Road to Retail Recovery: A Divergent Outlook and Adapting to Survive Covid-19


  • Total retail market sales in 3Q 2020 have returned to pre-pandemic levels increasing 3.5% year-over-year driven by the reopening of storefronts and increased consumer demand.
  • Within the retail market sector, there are retail product categories and assets more impacted by Covid-19 than others. The restaurant industry and urban and indoor facilities took the most significant losses, while suburban and outdoor facilities, as well as essential business retailers recorded increases in spending. Even within product categories like clothing and accessories, which was down 20.4% annually in 3Q, pajama pants sales skyrocketed for the “Zoom Uniform.”
  • Retailers are getting creative with new methods, including plexiglass dividers, QR codes, curbside pickup and even removing their roof, to increase customer confidence and safety to recapture sales.
  • Recovery is closer for some retailers, given progress for a vaccine, states reopening, the unemployment rate dropping, rising consumer demand due to the recent fiscal stimulus and landlord revitalization plans to help struggling retailers.

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Retail Sectors Most and Least Impacted by Covid-19

In the early months of the pandemic, the retail market sector was hit hard, with forced store closures and record-breaking unemployment filings keeping consumer demand low. In March, total retail sales declined 8.7% month-over-month, the biggest decline since the GFC. However, as the pandemic progresses, the retail sector has recovered considerably. According to the Census Bureau, total sales in 3Q increased by 3.5% year-over-year, mostly driven by in-store spending with the reopening of stores and increased consumer demand. But not all retail is created equal; there are winners and losers between retail product categories and real estate assets.

Clothing and accessory sales showed the largest year-over-year decline of any segment, down 20.4% in 3Q. But even within the clothing sector, certain product categories are succeeding more than others. Due to the increase in telework, Walmart reports selling fewer work pants and more work tops and pajama pants, calling it the “Zoom Uniform.” Online sales of pajamas surged 143% in April from March, while purchases of pants fell 13%, and bra sales declined 12%, according to data from Adobe Analytics, which tracks transactions from 80 of the top 100 U.S. retailers. Ever since consumers started hunkering down at home, apparel companies have been trying to play up the comfort-cozy trend. For example, J.Crew has a “Staying-In” shop on its website as well as clothing rental service Rent the Runway, featuring sections on its app for “Night In” outfits, “Fresh Air Essentials” and “Perfect Zoom Tops.”

Besides clothing retailers, the foodservice industry (another non-essential service forced with closures) is learning to adapt to survive unprecedented times. According to Yelp, the restaurant industry experienced 32,109 total closures from March-August, with 19,590 or 61% of these businesses permanently closing. Restaurants focusing on breakfast and brunch, burger joints and dessert places are among the restaurants with the highest rate of business closures. Foods that work well for delivery and takeout have been able to keep their closure rates lower than others, including pizzerias, delis, food trucks, bakeries and coffee shops. Furthermore, the restaurant industry experienced sales dropping almost 15.4% year-over-year in August, forcing restaurant owners to get creative, relying on takeout and delivery orders, outdoor seating options, plexiglass dividers and even “outdoor igloos” to stay in business.1

Although many headlines suggest all retail market sectors are suffering, services deemed necessary, such as grocery stores and building material / supply stores, saw sales growth in 2Q 2020 increased by 13% year-over-year. Time at home surged home improvement projects boding well for stores like Home Depot and Lowes. Furthermore, spending on essential product categories like packaged / canned goods increased by 54%, and cleaning products and supplies increased by 43% from March to April.2 The digital footprint of these items has also expanded and is likely here to stay; essential items such as medicine, groceries and household supplies are expected to grow 35% with online users after the Covid-19 recession.3

As illustrated, retail product categories have variations of growth and decline; additionally, the quality of real estate segments diverges as well. For example, outdoor facilities and malls show to be affected less due to their unique placement during the pandemic. Through August, consumer traffic was down only 24.6% at outdoor shopping malls compared to indoor mall foot traffic down 37.2% from pre-pandemic foot traffic.4 The ability to retain well-positioned retailers and provide the comfort of space gives outdoor facilities a competitive edge, so long as pandemic concerns persist.

