With our second in-depth analysis of COVID-19’s impact on Myanmar’s property market, we look at the retail sector. Occupiers of retail property operate under a completely different set of drivers than other sectors. Traditionally, retail occupiers rely on pedestrian traffic to fuel their business, as well as marketing and promotion, which is usually undertaken by the asset owner of the larger retail malls to generate footfall. The government-imposed movement restrictions, therefore, have had a significant impact on traditional retail business. Both owners and occupiers of retail space have been affected by COVID-19 in different ways and in this brief, we look at how they are dealing with the challenges posed by the pandemic.
The retail sector has arguably been the most seriously affected by the COVID-19 pandemic as stores continue to remain closed locally, regionally and globally. Retailers, both in Yangon and wider Myanmar have expressed the severe damage that COVID-19 has done to their business continuation as consumers self-isolate and many townships are placed under lockdown. Some of the main impacts that retailers have cited have been store closures, plummeting revenues and supply chain issues. Non-essential goods, leisure and entertainment facilities have been particularly rocked by COVID-19. A director of a leading international cinema chain that has operations in Myanmar commented that “the cinema industry has been severely affected due to COVID-19 in Myanmar. Not only has our cinema business been damaged, but our temporary closure will hurt shopping mall traffic and other small tenant businesses in the malls where we operate.” He went on to say that asset owners in the USA, China and Vietnam are “waiving management and rental fees for cinemas during government-imposed shutdown periods.”
Many retailers have managed to retain their outlets as landlords have been swift to offer reduced management charges, rent relief and other incentives to keep leases alive. However, even with landlords offering rent reductions and/or rent holidays, some retailers have cited that they may be compelled to enact the force majeure clause in their contract. Although this is the case for some retail tenants, most of those that SPS spoke to are confident they will remain in their retail spaces and reopen as soon as they are permitted.
Those retailers that have remained open, generally supermarkets, pharmacies and restaurants offering food for collection and delivery, have all had to overcome hurdles in supply chain management, panic-buying and hygiene control. Grocery and F&B retailers have tried to rectify supply chain issues by sourcing new local suppliers. For example, James Hudson, Director of F&B at Worldbridge, told SPS that they have “secured other, more local, suppliers of produce to ensure we can keep supplying valued customers”. Furthermore, supermarkets are looking to further diversify their supply chain so that they do not become dependent on one particular supplier or region should further issues arise. This will also allow grocery retailers to keep shelves stocked if the situation deteriorates further, causing another wave of panic-buying, which has encouraged some supermarkets to introduce purchase limits on certain items.
Retailers have managed to continue to operate by adopting the Ministry of Health and Sport (MOHS) guidelines to ensure that the risk of COVID-19 transmission is minimal. The measures include providing face masks and hand-sanitizer to staff and customers, as well as encouraging individuals to keep a safe distance between themselves and others whilst shopping. A statement released on April 10th by City Mart Holdings CEO, Glen Attewell, stated “we have introduced measures in the store to help practice social distancing, and even produced a video to educate everyone about it.”
Many retailers have offset in-store losses by utilising online platforms to try and serve customer demand in a new way. One popular Yangon cafe told SPS “obviously now is not a good time for F&B but we will continue to operate takeaway and delivery services for our customers”. F&B and grocery outlets have been particularly successful at providing online services as apps and websites, such as Yangon Door-to-Door, deliver goods to consumers in townships that are not under lockdown restrictions. Nikki Barltrop, COO at 57 Below, who operate restaurants such as Parami Pizza and Gekko, told SPS that they started creating contingency plans when news of COVID-19 started coming out from China. She stated that this “gave us time to think how we could pivot our focus to online deliveries and implement new product ranges, such as our ready to cook ‘Parami at Home’ range.”
As a large proportion of consumers have adopted social distancing and been forced to stay home, it is likely that online shopping orders have increased significantly. An Emarsys initiative in cooperation with GoodData, ccinsight.org, which is tracking global commerce during the COVID-19 pandemic, recently found that online orders in neighbouring Thailand had increased one hundred and eighteen percent and two hundred percent in Indonesia from the same seven-day period in 2019.
Among others, Metro, Capital Hypermarket and City Mart have all made use of their online platforms and continue to provide online shopping and delivery services for their customers in selected townships. The City Mart Holdings statement also noted that City Mart “are continuously increasing [their] capacity to deliver and accept orders through [their] online store.” In order to do so, City Mart assigned one of their stores “to exclusively fulfil online transactions.” Furthermore, one Yangon fashion retailer told SPS that they were planning to expand their online capabilities significantly as they fight to retain their clientele during the pandemic.
However, not all retailers that have tried making the move online have been successful. On April 23rd, Yangon Farmers Market announced on their Facebook page that they were ceasing their online shopping services, citing that it was “not a sustainable option” for them. Therefore, although the move online may seem like a saviour for many retailers, there is no guarantee that it will be a sustainable option over time. With that being said, as COVID-19 encourages more retailers to adopt online sales platforms it is likely that the long-term structural shift online will be accelerated during this crisis. This will put further pressure on retailers to offer unique shopping experiences, as investors look to expand Myanmar’s ecommerce sector.
This is further supported by the government plans that are outlined in the COVID-19 Economic Relief Plan, which was published on April 27th. According to this document the Ministry of Commerce (MoCOM) is spearheading plans to set up a “central e-Commerce website”, get “five delivery/logistic businesses functioning” and get “at least five to ten big retail businesses” making online sales by the end of the year.
