Property consultant Colliers International said the rising number of corona virus disease 2019 (COVID-19) cases in the Philippines has the tendency to reduce mall traffic, resulting to retailers taking a hit.
“The lower consumer traffic is likely to affect retailers, especially those occupying brick and mortar space,” said Joey Bondoc, head of research at Colliers Philippines.
Stock brokerage firm Unicapital Securities Corp., in a study said foot traffic in malls across major cities has dropped more than 25 percent, which is severely affecting revenues and cash flows of mall tenants.
Jennylle Tupaz, AyalaLand Malls president, said the company will continue to monitor developments following the surge in COVD-19 cases.
Tupaz said in a text message that after news of the outbreak in the fourth week of January, the company experienced a 5 to 10 percent drop in foot traffic immediately the following week or the first week of February.
Foot traffic normalized after that all through the first week of March.
“We are analyzing if there are things that stand out in each mall relative to behavior, considering that traffic has normalized. This would be probably more noticeable after this week’s news. We will monitor,” she said.
Tupaz declined to give figures on the impact on sales but said the malls were on target last January.
Mall events have also been cancelled.
Tupaz said Filipino shoppers have now become more conscious about hygiene and cleanliness, and this reflects in their shopping behavior.
StevenCua, president of the Philippine Amalgamated Supermarkets Association, said retailers are running out of face masks and alcohol while disinfectant is in demand.
Based on feedback, some stores are seeing panic buying cases “which is not good.”
Which is why we have provided hand sanitizers all around, as well as implemented intense measures on disinfection and sanitation, to assure everyone that their health and safety are a priority to us.
The slowdown in retail sales could cascade to the property segment.
Bondoc fears a rise in vacancy rate, now at 10 percent, this quarter through the second quarter due to the closure of smaller retailers due to lower footfall in malls.
“On the supply side, we are projecting some 1.1 million square meters (sq.m.) of new supply from 2020 to 2022. Vacancy is now at 10 percent and this is likely to increase in Q1 to Q2 2020 We have seen this in areas where there were suspected cases of COVID-19 and it will take some time before the consumer traffic recovers,” Bondoc said.
Bondoc said COVID-19 is causing cancellations of public events that is “likely to affect the sales of retail shops.”
He also sees lease rates growing at a slower pace, which at present is about 1 percent to 2 percent per annum.
“The travel ban to and from China, the Philippines’ second largest source of tourists, is likely to dampen foreign arrivals and retail spending. Note that the Chinese now account for about 22 percent of total international tourists. The travel ban will likely affect the sales of luxury retailers in key business districts such as Makati CBD and the Bay Area, particularly the retail section of casino-hotels,” Bondoc said.
Bondoc said mall tenants should use the opportunity presented by the COVID-19 situation to reposition themselves and expand their online-to-offline strategies.
“Online retailers and logistics operators should focus on senior citizens who are now embracing online shopping. Now is the more opportune time to maximize this,” he said.
Mall developers meanwhile should establish and/or revamp their e-commerce channels especially with lower traffic in physical malls due to the health scare, according to Bondoc.
Bondoc also suggested to mall developers to consider providing a rent-free period to their tenants given the adverse impact on sales and foot traffic brought about by the outbreak.
“The short-term rental relief measures are necessary to support retailers,” he said.
Unicapital said in the study the property sector will be the “hardest hit” in the current situation “with malls and hotels expected to post lower foot traffic and occupancy rate.”
This is seen to result to “slower 1Q 2020 (first quarter) performance from the biggest property players, specifically SM Prime (also has malls in China) and Robinsons Land Corp. (RLC), which have relatively large exposure to retail and hotel businesses.”
For direct consumption-dependent businesses, Unicapital said a “pure retail play” company will be able to absorb most of the impact from the contagion as consumers continue to flock to stores for staples.
Fastfood and full-service restaurants meanwhile are seen to take the brunt of COVID-19 “as the broader population would now prefer to stay indoors.”
“Restaurants with extensive food delivery service could soften the blow from the lower foot traffic. However, those restaurants located in contaminated areas might be forced to temporarily shut their doors, similar to what happened with Jollibee’s Yonghe King in the coronavirus epicenter Wuhan City, further hurting sales,” it said.
“History has shown that the businesses to be hit first, and usually the hardest, during a disease outbreak are those related to tourism (hotels, restaurants, retail shopping, tourist attractions, travel agencies), recreation (concerts, sporting events), transportation (airlines, cruise ships), and conventions / conferences. Whether it’s a government-imposed ban on these activities, or a voluntary move by the private sector, the objective is the same: to contain the spread of the disease by minimizing close human contact, especially in crowded places. The impact on these businesses is usually immediate and could be quite severe, as many people will either cancel pre-booked trips or simply avoid going to public places,” it said.
Unicapital expressed confidence big businesses can still somehow weather COVID-19’s impact vis-a-vis the small and medium enterprises, given the former’s greater resources and access to external capital.
“Many small- and medium-sized entities (SME), however, will not be as fortunate. With less resources at their disposal, SMEs can typically withstand the pressure of lower foot traffic and customer cancelations for only around 90 days (or less), before owners start to consider drastic measures such as retrenching employees, down-sizing, or closing shop altogether,” it added.
Unicapital said SMEs – mom-and-pop or family-owned travel agencies, tour operators, provincial hotels, retail stores, restaurants, event organizers, and the like – tend to operate with only a modest amount of cash buffer but a significant level of fixed costs (i.e. salaries and rent) that have to be paid regardless of the level of revenues.
“The bigger store chains can weather this type of storm more easily than the smaller mom-and-pop businesses. With more people opting to stay home, gasoline consumption is declining, but residential electricity consumption is increasing,” it said.
“On the bright side, traffic congestion and pollution levels are alleviated somewhat. The backend of the supply chain is likewise getting hit: logistics companies (such as 2GO and C) and port operators (such as ICT) have to deal with high fixed costs and lower revenue due to declining trade volume,” Unicapital added. (With I. Isip)