Besides differences between outdoor and indoor centers, foot traffic and mall visits also vary based on location, specifically urban and suburban centers. As the pandemic continues and most urban office employees work from home, urban retailers’ loss shows to be suburban centers’ gain. Foot traffic in neighborhood locations has returned to around 90% of last year’s levels compared to city center malls that remain around 65% according to mall operator data.5 Additionally, as people continue to relocate to suburban areas, recovery for centers located in dense urban cities is expected to be protracted compared to their suburban counterparts.

Overall, the state of the market suggests that retail centers face another challenge of traditional tenant make-up, given the high number of name brands and department stores declaring bankruptcy since March. According to Bloomberg, 334 companies filed for bankruptcy since the start of the pandemic through November 30. Some big- name companies include JCPenney, Neiman Marcus, Brooks Brothers, California Pizza Kitchen and more. Although Covid-19 was named to be the reason for such declared bankruptcies, many of these companies were already experiencing declines in same-store sales growth and mall foot traffic due to the rise of e-commerce sales.6 Most retailers expect an upward battle towards recovery, but some sectors are more subjected to the pandemic than others.

In addition to product categories and outdoor vs. indoor real estate, retail closure rates vary drastically across the United States based on location. As of August, 163,735 total U.S. businesses on Yelp have closed since the beginning of the pandemic (observed as of March 1), a 23% increase since July 10. In the wake of Covid-19 cases increasing and local restrictions continuing to change in many states, we’re seeing both permanent and temporary closures rise across the nation, with 60% of those closed businesses not reopening (97,966 permanently closed). Yelp data revealed that denser, gateway markets had felt a greater toll from business closures compared to smaller, high-growth markets. Higher rents and stringent local operations for small businesses cause larger metros to struggle compared to smaller cities showing to have far fewer closures and lower unemployment rates. Metros with the most total business closures include Los Angeles, New York, San Francisco and Chicago. Some of the metros with the lowest total closures include Atlanta, Phoenix and Seattle.

On a per-capita basis, Las Vegas, Honolulu and several other large California urban areas lead closures with roughly 20 businesses per thousand temporarily or permanently closing their doors since March 1. The economic struggle and closures appear to be closely coupled with unemployment rates. While Hawaii, California and Nevada have the highest rate of total closures and permanent closures – they are also the three states with the highest unemployment rates and among the biggest states for tourism.

Adapting in Unprecedented Times 

Alternative methods are emerging from retail tenants to increase their competitive advantage and stay in business through this cycle. The companies who embraced e-commerce sales have proven to be the most resilient in a Covid environment. Before the pandemic, there was a divide between leading retailers like Amazon, Walmart and Target compared to weaker companies like Macy’s and JCPenney. The pandemic has made that divide even wider, with the leading retailers becoming more dominant and weaker ones closing stores and even declaring bankruptcy. The surge in e-commerce growth is across the board for dominant retailers such as Best Buy and Target that reported over 150% surge in e-commerce sales in 3Q while Macy’s lagged with only 27% sales growth comparatively.

Along with the increase in e-commerce sales, some significant trends that have accelerated due to Covid-19’s impact on the retail sector include enhanced online shopping, personalized shopping experiences through increased marketing efforts and additional ways to pay. Consumers have also incorporated contactless services, including curbside pickup, delivery and in-store pickup for online orders. Some retailers are bringing their in-store experience digital, with additions such as social currency, in hopes of regaining sales as the pandemic progresses. For example, fashion company Burberry partnered with Tencent to develop a program bringing the store to life with personalized content that can be unlocked on WeChat. All products are labeled with QR codes and, when scanned, can unlock special content and information about the product.7 The use of QR codes has also been adopted by many restaurants to create a contactless environment and serve customers as safely as possible.