There is no question that the virus has forced retail businesses to re-evaluate the way they conduct business and it is clear that the retailers that will survive and flourish post COVID19 are the ones that are able to reinvent themselves and modify their business models.
Examples of measures being taken by retail occupiers
The effects on retail businesses have in turn put pressure on retail asset owners and landlords, however, Yangon’s major retail malls such as, Myanmar Plaza, Junction City, Junction Square and Kantharyar Centre have all continued to stay open, albeit with substantially fewer shopping options available. These shopping centres have largely remained open to allow essential services such as pharmacies and supermarkets, to continue to operate. Some shopping malls, such as Taw Win Centre, have been forced to close their doors as shop owners choose to cease operations or are issued closure notices by authorities. Overall, open shopping malls have tried to prevent the spread of COVID-19 by following MOHS guidelines, limiting shopping hours, closing non-essential services, and asking staff to work alternative shifts or remotely where possible. As the situation develops, some shopping centres are allowing non-essential stores, such as cosmetic and fashion retailers, to reopen. On May 3rd, Junction City announced on their Facebook page that they “continue to serve” and released a list of retailers that would be able to operate between 9:00 AM and 7:00 PM.
In a bid to make sure they hold on to as many tenants as possible, landlords in Yangon were swift to take action and offer retailers reduced management charges and rent relief. Yuan Cheng, Leasing Director at AMSS, the developer of the Kantharyar Centre, commented; “like all retail mall owners, our retail tenants are finding times very difficult. We are working closely with them and look forward to a quick recovery so we can open our doors again and work hard to generate customers to our mall.” Speaking to a variety of landlords, SPS typically found that asset owners were offering tenants rent relief of approximately twenty to twenty-five percent or a rental holiday for April and May. Many cited the forced closure of certain shops as the main reason for offering rent relief packages. According to an article released by The Myanmar Times on April 28th “the rental fees at Junction Centre will be reduced by twenty-five percent in April, May and June, while rentals at Hledan Centre, Gamone Pwint, Capital Hyper Market, and Ruby Mart were slashed by between twenty percent and eighty percent in April.” However, even with offering such packages, landlords are expecting tenants whose leases are coming up for renewal in the next six months to negotiate hard to reduce their net effective rent.
Nikki Barltrop, from 57 Below, also indicated that landlords of stand-alone buildings were offering relief packages in response to COVID-19. She told SPS that they have “good relationships with [their] landlords and are working with them towards more flexible payment plans.”
As the COVID-19 pandemic passes, retail landlords are expecting a very slow uptake of vacant spaces, especially as fashion and leisure retailers struggle to climb back to preCOVID revenues. In SPS’s November 2019 Retail Market Snapshot, we suggested that average rental rates in 2020 were likely to fall from US$28 to US$25 per sqm per month. Although we saw average rental rates hold at US$ 28 at the start of 2020, we can now expect rates to fall much closer to the US$25 mark following the COVID-19 pandemic (see graph below).
Retail asset owners will likely see income levels fall sharply, before facing the challenge of finding new tenants to replace the ones that have been forced to close permanently. With that being said, the recent news that seven foreign banks and four insurers have been granted operating licences in Myanmar will be welcomed by landlords as there could be reasonable demand from this sector. It is likely that each bank and insurer will be looking to open multiple 100 – 150 sqm ground floor retail units around the country. However, SPS have been informed that at least one of those banks will be suspending its expansion of retail outlets while ramifications from COVID-19 persist. SPS also spoke to a senior executive from one of the four international life insurance companies that are currently establishing operations in Myanmar after being granted a licence. They commented “As a result of the virus, we will be assessing our timeline in 2020 for the hiring of additional corporate and sales staff and our requirement for additional premises. This assessment will continue on a quarter by quarter basis and adjustments will be made in light of the situation with the virus”. It is highly likely that other foreign insurers and banks that have recently received retail licences will take a similar approach.
As displayed in the graph below, a large amount of new stock is due to come online in 2021, however, if there are significant construction delays in the latter half of 2020 due to COVID-19, we could see this figure increase further. With that being said, developers of projects that incorporate retail components have indicated to SPS that they expect to finish construction in line with their original timelines, as they have now adopted MOHS guidelines on construction sites. Upon completion and in the wake of COVID-19 some developers have noted that they will place a greater focus on tenant mix.
Even though the effects of COVID-19 on the retail property market has been significant; it will be one of the first sectors to bounce back. Whilst the major retail malls and high streets are closed with the exception of essential businesses, other non-essential businesses are slowly starting to open for business. Once the pandemic is under control and restrictions are eased, shops will open up for business quickly. Some tenants will face the real risk of insolvency and ultimately bankruptcy. The tenants that do survive will be the ones that can make the hard decisions quickly and reinvent themselves to meet changing market conditions. Pick-up and delivery, social media marketing and branding are key initiatives that can be implemented to increase business activity. The smaller retailers will take longer to recover as they will not have the financial resources to sustain their operations compared to the larger international chains.
Asset owners will have to work closely with their tenants and help them as necessary to ride out this loss in revenues otherwise vacancies will rise, rentals will face downward pressure and ultimately income will fall.
Owners who work closely with their tenants will weather the storm and face the least amount of negative impact on their developments moving forward. New health and safety measures will need to be implemented permanently and owners of retail malls must look to kick start their retail components after the virus has passed with events, promotions and marketing campaigns.