, the retail industry already was already in dire straits. Online competitors — Amazon.com Inc. in particular — were increasingly gaining share as consumers preferred to shop online. With falling demand for brick-and-mortar stores comes less demand for the real estate to support those stores. Then came COVID-19. States' stay-at-home orders caused a sharp drop in customer traffic and kept the struggling industry grounded and consumers dependent on delivery.
The well runs dry: Returns of retail REITs were tepid despite increasingly higher spending from consumers during much of the past three years. March data showed a 10% drop in spending, or about $1.3 trillion, putting rent payments and lease agreements further at risk.
Empty malls, hotels: Regional mall and hotel REITs have been the most affected sectors during the crisis. Office REITs could be next if more companies allow more permanent work-from-home arrangements. Warehouse-related REITs have taken up some slack.
Eating their lunch: Retail revenue grew at a rate of 7.8% annually between 2014 and 2019. Meanwhile, Amazon's market share grew to 30% over the period, operating with super-low margins and an almost exclusively online presence.
A lot of junk: Across 38 retailers in the Russell 3000, only nine held an investment-grade bond rating from S&P's most recent data. Target Corp. and TJX Co. were the only two A-rated firms.
*Amazon online store revenues. Sources: Bloomberg LP, Federal Reserve Bank of St. Louis