The first half of 2020 has been arguably one of the most challenging periods the Thailand retail industry has faced in over a decade. The international property consultancy CBRE says the degree of uncertainty in the second half of the year remains high. Retailers and developers alike must be adaptable and step up their e-commerce penetration to survive.
Measures put in place to contain the spread of Covid-19 in the first half of the year dealt a significant blow to the retail industry, along with tourism.
"What we have been seeing in the past three months are brand-new challenges that took everyone by surprise," says Jariya Thumtrongkitkul, head of advisory and transaction services (retail) CBRE Thailand. "For around two years, we have been saying that those who cannot adapt quickly enough to the shifting retail landscape will not survive, but this is on another level. Retailers have to change their business operations, not only to match the drastic drop in footfall but to accommodate a new way of shopping."
The Retail Sales Index in May 2020, according to the Bank of Thailand, dropped by 34% year-on-year, largely due to the decline in sales of motor vehicles and fuel. The Consumer Confidence Index dropped to its lowest point since 1998 at 47.2 in April but managed to recover slightly in July to 50.1.
While retail sector same-store sales growth for the second quarter has not been released, negative figures can be expected from both food and non-food retailers as the country was in a heavy lockdown for almost the entire quarter.
As business restrictions began to ease, CBRE observed that many landlords used a variety of sales and marketing strategies aimed at stimulating customers' purchasing power. These included grand sales of longer duration, and more frequent mall activities to help both permanent and temporary tenants. Some also provided more flexible rental terms to retain existing tenants.
Landlords were not the only people adapting to new conditions. CBRE also noticed that retailers who used to rent larger spaces were growing more familiar with using online platforms. Consequently, they are now refocusing their business online, resulting in resizing or cancelling current rental spaces in many retail centres.
According to the Asia Pacific Retail Flash Survey conducted by CBRE Research in May 2020, the majority of food and beverage and other "experiential" retailers will be focusing on opening fewer stores or taking up smaller physical footprints for the second half of the year.
"Once the situation returns to normal, resizing existing rental space will become a more and more important approach that tenants can take to be more cost-effective, especially for small and medium ones," Ms Jariya said. "Shopping mall operators thus need to revise their trade and tenant mix allocation more carefully and in a more granular way."
The Covid-19 outbreak has accelerated the pace of change in traditional retail business while also accelerating the growth of online retail at the same time. Developers will thus need to reconsider the development model of new malls to better suit the changes in shopping behaviour and better adapt to any unexpected events in the future.
Convenience, hygiene, flexibility and online will be emphasised more for future retail developments in the post-Covid-19 era.
Going forward, CBRE believes e-commerce penetration will not be an option but a must for both brick and click businesses to survive. But the retail sector will be slow to fully recover unless tourist arrival figures reach a similar level to the pre-crisis period.