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.
Here’s my understanding of the impact and the fastest road to revival:
Impact on Retail Real Estate
Retail real estate owners will be staring at a 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 alternate business to get the desired returns. In my opinion, healthcare would be a good alternate 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.
The New Retail Consumer
The post pandemic society will witness a change in consumer behavior and overall lifestyle. It is estimated that consumers will be extremely cautious with their spending. The spending on luxury, travel, hospitality, and movies, fine dine, white goods, expensive gadgets, among others and see a drop. With the mindset of saving as much as possible in the occasion of a pandemic relapse consumers will most likely look to spend only on daily essentials, thus impacting the overall retail consumption.
The recovery from this changed behaviors and shopping pattern, is estimated to continue for a period of next 6-9 months at least. We are hoping that the last quarter of this FY 2020-21 and the year ahead, 2021-22, we bounce back with a bang and things normalize to a great extent.
This time needs to be used to reinvent and relearn new strategies for growth. It is crucial to stay connected with your consumers during the lock down period through the usage of social media, surveys, smart digital campaigns and even interesting online contest. It is necessary you are on top of you consumers mind not to make profits but to show support during these trying times. Maintaining strong lines of connection and communication is key to maintaining consumer base.
The easiest strategy: INCENTIVIZE ->ATTRACT ->ENGAGE -> CONVERT -> REPEAT
The focus will have to be absolutely on targeted campaigns to maximize conversions rather than attracting huge numbers. Another good idea is to liquidate piled up store inventory by giving incentives to consumers, thus resulting in desired consumption on re-opening of stores.
In addition, have monthly or bi-monthly awareness workshops for consumers, retailers, outsourced agencies, staff, etc. is a good precautionary measure. Until the vaccine is available it is essential retail owners take steps to ensure utmost safety and hygiene of all those involved in the running of a mall
On re-opening, communication strategy needs to be kept very simple and unglamorous. The primary objective should be clear, not too pushy, and certainly shouldn’t just be profit driven. The humor route can be explored to uplift the mood of consumers and motivate them through these unprecedented times. Having said this, I believe that India has always been and will always be a strong market. Once the present situation is overcome with the continuous support from the governing bodies and medical professionals the retail sector will recover and might come out even stronger.
The road to revival might at this point look tedious but with people continuing to follow the precautionary guidelines, I see the return to normalcy will 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 lock down period as well via social media handles, surveys, etc. The idea is to not to lose connect your consumers.