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The coronavirus pandemic has inevitably decimated many businesses across all industries, but for retailers in the UAE, the impact is far more severe than the landlords.
In a survey conducted in the UAE, Saudi Arabia, Kuwait and Bahrain, more than a third (35 percent) of merchants in the retail sector admitted that the crisis has cut their revenues by more than 70 percent during the first quarter of the year. By the second quarter, more businesses (59 percent) expect revenues to fall by the same degree.
In contrast, most landlords feel significantly less impacted, with only 9 percent expecting a 70 percent decline in revenues for March and June this year.
“The fact that landlords estimate their Q1 revenue impact to be significantly lower than the retailers’ revenue impact most probably lies in the fact that landlords generally collect quarterly rent in advance, while in contrast, retailers saw an immediate drop in revenue the moment stores were forced to close,” Colliers International, which conducted the survey, said in its report.
The consultancy firm said retailers are expecting the gloomy outlook to continue during the second quarter because the mandated business closures only happened towards the end of April, leaving merchants still “in shock and in damage control mode.”
“For Q2 and depending on how long restrictions and countermeasures will stay in force, they might believe the shift in consumer behavior will not have returned to levels that were seen before COVID-19, because consumers are expected to be cautious when going outside,” Colliers said.
While the pandemic is having a big impact in brick-and-mortar businesses, merchants who had put in place their own e-commerce platforms prior to the crisis, is hugely benefiting from a change in consumer behavior.
In Colliers’ survey, 59 percent of retailers that also cater to online shopping or home deliveries, have seen an increase in sales of 20 percent to more than 70 percent during the first three months of the year, while others are reporting 10 to 20 percent or less than 10 percent uptick in sales.
For the second quarter, 60 percent are expecting an increase of between 20 percent and more than 70 percent.
“The short - and medium-term outlook for retailers for their e-commerce business is optimistic, many retailers believe they have reached new customers and existing customers have started spending more online. Many retailers, therefore, believe this might result in an ongoing change in consumer behavior.
Supermarket operators had earlier told Zawya that their online sales have increased since the start of the pandemic, as fears over the coronavirus, coupled with the mobility restrictions, have kept many consumers away from the grocery aisles.
Almaya Group, which operates 50 supermarkets in the UAE and had an e-commerce platform in place before the crisis, reported that online orders in March alone increased by 30 percent.
At Carrefour, e-commerce transactions spiked by 300 percent, while at Union Cooperative, online sales increased by 223 percent to 18.7 million UAE dirhams during the first three months of the year.
Based on its survey results, Colliers said it is apparent that retailers in the region have been largely impacted by the crisis. However, the findings also indicated that there are opportunities for both landlords and retailers alike.
“The identified discrepancy between landlords and retailers in Q1 and Q2 revenues signifies the lagging effect of when exactly both parties feel the impact of reduced income flow. Physical store retailers were affected quicker and harder due to forced physical store closures; contrasting to the almost instant increase in e-commerce business,” Colliers said.
However, the consultancy firm said landlords are likely to see a greater long-term impact when retailers will have no choice but to close shop and there will be less demand for physical space as online shopping grows.
(Writing by Cleofe Maceda; editing by Seban Scaria)
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