Sweat Pants & Real Estate Valuations.

In 2020 the clothing brand Gap Inc (known as The Gap) delivered over 6 BILLION dollars in online sales. This represented nearly ½ of their total sales (unheard of pre pandemic) and online sales have nearly doubled from the year before. They also shut down 228 of their stores in 2020 and refreshed 75 of their existing stores for a modern sales approach.

Nike did 42 Billion in sales last year, of which 40% came from direct to consumer online sales. Pre pandemic Nike did less than ½ of that direct to consumer.

So what does this mean? Well for one many of us have been wearing sweatpants full time for the last 18 months now but more importantly think about the decimated retailers, supply chain businesses and all those empty buildings/malls out there. Will they all reopen? Will people hit the malls in the same way as before? Personally I don’t see it coming back to it’s former glory.

Nike, Gap and other companies have now cut out the “middle man” and keep all that extra margin by selling directly to the customer…why would they give it all up again or take on unnecessary overhead (like retail space and employees) when they’ve already trained their customers to order online? Answer – they wont.

Years ago I wrote an article on how traditional retail platforms need to evolve to focusing their retail footprint on more of an immersive, brand experience where people can see and experience products and just have them delivered to their home. The pandemic kicked this trend into overdrive and my prediction now is that retailers will transition to smaller footprints, less inventory in store and instead focus on marketing the brand to leave you with the desired feeling to compel you to whip out your phone and order online (either in store or from home).

Originally I thought this trend was going to take decades to happen but COVID has made it happen in a matter of months. This has created tremendous uncertainty for real estate investors exposed to retail and even multifamily investors who rely on their tenants (employed in retail) to pay their rent.

In some markets these former retail workers have managed to transition into other jobs (many indirectly tied to retail) like logistics or warehousing but not everyone has been so lucky. We’re living through tremendous changes & I don’t believe we’ve seen the full impact of it just yet.

With so much change in the air it's hard to feel "certain" about anything nowadays… The one asset class that I remain confident in is multifamily apartments as people will always need a safe, clean and affordable place to live somewhere close to where there is work so the key for sustained success (for me & my investors) is to invest where we can provide just that.

What real estate are you investing in and where to future proof your portfolio?

Marcin Drozdz

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