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Covid-19: The effect on the shopping centre industry & what it’s doing to curb the impact

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Pursuant to declaration of as a ‘pandemic’ by the World Health Organisation (WHO), Government of India (GOI) has invoked the provisions of Section 2 of the Epidemic Disease Act, 1897 in order to curb its spread. Further, as a precautionary measure, as required to arrest the spread, various state governments have ordered complete shut-down of shopping centres, malls, multiplexes/ cinema halls etc. until March 31, 2020, in major metros like Mumbai, Pune, Bengaluru, Chennai, Gurugram and others following suit.

The COVID-19 impact on shopping centres

Welcoming the move, , Founder Chairman, (SCAI) said that the shoppers are obviously extremely cautious, so is the shopping centre industry. “The fact that fear itself is contagious; it becomes a very tricky situation for all. The utmost priority is safety of people.”

Talking about the uncertainty about to what extent and duration the malls may face the closure, Taneja further stated that there is a possibility of further extension, as the exact time frame for controlling this pandemic cannot be defined. “Approximately 700 to 1,000 malls across India may be asked to close down till further notice,” he stated.

The Impact of the Shut-down

“The impact of the shut-down of shopping centres across various cities has been beyond comprehension,” Abhishek Bansal, Executive Director, Pacific Malls.

“Monetary losses would of course be huge. Sales are already down anywhere between 25 to 50 percent for retailers. Fashion is seasonal so spring merchandise will suffer badly. Cinema, entertainment and restaurant businesses are already bleeding. Rumours, lack of clarity and awareness and fear of uncertainties add to the shoppers’ confusion,” he added.

Resonating the same thoughts, , CEO of said, “Pursuant to enforcement of stringent measures, which is the need of the hour, shopping centres housing occupants from industries like hospitality, retail, tourism etc. are worst affected due to lock-down. Scarce footfalls are resulting in lower sales, but overheads have increased for deploying specially trained personnel, extensive sanitization, increased customer frisking etc. This has resulted in a huge pressure on viability of shopping centres due to delay in collection of license fees /rents from the retailers/ outlets. To add to the woes, the current situation has also adversely impacted the employment and livelihood of the employees (direct and indirect – approximately 3,500 to 5,000 at each establishment/mall) at every level.”

“Cash flow is the biggest challenge for malls as it the only source of income of these centres, feel industry experts. Rental income has come down to zero since the closure of malls. Meanwhile, expenses, debt serving, and interest payment obligations remain constant. Unlike all other businesses, malls do not have any goods or merchandise to sell or reduce inventory holding or other such measures, which other industries can take. Their collections have completely dried up during this period, while they continue to bear a high fixed cost towards personnel, utilities and ongoing routine expenses,” said Bansal.

“The Shopping Centre is a very capital-intensive business and a large portion of this capital – used towards construction and operations – is funded through banks/ financial institutions, which has a very large interest and principal outflow on a monthly basis. In fact, this is their largest expense head. This abrupt closure of malls has a cascading impact wherein not only the mall owner, but all other related down the line businesses face the probability of bank loans going under default due to prolonged shut-down,” said , Business Head, Lulu Mall.

Measures Undertaken by The Industry in the Wake of Covid-19

Philips added, “Lulu Mall, Kochi (Kerala) has been severely impacted due to the shutdown of the multiplex and low footfalls it is receiving. Despite the slowdown, we have adopted every possible action to provide a sanitized environment for our customers, retailers, vendors and staff, including thermal screening of all and sanitizing their hands before they come in the property.”

“Unfortunately, we are foreseeing a future where our only revenue from the business will be almost zero for the affected months. At the same time, our expenses will remain the same or more, with increased cost of consumables due to the sanitation measures; salaries for over 5,000 employees of mall staff, outsourced staff and retail staff, vendors payments, loan repayments, property tax payments and so on. With the uncertainty looming around Covid-19, no one today is able to predict how long this scenario will continue. Support and assistance from the government is crucial with regards to GST rebates; lower interest rates; repayment of holiday period and exemption in paying property tax,” he added.

About measures undertaken by the industry, Taneja said, “Today most of our malls are equipped to handle emergency situations and go through end number of audits and checks. Our members are personally making rounds of operational malls driving special sanitisation and cleanliness programs and ensuring that we set benchmarks and assure all stakeholders of our commitment to fight the challenge in hand. We hope that the situation stabilizes, and normalcy is restored at the soonest.”

