Rickety Retail Industry in Pandemic Time

11:15:21 AM | 24/3/2020

Many companies are struggling with numerous emerging hardships as revenues dropped since the start of this year.

Empty retail spaces

The retail industry is one of nine sectors adversely affected by the Covid-19 pandemic, according to a forecast by SSI Securities Corporation.

The food and beverage sector was hit hard in the first months of 2020 by the Covid 19 pandemic and the impact of Decree 100/2019/ND-CP, effective from January 1, 2020, which imposes strict penalties on drivers/riders drinking alcoholic drinks.

A recent survey by Savills found that restaurant sales dropped by up to 50% in February compared to previous months. Many restaurant operators, after considering revenue and operating costs, had to accept business closure and return their business locations to landlords when their contracts expire, while others continue to run their business to keep the space for the coming time or suspend operations or negotiate with landlords to reduce rents.

Educational spaces will be also in difficulty in the coming time. From the beginning of February until now, schools, English and foreign language centers ​​and soft skills centers are closed. If they continue with conventional teaching models and wait for further notice from the Ministry of Education, they will incur substantial financial loss. Taking the YOLA education system as an example, the Ministry of Education's decision to close all schools has exerted a direct impact on more than 10,000 students and 300 teachers. In February, YOLA teachers’ earnings were estimated to reduce by 50% because the teaching schedule was canceled.

Essential commodities can help modern retail channels, as their sales are twice as much as durables and luxuries that are expected to be most hurt by the Covid-19 pandemic. Retailers or distributors of durable consumer goods, jewelry, and retail real estate may be in trouble if the plague is not under control.

As for retail spaces for rent, townhouses rent in famous culinary neighborhoods in Hanoi and Ho Chi Minh City can hardly find tenants for the time being, mainly because owners usually require complete leasing, in addition to long-term leases of up to 10 years.

Markdown and online approach

Savills experts said that modern retail projects will not increase rents in the coming time while property investors will move to support tenants to continue their business operations and keep the occupancy rate high at their projects.

Typically, Vincom Retail announced support on rents for existing tenants, with the degree depending on the extent of impact on businesses. Other major retail developers are also monitoring the progress of the Covid-19 epidemic and considering supports, primarily rents for tenants. Hung Thinh Group also announced that it will carry out rent preference and support policies for tenants, with a reduction of 20-40%.

For the retail market, coronavirus can accelerate the shift to online shopping. Ms. Vo Thi Khanh Trang, Chief Researcher at Savills Ho Chi Minh City, said, “Online shopping will cause bad outcomes for traditional stores at shopping centers as well as townhouse stores. Rents will vary, based on market conditions. In general, developers/landlords will need to consider short-term supports for tenants.”

She suggested that, to attract tenants, landlords offer lower rents, 10-20% lower than in late 2019, or offer flexible spaces rather than a whole-unit hiring earlier. For rented townhouses, many owners have also moved to negotiate rent support for tenants as some landlords accept at least one-month free rent to restaurant tenants or a 30-50% discount on short-term rentals for convenience stores.

Mr. Hoang Tuan Anh, CEO of Vua Nem, said, while offline channels are shrinking, Vua Nem e-commerce indicators are showing no signs of being affected. Specifically, online calls and messages sent to Vuanem.com still rose by 28.88%.

While the retail industry is racing with promotions and online sales, educational institutions have also started to use distance learning options by using zoom, skype and webinar applications to help students keep learning.

The Covid-19 pandemic is forcing retailers to improve their sales models, especially multi-channel retail models, to compete and minimize risks.

By Huong Ly, Vietnam Business Forum