The foodservice industry is also adapting to consumers’ needs to reconfigure how to use their property more effectively. Brinker International brought “It’s Just Wings” online in June, with sales projected to exceed $150mm in its first year, according to CoStar. The success with their version of a ghost kitchen, a restaurant with a delivery service instead of a dining room, is motivation to look to reutilize more locations to function similarly. It’s Just Wings uses existing buildings, equipment and labor, generating strong bottom-line results. Operators can launch a ghost concept in their existing kitchen for around $5,000 with very little additional labor and food costs required. For this reason, executives are considering expanding the virtual kitchen, given most chains with traditional dining rooms are declining amid weak sales during the pandemic.8 Adapting properties to incorporate the delivery service in house is also beneficial for restaurants considering the high cost to partner with delivery companies such as Uber Eats and DoorDash. For example, Uber Eats charges a restaurant 30% of their listed prices to deliver the food. This partnership is not sustainable for most restaurants, considering the average profit margin for a restaurant is under 30%. For landlords and tenants, making the transition to operate as a ghost kitchen is beneficial not only because it comes at a low cost but also allows their profit margin to stay intact.9

Another solution restaurants have resorted to is reconstructing their seating options to safely and comfortably seat people outdoors. A Studio City staple, Firefly, went as far as removing their roof from their once enclosed private patio to seat customers outside. The previously covered patio had clear plastic tarps connected to exposed beams that gave the appearance it was outdoors but was enclosed. The newly improved patio is now completely open with umbrellas and heaters to help protect customers but still provide a comfortable, outdoor environment given the ongoing health concerns. Although this seems to be a temporary solution, many restaurants have adopted similar tactics to retain business safely.

Commercial Real Estate owners and asset managers are adjusting to post-Covid trends as well. For example, Bellwether Asset Management is working with its client to adapt the Gateway, an office / retail property in Salt Lake City, to the rise of the life science industry. Given the amenities that the retail space provides to office users, SLC has selected the Gateway to be at the center of the City’s life science initiative, BioHive. The existing layout provides an opportunity for shared lab space with local biotech companies, users of both the office and retail spaces. This initiative was formally announced in November and is intended to be a public-private collaboration that will expand business development in Utah’s growing healthcare innovation sector. The Gateway is also planning different outdoor / socially distanced events, such as art walks, yoga and live music, to increase traffic and engage shoppers with the space. The trend to convert retail space has been growing in recent years with the rise of e-commerce; vacant malls across the country are now being converted into industrial spaces. The empty Euclid Square Mall in Ohio, for example, is under construction to become home to a new Amazon e-commerce fulfillment center. CBRE identified over two dozen examples of properties across the country that were once home to retailers but now have turned (or are in the process of being turned) into industrial centers.

However, certain property types such as restaurants can be more difficult to re-tenant considering the high price associated with the buildout of the bespoke space. In a situation in which a tenant is struggling to pay rent, options such as modifying a tenant’s lease or allowing rent abatement could pencil out better for a landlord when evaluating the heavy cost and downtime to re-tenant the space. In all scenarios, with the surge in retail vacancy hitting the market, landlords are forced to think outside the box to maximize the value of their real estate.

Retail companies are also rethinking their strategies for space needs, which may not include large retail footprints as seen in the past but may not be completely online either. For example, Bonobos launched in 2007 with solely an online presence. Bonobos built its brand online where overhead was low, and as demand grew, started opening brick-and-mortar stores. But the stores it opened operated with a digital-first model in mind. Bonobos’ first “Guideshops” didn’t carry any inventory, but just held appointment-only fittings to help shoppers pick out the size and style clothes that would suit them best, delivering them to their home or office the following day. Today, the company has about 70 stores nationwide, and has found success from “clicks-to-bricks” through a highly personalized shopping experience. Another concept emerging called ShopFulfill expects to have retailers occupy vacant mall anchors consisting of showrooms in the front and integrated warehousing and fulfillment in the back. This allows for retailers to display their merchandise, but also reduce costs of fulfillment by reducing their retail footprint using this combined model. Despite the rise in e-commerce sales, brands are still finding a need to have a physical presence.

