While we have been talking about the impact of the COVID-19 pandemic on the retail brands, turns out shopping malls are the worst hit with no footfall and no rentals since the announcement of the lockdown even as the fixed costs remain intact. With the issue likely to linger till at least first quarter of FY2021, mall owners are facing a loss of 20-25 per cent of their annual revenue, assuming that a rent-free period is given to the retailers, said a report by ICICI Securities. However, mall operators across India are indicating that they will work together with retailers for a feasible solution to minimise losses for all stakeholders, given the unprecedented nature of the pandemic and malls being a relationship-based business.
With a number of discussions going on around how the reopening of physical retail spaces should be structured and staggered, a number of shopping malls are living in uncertainty on how and when they will start operations while also evaluating the manpower with which they will kick off initially since the footfall will be unlikely in the immediate post-lockdown period. They are also figuring out what will be their new normal, social distancing norms, restricted entry inside the malls, etc.
“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 also all other related down the line businesses face the probability of bank loans going under default due to prolonged shutdown,” said Shibu Philips, Business Head, Lulu Mall, while speaking at a virtual roundtable organised by Shopping Centre Association of India (SCAI).
The country has entered into the third phase of the lockdown with certain relaxations announced by the Ministry of Home Affairs (MHA) for the reopening of stores and sale of non-essential products in the green and orange zones. However, the shopping malls are yet to get any clearance from the Government.
Impact on shopping centres
Shopping centres are reeling under enormous effects of the coronavirus pandemic including the pressure of repayments to banks even as their cash reserves are drying up with no rentals coming in from the retail brands and no relief from the Government in the foreseen future. Several banks are writing to mall owners asking them to deposit payments for the month of April in Escrow accounts against lease rental discounting facility availed by the industry. According to SCAI, other banks are likely to follow suit and this will put shopping mall industry in great financial distress and will impact more than 50 per cent malls across the nation, leading to loss of lakhs of jobs.
At the roundtable, Abhishek Bansal, Executive Director, Pacific Malls, said “The impact of the shutdown of shopping centres across various cities has been beyond comprehension. Monetary losses would of course be huge. Sales are already down anywhere between 25 and 50 per cent 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.”
Besides, shopping centres having tenants from hospitality or tourism industry are affected even more since they are required to stay open only for them and the overhead cost surpass the income.
“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 the lockdown. Scarce footfalls are resulting in lower sales, but overheads have increased for deploying specially trained personnel, extensive sanitisation, increased customer frisking, etc. This has resulted in a huge pressure on viability of shopping centres due to the delay in collection of license fees, and rents from the retail 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,” asserted Dalip Sehgal, CEO, Nexus Malls.
With the uncertainty looming around COVID-19, it is impossible to predict how long this scenario will continue, and in the meantime, shopping centres are foreseeing a future where their only revenue from the business will be almost zero for the affected months with expenses remaining the same or even more. In such a scenario, the SCAI has already made representation to the Prime Minister, the Finance Minister and the Governor & Executive Director of RBI regarding the finance, regulatory and other major issues faced by the shopping malls.
Meanwhile, the SCAI is also of the opinion that the best bet for the Government right now is to allow the malls to reopen since they are professionally run and can control factors like hygiene and social distancing better than local markets, neighbourhood shops and kirana stores.
Talking about the malls outside India, according to Statista, shopping malls reported having one of the highest losses in Moscow due to the current situation, as they saw a drastic consumer traffic drop over the past weeks. On 18 April 2020, the most significant decline was marked to date at over 79 per cent. A number of other countries which are opening up, with precautions of course, are receiving quite decent footfall. Atul Ruia, Chairman, Phoenix Mills, informed, “In China, shopping centres have opened recently and 70-80 per cent shoppers are back in the mall, and in IKEA stores in Germany around 63 per cent customers are back. It is expected that within 3 months of reopening, normalisation is expected to be back in the malls. So, the biggest question is how to reopen safely.”
Also, the Dubai Government had reopening of malls as their top priority. “Organised retail largely operates out of shopping malls. A lot of nationalised players are present in this industry. Fundamentally, the Government can, through a single instruction – that is, follow strict sanitisation and social distancing norms – give a diktat to a billion square feet which is the Indian shopping centre industry. We will follow them precisely, including following other precautions, for example every staff member and customer must wear a mask, every cinema should have only 50 per cent occupancy, restaurants should have partitions and distances between tables, guidelines on air-conditioning, parking and entryways and exits in malls,” Atul Ruia said.
Post-lockdown measures and relief expectations from Government
While Mumbai had very recently started opening malls for 24 hours, it has now come to a point where they will be forced to explore single shifts (2 pm to 11 pm), post the lockdown period, focusing on peak leisure time. During another webinar organised by Retailers Association of India (RAI), mall owners and retail leaders agreed that both the parties will have to work on a no loss formula for the next few months and then move to a win-win situation going forward.
Meanwhile, shopping centres are using the time to review and renew SOPs, reskill employees to better manage the operations at the malls when they reopen. The first 90 days post-lockdown will be about winning over the trust of the consumers and also manage and focus on cost-reduction, but not at the risk of losing value. Speaking at the webinar, Dalip Sehgal, CEO, Nexus Malls, averred, “There’s a Chinese proverb that says when the winds of change blow, some people build walls, some build windmills. Over the last few weeks, we’ve built walls that have protected our partners, our employees and our assets. Now it’s time to think how we can build windmills.”
SCAI has also shared with the Government the plans and SOPs for opening up of the shopping malls in the days to come. It has proposed allowing sales of essential services and products including, supermarket, infant clothing, eyewear, electronics required for work from home, apparel, sportswear & footwear, personal care, takeaway and home delivery from food courts and restaurants, salons & spas with 50 per cent capacity on appointment basis, home and furnishing, in the first phase of opening.
Later on in the next phase, multiplexes or family entertainment centres should become operational wherein shopping centres will ensure about precautionary measures like all personnel are aware of COVID-19 health and precautions, maintaining occupancy ceiling to around 50 per cent of common areas and GLAs, ensuring social distancing at F&B outlets as well as retail stores, installing plexiglasses at all checkout points, restricting parking with only 50 per cent of total parking capacity, restricted washroom usage policy, tweaking of air conditioning to ensure at least 30 per cent of fresh air circulations of treated air and temperatures maintained between 24 and 30 degree centigrade, availability of mandatory isolation rooms, among other necessary measures.
The association, on behalf of the shopping centres, has also requested for relief measures for the industry in order to help them sail through the challenging phase. These included allowing a moratorium period in repayment of bank loans, interests, EMIs, etc. without levy of any penalties including penal interest, short-term financing option for a period of 6 to 12 months to help them meet the increased working capital requirements, granting of GST rebates, among other measures.
Moving forward, the mall owners will have to be really cautious of their movements in the times to come. They will need to ensure that they attract the most desirable brands. Also, in order to remain afloat, it is essential for the malls and even for retailers to help both the parties recover, rather than risking bringing the end of the malls for good.