UNC experts: Coronavirus is speeding up changes in the economy that were already there
According to a panel of University of North Carolina business and real estate professors, retail will survive the coronavirus, but it will become different along with consumer behavior.
Changes in the economy that were already underway are being accelerated by the pandemic and will alter the way we consume daily goods and services for the future, the professors said during an online press briefing Tuesday.
The current devastation of local economies, particularly restaurants and non-essential retail stores, were bound to be harmed even without executive orders affecting them, said Andra Ghent, a professor at the UNC Leonard W. Wood Center for Real Estate Studies.
“Pandemics themselves, regardless of if the government does nothing, they have some pretty negative effects on the macroeconomy,” said Ghent. “We’ve seen epidemics and they certainly have exacerbated a decline in shopping, but it’s important to understand that people were choosing to stay at home to protect their health.”
There could be a temporary surge in activity if the economy fully reopened, but a full recovery of retail will be a slow path, Ghent said, as people gradually feel safe going into stores again. It could take years for elderly shoppers to feel safe and go back to regular shopping, Ghent said, as herd immunity or a vaccine is developed.
“What this does overall, it accelerates the progress toward online retail,” Ghent said.
Though online retail is not yet large enough to compensate for the decrease in brick and mortal retail, over the long term, households not used to shopping online will adopt to it, such as in the case of online grocery delivery. Grocery stores in the future may move away from shopping center or mall locations with increased online sales.
Restaurants are the worst hit sector, and reopening is expected to come in phases that will only gradually allow them to increase customer capacity.
A majority of restaurants “operate on razor-thin profit margins ... so to say you’re at 50% capacity, that just doesn’t make sense to open the doors,” said Ghent. “I’m very fearful that a lot of small businesses operating restaurants can’t survive, especially if they aren’t able to get Small Business Administration loans.”
Retail and supply chain changes
Business professor Katrijn Gielens said the “Amazonification” of the world was already changing consumer behavior.
“The industry shake-up that was going on and was expected to take place [over] five to 10 years is almost happening in a matter of weeks,” Gielens said.
In the United States prior to the pandemic, 6.3% of grocery shopping was done online and a third of that was on Amazon, said professor Adam Mersereau. Grocery stores are “learning on the fly” how to get their products to customers quickly and easily, he said.
Grocery and retail online sales rose by 26% between February and March as opposed to usual increases of up to 3%, Merserau said.
“Obviously, I think the biggest retail buzzword of these times can be the word ‘convenient,’” he said.
As more meat processing facilities have COVID-19 outbreaks, the meat supply will likely be strained in months to come and companies will have to figure out ways to meet the demand, he said.
Greg MacKinnon, research director at the Pension Real Estate Association, said retail property rent collections in the U.S. decreased in April and some retail mortgages are running over a month late as a result of the pandemic.
When all retail can be open again, MacKinnon said, real estate investors will move more toward properties that attract more people as a popular alternative to online shopping, such as mixed-use properties.
In the Triangle, this means increased growth of walkable commercial and residential centers like North Hills or the Warehouse District in Raleigh.
“Because of the shakeout of retail due to COVID, you’re going to see in the long term that trend really take off,” MacKinnon said. “The traditional style of shopping malls ... that model is going to be dead.”
