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Here’s why retail investors shouldn’t worry about empty malls

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  • The COVID-19 pandemic is forcing consumers to avoid stores.
  • Empty malls aren’t necessarily a bearish indicator for the retail industries.
  • Retailers were able to recover lost sales through digital orders.

Empty malls are clearly a bearish sign for the retail sector, right? Not so much, at least according to a CNBC report.

A different Black Friday

Consumers spent 22.4% less year-over-year during the period from Thanksgiving through Sunday, according to industry data. But this doesn’t tell the whole story as spending heading into the Thanksgiving weekend was up by more than 65% year-over-year.

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All the statistics aside, it was evident that mall-based physical retailers were feeling some sort of pain. KeyBanc analyst Ed Yruma noted that stores he visited “seemed even emptier than a pre-COVID-19 weekday,” according to CNBC. 

But there are four key reasons why this isn’t a reason for retail investors to panic.

Strong digital sales

The traditional Black Friday weekend consists of millions of people braving shoulder-to-shoulder crowds to take advantage of a good sale. But the COVID-19 pandemic means this is just not possible for health and safety reasons.

Instead, consumers flocked online to take advantage of the compelling deals, according to CNBC. Total ongoing spending was up nearly 22% year-over-year to $9 billion. Cyber Monday is modeled to grow 15% to 35% year-over-year.

Retailers have pricing power

Retailers that directly cater to the stay-at-home and work-from-home theme have pricing power and were able to avoid highly promotional activity compared to prior years. Some of the names that were able to take full advantage of these themes and flex their muscles include Yeti Holdings Inc (NYSE: YETI) and UGG’s parent company Deckers Outdoor Corp (NYSE: DECK).

Empty stores doesn’t mean no sales

Retailers are able to leverage their physical stores to allow consumers to buy items online and pick them up in stores, according to CNBC. Companies with a “buy online pickup in store” feature saw a 52% increase in activity on Black Friday.

This is a safer option for shoppers as it allows them to quickly pop into stores to pick up their already packaged items. Some retailers like Target Corporation (NYSE: TGT) would bring the consumers’ packages to their car.

Retailers much prefer this option because it is substantially cheaper compared to shipping the items to the consumer’s home.

Tight inventories

Retailers are sitting on tight inventories so this means they don’t need to be promotional to get rid of a lot of their goods. Research firm Jefferies found that among the 50 retailers it tracks, only 24% of them increased their promotional activity from last year.

Another 54% of retailers offered similar promotions year-over-year while 22% offered fewer.