The coronavirus pandemic is making an already rocky situation for shopping centers even rockier, CNBC’s Jim Cramer said Wednesday.
“It’s not just the department store that’s dying, it’s the whole mall,” Cramer said.
The comments came after Victoria’s Secret, the women’s lingerie brand in the middle of a private acquisition, received unsettling news. Sycamore Partners, which agreed in February to acquire the apparel maker from L Brands, filed suit earlier that day seeking to abandon the deal. Sycamore was slated to receive majority control of Victoria’s Secret for $525 million.
“We knew we didn’t need the department stores, but now the pandemic’s making us realize that maybe we may not need anything in the mall at all,” Cramer said.
The private equity firm said it wants to ax the deal, given that Victoria’s Secret stores were shut down and L Brands missed the company’s April rent payments due to state-ordered business closures. Sycamore claims in the lawsuit that those moves violated the buy contract, which included language to let the buyer renegotiate the deal in the event that a situation, such as a pandemic, caused a “materially adverse effect” on the business.
Meanwhile, consumers are expected to continue spending even more money on online shopping as opposed to going out to brick-and-mortar locations, making shopping centers even more antiquated.
“The mall is filled with stuff we don’t need,” Cramer said.
“Only two kinds of retailers are working here: the ones that have enormous scale and sell essentials or the ones with fabulous digital businesses,” he said. “That means Costco, Walmart and Amazon. I think Home Depot and Lowe’s can make it, and Target, too.”
Most of those companies make up Cramer’s ‘WATCH’ acronym of retailers with scale.
“[T]hat might be it, aside from the off-price stores that can buy all the excess inventory created by this retail crash,” he said.
Brands such as Nike have been investing heavily in a direct-to-consumer business approach to build a pipeline to consumers without having to deal with a middle man. The business strategy has become particularly important due to online shopping trends that are even further propelled by the millions of people who are stuck inside adhering to social distancing recommendations.
Countless retailers were forced to close their stores, along with restaurants, nail salons and other businesses, more than a month ago as officials sought to slow the spread of Covid-19, the disease caused by the coronavirus. The shutdowns and stay-at-home mandates are having a drastic impact on the U.S. and global economies. In the past month about 22 million unemployment claims have been filed across the country.
Out of the 2.6 million recorded Covid-19 cases worldwide, nearly 840,000 people in the U.S. have tested positive as of Wednesday afternoon, according to data compiled by Johns Hopkins University.
Disclosure: Cramer’s charitable trust owns shares of Amazon and Costco.