However, the overall working capital cycle has been adversely impacted and hence, in order to sustain the mall business and the employment of the individuals as stated above during these unprecedented and testing times, the Shopping Centres of India (SCAI) on behalf of its members and also non-member malls has already made representation regarding the finance, regulatory and other major issues faced to:

– The Prime Minister of India
– The Finance Minister of India
– The Governor and Executive Director of RBI

The association has also sought appointments for personal meetings with concerned authorities to discuss following measures to help shopping centres sail through this challenging phase:

– Allow a moratorium period during continuation of Pandemic, in repayment of bank loans, interest, EMI, etc. without levy of any penalties including penal interest. Further, one-time loan restructuring with lower rates of interest may be permitted for shopping centres.

– Provide short-term financing option for a period of 6 to 12 months, at lower interest rates to meet the increased working capital requirements.

– Grant GST rebates to offset the losses on account of and for the period of closure of business and/or in the alternative permit flexibility in deposit of Goods and Services Tax (GST) since GST needs to be deposited immediately upon raising of invoice, however, corresponding payments are likely to be delayed, resulting in an additional cash flow burden on shopping centres.

– Provide relief so that credit rating of shopping centres is not adversely affected due to delays in repayment of bank loans, interest, EMI, etc.

– Issue appropriate directions to the Insurance Regulatory and Development Authority (IRDA) to include insurance against loss of profits on account of epidemic – which is not currently included in the policies.

– Any other relief which may be deemed fit in the present scenario.

Looking Beyond the Pandemic

“The implementation of these measures can immensely help the shopping centres and industries referred hereinabove, which are already stressed due to the prevailing financial conditions, in mitigating the effects of this unforeseen and presently untreatable Pandemic. Once the country is free from the virus, malls that have emerged as the most vibrant social spaces for Indians to celebrate their leisure time will play a critical role to bring back life and uplift sentiments of the masses. Hence, it is all the more important to ensure that necessary support is provided to the shopping centre industry to cope up with the challenge and be ready to welcome visitors once the restrictions are lifted,” explained Taneja.

“Over 5,000 families are dependent on each shopping center. Everyone has to absorb a bit of the hit and therefore, the government’s compassionate measures are going to be a major help in tiding over this Black Swan event,” added , Executive Director & CEO, Select CityWalk.

Post Challenges

“It is relevant to note that even after the malls open up in the due course of time, there will be many challenges in the near-term which will include:
– Low footfalls and hence low sales at the malls
– Revenue and collections will take time to streamline
– GST and other statutory payments will get impacted as well,” said Philips.

“All our upcoming under-construction malls in Bengaluru, Lucknow and Trivandrum will suffer delays due to slow/ shut-down in countries like US, UK, Italy and China. Manpower at sites have also drastically fallen due to this outbreak. All this will cause a delay in opening the new malls. So, the need of the hour is a moratorium in delaying the repayment of loans and extending the period for taking the benefit of loans granted for the projects.,” he added.

“The current situation is unprecedented and most of the industries have had to suffer business losses. Retail sector is no exception to it. On one hand we have to face closures and on the other the industry will have to fight negative sentiments to revive the demand as and we open the centers. The government has taken many actions and I am sure it will have positive impact. The need of the hour is to work with the government to minimize the impact of coronavirus and seek support for the revival of the shopping centre industry,” explained Mukesh Kumar, Senior VP, Infiniti Malls.

How Global Malls Are Handling the Virus Outbreak

– Owners and managers of Iran’s shopping centres with the help and insight of Shahrokh Keshavarz, Regional Representative of The Middle East Council of Shopping Centers in Iran, have started a campaign to support the tenants of these shopping centres. Keshavarz has convinced more than 50 owners and managers of great shopping centres to help and support their tenants, and also holding them to their social responsibility by allowing these tenants to work rent-free for 2-3 months, or by substantially reducing their rent.

– Dalma Mall in Abu Dhabi has announced their public awareness campaign ‘WE CARE’. The mall has taken important safety measures by installing thermal scanners, multiple hand sanitizing units and intensified cleaning process across the mall.

Bahrain Bourse-listed real estate developer Seef Properties has created a US$ 2.6 m (BHD1m) financial fund to support the tenants of its commercial malls.

– Retail stores in malls operated by Majid Al Futtaim (MAF), Dubai, which include the and will cut timings.

, Dubai has set up a fund of Dh100 million for retailers at its Festival malls in Dubai. The fund will cover up to three months’ rent relief for ‘eligible’ tenants, who run the risk of being caught in business disruption and slowdown.