Road to Recovery

Looking forward, recovery may be closer for some retailers given assistance from landlords, ability to adapt and be nimble during such unprecedented times, holiday spending on the horizon and steady employment gains.

In May, Brookfield announced plans to launch a $5bn fund for struggling retailers due to the pandemic and how Covid-19 has implicated retail market sectors. Their long-term strategy of owning high-quality assets in primary gateway markets gives confidence that the continuous reinvesting of capital will help these assets stay strong through the cycles. This strategy came into play when it was announced in October that Brookfield and Simon Property Group would be acquiring JCPenney. With the reopening of almost 100 Brookfield owned shopping centers, rent collection is expected to recover once the centers are back to operating. Landlords and tenants continue to strategize to develop plans that include rent abatement, rent deferment and restructuring leases to help tenants who are struggling and unable to pay rent. However, given the number of recent retail bankruptcies, large companies like these will need time and capital to get close to the road to recovery.

Although recovery for most mall tenants seems distant, some retailers have had success regaining revenue by staying in touch with consumer sentiment. Companies like American Eagle saw a 32% rise in revenue this year due to their ability to adapt their supply chain to match consumer demand. The desire for comfort and casual clothing during the pandemic has allowed American Eagle to thrive and even launch two new brands when most retailers are hemorrhaging money.10

Holiday spending is also looking up this year, specifically with contactless shopping expected to increase. According to Deloitte, 73% of shoppers plan to have items delivered this holiday season, up 11% year-over-year. Holiday décor (including home furnishing) increased 12% year-over-year, with budgets once reserved for trips now being allocated elsewhere. As far as shopper spending intentions, 62% of shoppers plan to spend at least the same, if not more, this holiday season.11 When looking at what shoppers have already spent, data from credit card transactions revealed Black Friday spending at electronic stores saw four times as much revenue from online purchases compared to 2019. As the pandemic continues, e-commerce sales are crucial in individual retailers’ success as customers continue to do their shopping from home.

Although unemployment skyrocketed at the beginning of the pandemic, a large percentage of those jobs have already been recovered as of October. Leisure and retail jobs were among the hardest hit with record-high unemployment rates and 8.2mm jobs lost from February to April as efforts to contain Covid-19 kept Americans inside. Now, for the sixth straight month in a row, the U.S. unemployment rate has dropped, with July as the strongest month adding 1.8mm jobs to the economy. Since April, the leisure and hospitality sector have added a total of 4.8mm jobs. In October alone, employment increased by 271,000, with gains in food services and drinking places (+192,000); arts, entertainment and recreation (+44,000); and accommodation (+34,000).12 Despite being the hardest hit job sector, signs of improvement are emerging as the pandemic continues.


Compared to any other property type, the retail sector remains one of the most impacted due to Covid-19. Although the sector experienced record low total sales in the early months of the pandemic, consumer demand and sales continue to increase as the pandemic progresses. It is clear within the sector there are winners and losers between various product categories, real estate and locations. Trends that have been accelerated due to the pandemic, such as increasing e-commerce, decreasing retail footprints and movement towards experiential retail centers continue to shape the outlook for the sector.

