This story is part of Spectrum News' special reporting on the coronavirus pandemic in Southern California.
ORANGE COUNTY, Calif. — Nearly one year ago this week, Sandy Sigal gathered all of his employees and read a letter he wrote on the possible impact the coronavirus pandemic and government shutdowns might have on their retail business.
"We're going into uncharted territory," said Sigal, the founder, president, and CEO of NewMark Merrill Cos., which owns and operates 85 shopping centers with 2,000 tenants across California, Colorado, and Illinois. "While people can make plans, plans rarely follow a predictable path. What makes a difference between success and failure is the strength of the team."
"Will we be proud of who we are after this pandemic?" Sigal added. "Leave no one and no tenant behind."
One year later, with the pandemic that is still going on and some see waning, Sigal read that same letter to his team of 100 employees as a reminder of how far they've come since the pandemic upended the brick-and-mortar retail industry.
"It's undeniable this has been a transformative year in our lives," Sigal told Spectrum News.
Of all the industries impacted by the coronavirus pandemic and subsequent government shutdowns, brick-and-mortar retail arguably suffered the most. The sector saw a record number of bankruptcies, vacancies, and store closures. But the pandemic also served as a transformation that could change how people shop and visit retail centers in the future.
"The pandemic forced us to accelerate our transformation and face the reality of our industry," Sigal said.
Before the pandemic, the brick-and-mortar retail industry was in the midst of the retail apocalypse.
Consumer habits were changing. With the rise of e-commerce, more people were opting for their goods to be delivered to their homes rather than having to get up and go to a physical store. Big box brick-and-mortar retail chain stores were closing at a rapid pace.
Then the pandemic hit, fueling an already burning retail industry.
Retail saw a slew of bankruptcies, from mom-and-pop small businesses to big national tenants.
In 2019, 17 major retailers such as Forever 21, Payless Shoe Source, and Barney's New York filed into bankruptcy, according to RetailDive, an online news outlet for the retail industry.
In 2020, at least 30 major retailers filed for bankruptcy. Pier 1, J.C. Penney, Neiman Marcus, J. Crew, Lord & Taylor, and Modell's Sporting Goods were among the retailers that filed for bankruptcy, RetailDive reported.
According to the American Bankruptcy Institute, more than 3,200 businesses filed for bankruptcy in California last year. That number was lower than the previous year, thanks to government measures to stem the economic downturn caused by the pandemic.
"While the COVID-19 pandemic continues to have a serious financial impact across the globe, the economic stabilization measures put in place by the government have enabled many distressed families and businesses to delay filing for bankruptcy," said Amy Quackenboss, the executive director of ABI. "Bankruptcy remains a proven shield for families and companies seeking protection from the lingering financial distress and economic uncertainty caused by the pandemic."
Still, commercial real estate felt the effects of the pandemic. According to JLL, Los Angeles retail vacancy jumped 1% year-over-year from 4.8% in 2019 to 5.8% in 2020. Orange County retail vacancy was at 4.8%, a 0.8% increase from 4.1% in 2019.
Sigal, the NewMark Merrill founder, said of the 2,000 tenants his company leased to pre-COVID, 50 are no longer there.
According to Fortune, more than 12,200 stores closed last year.
"It was a rough year," said Cheryl Todd, a principal at Coreland Cos., a third-party retail management company that oversees five million square feet of retail centers in Southern and Northern California. "Retail has changed a lot. It was a rough year. A lot of businesses closed their doors. Obviously, we still had lenders, debt services, tenants that couldn't operate. Many landlords proactively addressed [financial issues] with their tenants like rent deferrals were discussed to be repaid at a later date."
Todd said people often forget a real human element when it comes to the pandemic's emotional toll on business owners and landlords.
"As managers, my team and I had to deal with a lot of people struggling. It was a very emotional feeling. People didn't know what was going to happen. There was a great deal of uncertainty. It was hard not to take it personally."
JLL Executive Vice President Paul Chase said most of the businesses that filed for bankruptcy had pre-existing conditions leading up to the pandemic. The pandemic and the shutdowns, and the lack of visitors further fueled their demise.
"The slowdown in traffic accelerated their previous issues," Chase said.
Once the pandemic hit and the shutdowns happened, business owners had to find ways to survive.
"Those that were able to pivot quickly really accelerated," Chase said.
With indoor shopping and eating either prohibited or limited, the pandemic forced the retail centers to transform.
Many retail owners and landlords turned unused parking spots into outdoor dining setups. Online ordering became popular. So retail owners had to reserve parking spots specifically for that. Gyms that couldn't operate indoors had tents set up in front of their store. Curbside pick-up became a thing. Restaurants with a drive-thru component became extremely popular.
"For us, the pandemic accelerated the omnichannel shopping for both the business, the tenant, landlords, and consumers," said Christy David, the chief operating officer at InvenTrust Properties. InvenTrust owns 65 grocery-anchored shopping centers, seven of which are in Southern California. "Everybody adopted new shopping behaviors, and everyone had to adapt accordingly."
Sigal said they launched a company-wide mural program at all of their shopping centers. Since so many people were outdoors, he wanted to make visitors enjoy the retail center's space.
Sigal also created a community and tenant outreach program. Communication became vital to not only the community but also tenants.
Every other week, the local community would receive a letter highlighting a business owner's story and imploring the community to support local and small businesses.
"It's part of the humanization of our tenants as people, as dreamers, and owners of a small business," Sigal said.
For those shopping centers and malls with big vacant boxes, many expect those to be converted into a mixed-use component, either an apartment, hotel, office building, or even a distribution site.
Many customers' big question is if these trends such as outdoor dining and curbside pick-up shopping will remain as restrictions are lifted and post-pandemic.
All signs point to a yes.
Before the pandemic hit, there was a lot of chatter about how the physical shopping experience was dying and that the pandemic accelerated that trend.
But the COVID-19 pandemic was a form of retail evolution, David, the COO of InvenTrust said.
"Retail is not going to go away," David said. "Retail continues and will always evolve through time."
As people begin a sense of normalcy due to the arrival of the COVID-19 vaccines, they will venture outside and spend at retail centers.
"I'm sure you've heard of revenge spending," she said. "Once people are comfortable coming back to retail centers and out of the post-pandemic era, you're going to see people want to go out, want to go shop, and want to spend their money for experiences because they've been pent up for so long."
Sigal points out what happened during the COVID era. Even when people were still unsure about COVID-19, many still ventured outside to brick-and-mortar retail centers with other people to shop.
"[The retail center] was their one connection point they had with the regular world while they were quarantining," Sigal said. "If anything, brick-and-mortar reinforced the relationship and the importance of a community center in the community."