What Changes Once Coronavirus Passes… And What Doesn’t?

The following is an excerpt from What Changes Once Coronavirus Passes … And What Doesn’t?, originally published on Money & Markets.

I don’t often go to the mall. I tend to avoid them like the plague. But that’s nothing new. I will dislike the mall no more post-coronavirus than I did before.

I’m not alone. Americans are doing more and more of their shopping online. The coronavirus outbreak didn’t cause this shift, but it certainly helped to accelerate it. Once you get used to having packages magically appear on your doorstep, driving to a store feels cumbersome and inconvenient.

So, a lot of the market share gains by Amazon.com Inc. (AMZN) and others will likely be permanent once this is over.

Digging deeper, America is “over-retailed” with roughly five times the amount of store square footage per capita than the United Kingdom and six times the store square footage of France.

Americans like their space, and our cities are less densely populated. So, it makes sense that we have a lot more square footage. But five times more?

But you can’t buy everything online, nor would you want to. We still need stores for showrooms and for services. I can’t order a haircut or a tooth filling from Amazon, after all.

But at the margin, this means less demand for malls and for big-box retail properties. I mentioned over the weekend that I liked REITs at current prices. But I’m sticking with high-traffic retail like convenience stores and pharmacies and steering clear of malls.

I also have no plans to buy the dip in department store stocks. Best in class department stores like Nordstrom (JWN) will survive and thrive, even if it takes them a while to recover.

But there were plenty of retailers that barely escaped the last recession intact, and it’s hard to see them surviving this one. I think it’s safe to assume JC Penny (JCP) is toast. It’s hard to believe, but Sears still has nearly 200 open stores. It’s hard to see those surviving. Research site Macroaxis puts the probability of Dillard’s (DDS) coming under financial distress at about 27% and Kohl’s (KSS) at 42%. But this was based on company data before the coronavirus crisis hit. You can bet those numbers will look bigger once new quarterly data comes in.

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