The retailers who remain in business face many challenges around health and safety, labor force, and cash flow due to Covid-19. Many of these retailers, even successfully navigating these challenges, are not assured a future when the pandemic subsides unless they adapt to consumer demands and reinvent the retail experience. Traditional malls continue to become a thing of the past as new retail centers that offer an interactive experience come into play. While stores that once existed strictly as a place to transact changes, retail centers have started leveraging experiences to customers rather than products. As an example of a retailer enhancing their in-store experience, Canada Goose features a cold room where the temperature has been set to below zero for customers to put jackets and other gear to the test. Centers such as The Grove and Century City Mall in Southern California are another example where asset managers / landlords have added value and ultimately put their tenants in a position to succeed. These malls have incorporated outdoor leisure areas with amenities such as lounge chairs, fire pits, greenery and even a trolley to easily travel within the center. This reinvention of the retail experience is allowing landlords and tenants alike to continually drive traffic and sales, even during a pandemic.

Landlords that are restructuring their models to accommodate operator’s changing business plans, where feasible, to facilitate tactics like curbside offerings, outdoor dining and shopping, increased digital efforts, or leasing space as ghost kitchens provide insight into how to remain successful during such unprecedented times. Additionally, landlord’s ability to manage their tenant mix, especially in such uncertain times, will be crucial moving forward as centers continue to adapt to a more experiential way of operating.

The sector must continue to anticipate what a post-pandemic world will look like and transform as they have been during the pandemic to stay current and survive this new reality.


1 U.S. Bureau of Labor Statistics, August 2020

2 2020 Hanover Research, “Covid-19 Impact on Consumer Spending”, April 2020

3 McKinsey & Company Research, “The Great Consumer Shift: Ten Charts That Show How U.S. Shopping Behavior is Changing”, August 2020

4 GlobeSt, “Outdoor Shopping Center Sales Inch Closer to Pre-Pandemic Levels, While Indoor Malls Have Better Quality of Visitors”, September 2020

5 Bloomberg CityLab, “The Forces That Will Reshape American Cities”, July 2020

6 CoStar Insight, “Retail Sales Better Than Expected in June”, July 2020

7 The Industry, “Inside Burberry’s Trailblazing Social Retail Store”, July 2020

8 CoStar News, “Chili’s Restaurant Parent Sees Future in ‘Ghost Kitchens’”, August 2020

9 Forbes, “Why Uber Eats Will Eat You into Bankruptcy”, March 2020

10 Fast Company, “Why American Eagle Is the Last Mall Brand Standing”, September 2020

11 Deloitte Report, “The Future of the Mall” June 2020

12 U.S. Bureau of Labor Statistics, “Leisure and Hospitality, Industries at a Glance”, November 2020


Dennis Grzeskowiak


Mr. Grzeskowiak co-founded Bellwether in 2013 and has 20 years of experience in asset management and special servicing. At Bellwether, Mr. Grzeskowiak focuses on portfolio management and technology initiatives, with particular asset management expertise in debt as well as multifamily equity investments totaling over 33k units. Prior to forming Bellwether, he was Vice President of Asset Management at Trimont Real Estate Advisors, where he was responsible for a $2bn portfolio of performing and non-performing commercial real estate investments related to multiple property types throughout the United States. During his time at Trimont, Mr. Grzeskowiak developed a proprietary valuation cash flow model used to analyze over $30bn of debt and equity investments. Mr. Grzeskowiak has a B.A. in Economics and International Studies from Rhodes College.

Joe Mossotti


Mr. Mossotti co-founded Bellwether in 2013 and currently focuses on residential, corporate, development and hotel investments throughout the United States. Prior to founding Bellwether, he worked in the Asset Management / Portfolio Management group at JER Partners, a Washington D.C. based private equity firm. At JER, he was responsible for investment- and fund- level modeling as well as the disposition and workout of the remaining portfolio. Before joining JER, Mr. Mossotti worked at Billy Casper Golf Management. Mr. Mossotti holds a B.S. in Finance from Siena College, and is a licensed CPA.

