With a few European countries now taking the first tentative steps towards the lifting of some COVID-19 restrictions, what can be learnt from experiences in Asia? The latter continent is generally thought to be in advance of Europe in terms of emergence from the pandemic crisis. However, it should be borne in mind, that as in Europe, so in Asia, the context and outcome vary by country, largely dependent on the government’s approach to the dealing with the spread of the virus. Some countries have had very strict quarantines/lockdowns (China, Hong Kong, Singapore) and others have continued to operate pretty much business as usual (notably Taiwan and South Korea). Other countries lie somewhere in between these ‘extremes’, and indeed a number (e.g. Japan, Indonesia and India) are behind Europe.
There are a few common themes that have emerged from China and Hong Kong, though even in these markets, it is still early days. In China and Hong Kong consumers are emerging slowly and returning to work and to the shops, but footfall and retail sales are still down on the same time in 2019. In South Korea shopping centres (stores were never forced to close) are now very busy and reporting footfall at 85% of pre-COVID-19 and sales have recovered sharply over the first half of April. It is too soon to have any definitive sales or footfall statistics.
Many global brands closed their stores in China and Hong Kong during the lock-down period and staff were laid off. Some of these closures may now be permanent, as part of a strategic realignment, as sales have been significantly impacted (something that is undoubtedly likely to happen in Europe too). While some mass market fashion brands have suffered recently during the COVID-19 crisis, there were already other underlying factors which have arguably speeded up the process, notably the rise of domestic competition, particularly in China. The sentiment is however that consumer spending is still there, and it will come back (known sometimes as ‘revenge’ shopping following being the lockdown).
Restaurants and other food & beverage outlets have been heavily impacted first through enforced closures, and now through social distancing requirements of 1.5-2m distance between tables. Additionally, in China consumers have to have their temperature taken upon entry and provide their personal details for future tracing (if required later). WeChat (Chinese WhatsApp and used for everything) can monitor individual movements for the previous 14 days, which in turn can also restrict entry into shopping malls and offices, if people have been in a still restricted area. All these measures combined have resulted in a reduction in the number of possible covers and turnover. Generally other forms of leisure such as cinemas and gyms are still closed and are likely to remain so for some time.
Online retailing has been important and particularly for online platforms such as Alibaba in China, rather than brands’ own websites. Some brands represented in Hong Kong have been reporting record online sales volumes (for example Estée Lauder’s sales reportedly increased three-fold). Supply chains have been impacted, with one of the main concerns being getting the stock to service the purchases made online.
The response from landlords of shopping centres has varied over time. Back in February for instance landlords in China were prepared to offer some rent concessions for a few weeks, there are few free periods now. In Hong Kong, major landlords are offering rent concessions on a case by case basis and these are largely determined by a tenant’s performance in the past and currently. Some examples include offering a 20% concession on a monthly basis; leases due to expire are being extended by 12 months at a more attractive rental level, or tenants may be asked to pay half of the rent owed now with the balance to be paid after 6 months in instalments. From the end of April there are unlikely to be any short term rent concessions in South Korea. Going forward, across all markets there are likely to be corrections to retail and F&B rental levels.
Much remains uncertain and it is still early days, though we do know that how people will think, feel, shop, play and even work, has likely fundamentally changed and there is unlikely to be a return to ‘normal’ (pre-Covid). In the future, underpinning these changes in attitudes and behaviours will be a sense of confidence that they are as protected as possible when shopping, eating and drinking out and socialising.
Some key learnings from China, Hong Kong and South Korea have shown that a healthy workforce is crucial, so getting employees back to work in shopping centres and shops is important. Hygiene will be key in all its forms, whether it’s through thermal scanners/thermometers, more hand sanitisers, the provision of masks, clear social distancing guidelines, increased ventilation, regular and visible cleaning of common areas, limiting the number of people allowed in stores, one-way systems, or through customer tracking (though this may raise privacy issues in Europe) etc.
While we may learn from some Asian countries’ experiences to date, with more European markets beginning to reopen, monitoring their progress will arguably be more relevant given the greater similarities in social demographics and shopping habits. The key will be one of phased openings over the next few weeks with restrictions on store sizes that can open, customer numbers in stores, sanitation of both stores and products. With reduced tourism in some markets in the short term and uncertainty in the medium term, lower footfall levels and customer spending will exert pressure on retailers’ margins. The most important factor will be to increase consumers’ perceptions of health, cleanliness and increased confidence that it will be safe to shop, spend and in turn create value for tenants, owners and investors alike.