The Azucena Take: Don't Underestimate the Retail Market

America is a consumer economy* which is why the retail sector is one of the strongest aspects of the market. In theory, an investor should see oppurtunties in retail property. Instead many are too focused on the click-bait about the "retail apocalypse" (an overused buzzword) while ignoring the numbers. This is not to say that retail itself is strong but that it's an ever-changing market that is always evolving to suit consumer needs. 

First, take a look at how much core retail sales* have risen compared to before the pandemic. Before March 2020, core retail was at $380 billion. When the stimulus checks went out, core retail sales jumped back up and passed $390 billion. By 2022; core retail sales have hit $468 billion and are continuing to rise. That is +6% YOY and +24% pre-pandemic. When adjusted for inflation, it's at +1.1% YOY and +15.6% pre-pandemic.

Here is a quick breakdown of the core retail sales from 2019 to the Present:

  • +$355 billion in 2019

  • +$390 billion in 2019 (Adjusted for Inflation)

  • $380 billion in early 2020

  • +$390 billion in early 2020 (Adjusted for Inflation)

  • +$390 billion in late 2020

  • +$420 billion in late 2020  (Adjusted for Inflation)

  • $450 billion in mid-2021

  • +$470 billion in 2022 

With the rise in core retail sales comes a rise in retail jobs. Retail jobs were the hardest hit during the pandemic but it has bounced back the fastest. Back in February 2020, there were 15.5 million retail jobs. By February 2022, there were almost 16 million retail jobs (that is +278,000 jobs).   

Despite its economic dominance, many investors are hesitant to enter the retail market. Most of this comes from the media's obsession with the "retail apocalypse" or how Amazon and eBay are the future of retail. While there is a kernel of truth to this, most of it is over-exaggerated. 

For example, most of the retail giants that collapsed during the pandemic were already on the verge of going under. All the pandemic did was add the final nail to the coffin. Toy's R Us went under because it got over-leveraged while Sears and JC Penny collapsed due to a history of mismanagement. Plus, these stores were staples of shopping malls, which are also in a decline.

Meanwhile, specialty and boutique stores are thriving in the current economy. This is especially true if the retail store is located in a desired area with a lot of foot traffic. 

The biggest takeaway is that retail is not dead. This was true back in mid-2021 and it still holds up. There is value in retail property but it all comes down to the location and the services they offer. As most social and economic restrictions are being lifted, the numbers for retail will continue to grow. 

Overall, this is why investors should seek the advice of professional advisors who understand the market and not some click-bait news site. 

Keywords

*Consumer Economy: An economy in which consumer spending is a percent of the overall gross domestic product.

*Core Retail Sales: A measurement of sales that excludes food, fuel, automobiles, and building materials. 

The Azucena Take provides an inside look into the investment real estate market using the research done and data collected by Marcus & Millichap

Carlos Azucena