Covid-19 Impact : Retail Real Estate's road map to recovery
By Retail4Growth Team | May 12, 2020
As the COVID-19 outbreak grips the nation, the Indian retail real estate market, in particular, has been hit hard, with consumption sentiment weakening and regional tourism experiencing a shutdown. This in turn is expected to have an adverse impact on economy.
In order to rejuvenate the retail sector the Government will have to take backseat on fiscal prudence & take bold steps to ensure that this sector does not stunt. Sachin Dhanawade, Chief Operating Officer (COO), Retail & Real Estate, Grauer & Weil (India) Limited shares measures to mitigate pandemic’s impact on retail real estate and the road to faster recovery.
COVID EFFECT ON RETAIL
Retail real estate owners will be staring at the challenge of retaining present tenants and leasing out new spaces. There is also a possibility that existing tenants due to limited or no income in the past months may look at resizing or venture into alternate businesses for survival. In this case, it is imperative that we work closely with such tenants and ensure business continuity post lockdown.
For most Mall owners if rents go down their loans towards the banks will be under strain. With the current position of retail real estate, it will be difficult for them to generate the necessary revenue. Hence it is critical that the tenants as well as the mall owners look at the current situation from both ends and plan their discussions appropriately.
Malls under construction are expected to face a delay of a few months due to the stoppage of construction during the lockdown. It is also quite likely that developers may take a call to scrap malls that are in the initial stages of construction and think for an alternate business to get the desired returns. In my opinion, healthcare would be a good alternative as it is now the need of the hour.
While various representing bodies have filed petitions with the Government of India, representing their respective industries, it will be interesting to wait and see the kind of support that is extended to bring back businesses to normalcy at the soonest possible.
While there is absolutely no certainty on anything at the moment, it is advisable to go with the flow, for now, have quarterly forecast and for the remaining quarters of the year, appropriate changes can be done to the business model depending on how the situation pans out over the course of the next 3-4 months.
DIGITIZATION TO THE RESCUE
Due to the contagious nature of the pandemic and the necessity to maintain social distancing, the fear of going to crowded places will remain in the mindset of people even beyond the crisis. People will be cautious in venturing into shopping malls and department stores in fear of a virus relapse. While it won’t be a long term effect it will have a significant impact on brick and mortar stores. The best way to tackle this is to increase online shopping options.
Retailers should focus on coming up with a concrete strategy around driving their online business presence.
According to a CBRE Research report published in March titled “What the Coronavirus Outbreak Means for Retail Real Estate in 2020 and Beyond”, many consumers have now opted for online shopping of daily items. As a result, online grocery retailers and F&B platforms have experienced an increase in sales revenue.
SHIFT IN CONSUMER BEHAVIOR
Consumer behavior is likely to see a complete lifestyle change, witnessed due to the Covid 19 pandemic spread. It is estimated that given the present situation, consumers will be extremely cautious in terms of their budget. They may not spend on luxury, travel, hospitality, movies, fine dining, white goods, expensive gadgets, among others and may limit spends only to the daily essentials, thus impacting the overall retail consumption. This tightfisted shopping pattern would continue for a period of next 6-9 months as job security remains a concern. We look towards the last quarter of this FY 2020-21 and the year ahead, 2021-22, hoping to bounce back with a bang and things normalize to a great extent.
GOOD COMMUNICATION BRIDGES THE GAP
The best Simple strategy: INCENTIVIZE ->ATTRACT ->ENGAGE -> CONVERT -> REPEAT
On re-opening, the best communication strategy is always the simplest, it should be unglamorous, objective-driven, not too pushy, and should uplift the mood of consumers. Weekly Online contests engagement with incentives too would be a good idea.
Due to lockdown, a lot of retailers would be having a good amount of old stocks lying ideal at the stores, it would be a good idea to liquidate those stocks by giving incentives to consumers, thus resulting in desired consumption on re-opening of stores.
Definitely have monthly awareness sessions planned for consumers, retailers, outsourced agencies, your own staff, etc around precautionary measures around COVID-19. Having said the above, I believe that India is a strong market. Once the present situation is contained with the desired support from the governing bodies and availability of the vaccine along with people continuing to follow the precautionary guidelines, I see coming back to normalcy would not take more than 3-6 months.
In conclusion, what we can do for the coming months and especially during this lockdown period is to strategize survival. Tweak plans depending on the situations and experiences that we come across as we fight this battle against COVID-19. Stay connected with your consumers during the lockdown period as well via social media handles, surveys, etc. The idea is not to lose connect your consumers.
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