Reinvention. Retail’s always been good at that—and it will need to be once again to survive the effects of the coronavirus.
New policies created by unprecedented recent events have created a domino effect: people are discouraged from going out to buy, retailers can’t pay their rents and landlords are coming up short on their mortgages.
Store closures, furloughs and pay cuts in some executive suites have been aimed at warding off damages in the near term.
Longer term, there are still decisions to be made. As Californians settle into week four of Gov. Gavin Newsom’s stay-at-home order, an industry already forced to somersault in the past few years to keep up with e-commerce, the rise of direct-to-consumer digital brands and a move to short-term leases for pop-ups has much more to consider.
Here’s a look at how some notable names in Orange County’s retail scene are preparing.
Manna Kadar Cosmetics The Retailer/Brand
“Behaviors will change. There’s so much [negativity] about the economy, the stock market and unemployment, and that makes people very wary to spend because the future is unstable,” said Manna Kadar Beauty Inc. founder and Chief Executive Manna Kadar.
The CEO, who spoke from her Irvine office—the lone employee there—has spent the past few weeks on the phone with her retail partners dealing with canceled orders.
The upside? Her online business, normally about 10% of overall sales, is up 100%. The company made some $7 million in 2019 and is among OC’s fastest-growing retail businesses.
Kadar’s company—consisting of two cosmetics lines plus Manna Kadar Bath & Body, Haute Dog, Mason Man Skincare and Beauty & the Bump—touches everyone from traditional retailers such as Urban Outfitters, whose parent said two weeks ago it’s temporarily suspending rent payments and furloughing store employees, to beauty boxes and TV shopping networks.
That’s roughly 6,000 doors all told.
The trickle-down effect of the current environment, she said, will no doubt lead to a more value-conscious consumer.
“I would consider myself a spender. I definitely pump into this Orange County economy and I have to say, other than business expenses and things for my kids and family, I have not purchased any of what you would call ‘discretionary’ items,” Kadar said.
“The market had already shifted to [fashion rental] companies like Rent the Runway, so you’re not having to purchase as much clothing. I do think off price, TJ Maxx, Ross—the lower-cost stores—they’re going to be the real winners when we come out of this because they’ve always provided such great value and it’s pretty good quality. You might buy from HomeGoods, but you’re not necessarily going to go into Restoration Hardware, so you might see some of these swaps.”
The $2.2 trillion stimulus package passed last month could help.
“Half the time I’m on the phone with one of my retail partners and the other half of the time I am becoming a specialist on all of these loan programs available out there,” Kadar said. “This is a time where leaning into your network is really valuable in that we’re all sharing information with one another. So I’m really thankful to some of these organizations where we’re getting a lot of the information first so we can prepare.”
South Coast Plaza The Luxe Center
Orange County’s largest shopping center South Coast Plaza is optimistic its mix of tenants and consumers who’ve spent weeks staying at home and not socializing, shopping or eating out will bring healthy traffic back to the center once it reopens.
“There will no doubt be shifts in consumer behavior following this unprecedented shutdown of brick-and-mortar retail, but it is impossible to predict the impact at this point,” South Coast spokeswoman Debra Gunn Downing said.
“What we do know is that shopping is a social experience and many consumers will want that connection and be ready to get back to normal once the stay-at-home order is lifted. We are already hearing from many of our customers who are looking forward to the day when we will reopen. We believe there will be a significant pent-up demand for retail goods.”
“South Coast Plaza is fortunate to have so many brands that are exclusive to us in Southern California and we know that will help in bringing back shoppers from a wide geographic area,” she said.
The center declined to discuss the topic of tenant rent negotiations.
NewMark Merrill Cos.
The Property Manager
Sandy Sigal, president and chief executive of NewMark Merrill Cos.—a Woodland Hills retail developer and property manager with nearly 685,000 square feet of retail in Orange County—is operating with a near lost voice at this point, taking calls with tenants and others.
NewMark, he said, has contacted everyone in its portfolio of neighborhood centers—including Anaheim Town Square, Bristol Warner Marketplace in Santa Ana and Placentia Town Center—the past few weeks.
“As various tenants tell us what they’re individual situations are, we’re doing the best we can relative to the fact that we still have a mortgage and bills we have to pay,” Sigal said. “So we’re trying to live up to our obligations. We have local vendors who live hand to mouth and we have lenders.”
The digital revolution supplanting physical stores will not be the bi-product for retail once commerce resumes, in Sigel’s view.
“People may change how they shake hands,” he said, “but the emotional side will be very, very intact. I don’t see us going into a digital-only society.”
The situation, if anything has pressed the importance of strong communication, Sigal added.
“Retail [is] always evolving and I think this is a shock to the system, but I don’t envision that we’re going to all of a sudden have a three-page pandemic addendum to our leases,” Sigal said.
“I do think that we’ve all learned better ways to communicate with each other and make sure we’re better communicating with the community.”
S&A Management The Downtown Transformer
Ryan Chase, principal at commercial real estate firm S&A Management LLC, said he’s also working with individual tenants and said his firm has taken a large number of calls from companies running the gamut in size, from small to large firms.
The situation will have a lingering effect on the retail ecosystem, said Chase, whose firm has substantial retail holdings in downtown Santa Ana.
What that looks like is anyone’s guess.
“The big issue with this whole situation is the uncertainty,” Chase said. “If the [stay-at-home order lift] date was, say, Sept. 1, at least we could plan accordingly, from an operator standpoint, to working with lenders to me as the landlord in particular, such as how to restructure leases/loans, set up payment plans, etc.
“Even when the stay-at-home order is lifted, I am thinking June 1 at the earliest and hope I am wrong, then what? I think it could be a slow getting back to ‘normal,’ if you will—whatever that is,” Chase said.
“I think it could be awhile, thinking maybe next year in many cases, before you see larger events resume. Even then, how does that look? It will be very interesting to see how this all shakes out, but the reality is there is going to be a lot more economic suffering along the way and 2020 is going to be a tough year.
“Unfortunately, and by no means want to discount the severity of the health impacts, but I think this will bankrupt more people than will kill, and it’s just unfortunate all around.”