Mitch Magoshi

Managing Director, Construction

Mr. Magoshi joined Bellwether Asset Management in 2018 after 15 years of experience in the construction industry. Prior to joining Bellwether, he most recently worked as a senior consultant with Gardiner & Theobald, Inc., an international construction project and cost management firm. Before joining G&T, Mr. Magoshi was a Construction Manager and Partner at Plant Construction Company, L.P., a leading general contractor in the San Francisco Bay Area. At Plant, he was involved in all aspects of the construction process from business development and preconstruction to project management and site supervision. Mr. Magoshi holds a B.S. degree in Business Administration with a minor in Architecture from Carnegie Mellon University.

Omar Vargas

Senior Vice President, Controller

Mr. Vargas joined Bellwether Asset Management, Inc. in 2018 and has over 15 years of professional experience. Prior to joining Bellwether, he was the Corporate Controller at Landmark Dividend LLC, a Los Angeles based real estate company. At Landmark Dividend, he was responsible for all aspects of the accounting, financial reporting, and asset management functions. Before joining Landmark Dividend, Mr. Vargas was an Audit Senior Manager at Deloitte, where he was responsible for overseeing various teams on real estate advisory services. Mr. Vargas holds a B.S. in Accounting from California State University, Long Beach, and is a licensed CPA.

Carolyn Leslie

Managing Director, Equity

Ms. Leslie joined Bellwether in August 2020 and is primarily responsible for the asset management of west coast office investments.  She has twenty years of commercial real estate investment experience, most recently as the Director of Asset Management at Atlas Capital Group, a New York based owner and developer, and oversaw the redevelopment of ROW DTLA.  Before joining Atlas Capital Group, she was at Watt Companies as a Senior Asset Manager responsible for an office, retail and multifamily portfolio.  Ms. Leslie has a B.A in economics from Vanderbilt University and an M.B.A from Pepperdine University’s Graziadio Business School.

Patrick Foley


Mr. Foley joined Bellwether in 2014 and is currently responsible for coverage of corporate, development and residential investments in the United States. Prior to joining Bellwether, he was an associate at Cross Properties, a Philadelphia based multifamily developer. Mr. Foley has a B.S. in Economics with a concentration in Finance from the Wharton School at the University of Pennsylvania.

Benjamin Easton

Managing Director, Equity

Mr. Easton joined Bellwether in April 2014, after having spent two years at NMS Properties, a Los Angeles based multifamily company. Prior experience includes two years at Mesa West Capital, a Los Angeles based commercial real estate finance company. Mr. Easton began his career in Los Angeles working in brokerage in 2007. He holds a B.A. degree in International Business from Loyola Marymount University.

David Chalison


Mr. Chalison joined Bellwether in 2016 and is responsible for supporting portfolio management functions for Bellwether’s institutional clients. Prior to joining Bellwether, he was Director of FP&A at Chronos Solutions, a Texas-based mortgage service company. Mr. Chalison received a B.S. in Finance from Santa Clara University and holds an M.B.A. from Loyola Marymount University.

Chris Carlson

Senior Vice President, Structured Finance

Mr. Carlson joined Bellwether Asset Management in July 2014 and is currently a Senior Vice President responsible for the performing residential whole loan strategy. He has fourteen years of experience in structured products and the secondary mortgage market. Prior to joining Bellwether, he was a risk analyst with Western Asset Management, where he was responsible for analytics on a $50bn portfolio of whole loans, structured mortgage products and private corporate investments. Mr. Carlson began his career as a member of the Fannie Mae Analyst program in 2005. He has an M.B.A. from UCLA Anderson and a B.A. in Economics and Philosophy from Washington & Lee University.

Michael Baracco


Mr. Baracco has been a part of Bellwether since its inception and is currently responsible for asset management coverage of office and hotel investments. Prior to joining Bellwether, he was a Senior Project Engineer at Lockheed Martin Corp. where he supported and ensured successful execution of multi-billion dollar contracts including satellites, flight modernization systems, and submarines. Mr. Baracco has an M.B.A. from the University of Denver and a B.S. in Physics from Washington & Lee University.