State of Retail Malls Business After COVID-19
June 2, 2020
Retail mall businesses will change for certain after COVID-19. We see this in the news and hear from our clients on the struggles of staying afloat during these times. Many businesses have turned to seek rental rebates from landlords during these times.
As reported by CNA – The call for rental rebates among mall tenants has grown over the past weeks as the local retail and food and beverage (F&B) industries feel an increasing strain from COVID-19. (Source)
This is one of the toughest periods that all retailers are facing right now and these rental rebates will be able to buffer part of their running costs, for now. So our clients are asking us – “What is the business climate going to be like for the retail malls in Singapore?”
Our opinion of the market is as such:
1. Businesses will have to Innovate and Streamline their Business Operations
We have learned of new ways of working for businesses during the COVID-19 period, and this new-drawn skill will inspire most businesses to innovate their business after the pandemic.
A good example is of fashion retailers where they have stores that never sleep. Some have already adopted such as The Editor’s Market, where their business includes both brick & mortar and is complemented with an online e-commerce platform. By doing so, they can defray the rental they are paying to malls and at the same time offer a shopping experience on a platform 24/7.
This increases their shoppers’ experience and satisfies both traditional shoppers and the younger online consumer shoppers.
As the saying goes – Slow down to go fast.
2. F&B Businesses may Cease Operations in Malls and Head Out-of-Malls
To us, the situation is akin to a recovery period after a war. Your soldiers are tired and hungry after a battle, and you may not be able to feed them well enough to sustain them for them to continue combat the next day. They’d need to find elsewhere than the battlefield to rest and recover.
This analogy can be applied to retail businesses in general. Retail businesses, especially F&B businesses, have suffered great losses and it will take a while for them to get back into action. So in this recovery period, they will want to go light on their financial commitments. In fact, we have been receiving calls of clients looking to exit malls to cut down on their running costs.
However, we feel that this move will only work for established brands where people will still visit them no matter where they are located due to their great product and service offerings.
Hence, growing non-matured brands may have to think twice about this big move. It may not be a good move after all and may be better to stay in the malls with a better footfall after COVID-19.
3. Will Retail Malls Rental be Lowered after COVID-19?
We do not have a definite answer to this burning question.
However, we believe that even if there is a revision of the asking rental in the malls, it will not be significant as most malls are operating on a fixed running cost and they have to answer to their shareholders should earnings drop.
Thus, the maximum they can do is to start off with a slightly lower rental in the first year and buffer the costs back over year 2 and 3. (Malls practice incremental staggered rent – Find out more using our rental calculator and read more on our: Understanding Mall Rental Rates)
That is our current take on this question and we believe that our friends in leasing will be communicating with us with more insights into the current leasing market.
We Have Your Interest in Mind
In conclusion, if you’re a business already in malls or are looking to enter malls, these are the 3 key takeaways:
- Streamline and innovate your business
- Think of reasonable and doable ways to cut the right costs
- Don’t bank on the malls reducing rent. Think about how you could offer more products/services so that you could charge a higher premium for your passion to satisfy your customers (see 1.)
And as always, if you have any questions, our team will be able to advise you and point you in the right direction. Do let us know how we can help you on your journey!
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