Only 32% have shopped for in-store non-essentials amid COVID-19: Poll

International Council of Shopping Centers CEO Tom McGee joins Zack Guzman to break down how the coronavirus crisis may impact the future of retail.

Video Transcript

ZACK GUZMAN: Of course, we've been noting that a lot of programs here to support the economic recovery are slated to expire at the end of the month. We've talked about that federal unemployment boost. But what about what's going on right now in terms of the mortgage space, as we watch a lot of retailers suffer through all of this?

Let's chat the pain that we're seeing in the retail space. You can talk malls. You can talk physical store locations there. With our next guest, Tom McGee is the International Council of Shopping Centers CEO-- council. It is the global trade association of the shopping center and retail real estate industry.


And Tom, when we look at it, obviously, a lot of people are worried about the pain being felt by these retailers. So what are you seeing about the shakiness of maybe defaults out there? And perhaps, I mean, we've seen a lot of bankruptcies. What are you seeing play out right now?

TOM MCGEE: Well, I think the retail environment is very uncertain right now. I mean, obviously, the last two retail reports showed a resilience in the marketplace. But as you see spikes reemerge around the country, particularly in the south and in California and other parts of the west coast, I think there is a great deal of concern.

I do think the government needs to lean in. I think the CARES Act was important, and, obviously, the stimulus that it provided. But much more needs to be done. And I'm hopeful, over the next two weeks, as they negotiate the next COVID relief fund, that they do focus upon, you know, mortgage-backed securities, as you made reference in your opening, but also just broadly towards the recovery fund for industry in general.

I do think that it is important that the government lean in and put businesses back in the condition-- close to the condition they were in as they entered the pandemic, and, of course, continuation of stimulus payments for citizens that are impacted by this.

All of those factors play a big role in retail, which is pretty fundamental in the US economy. One out of four jobs is retail related. So I think it's an uncertain future right now. And I do think July and August might have a different answer than May or June if the government doesn't lean in and provide that level of support.

ZACK GUZMAN: Yeah, and I was just looking at a Fitch report here, too, looking about the financial security overall. That agency anticipates about 32 loans to default in the commercial mortgage backed securities market, when we look at the pain there.

Overall, the default rate so far is lower than what Fitch says it would have expected, given the severity of the economic downturn and the suddenness of the downturn that we saw play out when we think about shutting down the economy here.

So when you look at that, I mean, what's your take on maybe how that default rate could go up here if we're not going to get additional government support? And what are you hearing from business owners out there concerned that these shutdowns might be a rolling thing for the rest of 2020?

TOM MCGEE: Well, I think there is a lot of concern around that, around, you know, shutdowns and it being a rolling concern, and just the level of uncertainty that creates in consumers' minds. As it relates to the shopping center industry in general, there's about a trillion dollars of debt underlying the industry, a large amount of CMBS debt.

There is a bipartisan effort in Congress. 100 congressional leaders signed a letter advocating for the establishment of a new piece of legislation to provide a bridge for the CMBS marketplace. Because it's very difficult to deal with that type of security on a one-off basis.

I'm hopeful that there will be a piece of legislation that will be introduced next week that will be part of the negotiation process for the COVID relief, as we call it, COVID 4.0, that being the fourth COVID relief package. But I'm also hopeful that there'll be something like a recovery fund that's established, too.

We've been advocating, given the significance of what's happened. We've led a coalition of 100 different organizations to establish a recovery fund for American business that basically would provide grant-based relief to help businesses, really small businesses, cover operating expenses during this period of time. We're also hopeful that there'll be legislation introduced to be part of the negotiation process next week on that equities problem.

ZACK GUZMAN: I mean, we've talked about this, too, on other segments in terms of who's feeling the most pain since some people are noting that, you know, standalone, I guess, stores out there were faring a little bit better maybe than malls, since malls are so drawn to attracting people to come in, spend a lot of time walking around with other people around, and, obviously, the health concerns.

Those are two very different shopping experiences. So which ones do you think right now are being hardest hit and would be most in need in terms of that support you're talking about?

TOM MCGEE: Well, obviously, essential retail, you know, by nature, has been able to be open throughout the pandemic. So anything that's been effectively nonessential, whether it's mall-based retailers, whether it was, you know, restaurants and other forms of hospitality, apparel, all of those types of retailers have faced the brunt of this crisis because they haven't been able to be open throughout all of it.

So I would say those are the most at stress and the most at risk if there's a rolling closure, which appears more likely now, particularly in the southern part of the US. I am-- you know, I do think, to not lose the forest from the trees here, where we're at today is as equally as concerning as it was back in March.

If you look at the size of the state and the rising cases in Texas and Florida, California and Arizona specifically, you know, that is a high level concern and rivals what took place in the tri-state area at the start of the pandemic.

ZACK GUZMAN: Absolutely, and all these things going on at the same time again. There's a lot of different regions at play right now that we'll continue to monitor. But appreciate you taking the time to dig into the fears around that in terms of all the retail pain that we've seen. Tom McGee, International Council of Shopping Centers CEO, thanks again.