I am always amazed at the arrogance of the financial world given how often it is dead wrong. A recent CNN article regarding the potential bankruptcy of Bed Bath & Beyond provides a textbook example. Between 2016 and 2020, the prevailing wisdom on Wall Street was that e-commerce would destroy traditional retailing. The stocks of retailers and retail-oriented real estate companies dramatically underperformed, and lenders were loath to provide credit to this sector.
Well, e-commerce sales as a percent of total retail sales have leveled off and many digitally native retailers are opening physical stores because pure e-commerce is unprofitable. Retail rents have reached and even exceeded pre-Covid levels in many places.
Bed Bath & Beyond is shedding 400 locations in order to stave off bankruptcy. You might think this would cause a glut of retail space, but these sites are being snapped up by other healthy retailers such as TJ Max, Ross, HomeGoods, Burlington, and Nordstrom Rack! Another company with aggressive growth plans is Planet Fitness. Why is the demand for retail space so strong? As a result of the negative sentiment that was so pervasive, construction of retail space hit new lows in each of the last three years and the vacancy rate of 4.9% is the lowest since real estate firm CBRE began tracking it in 2005. Once again, the financial world got it wrong!