• Marianne Roth, Senior Manager |

Keyfacts

  • The retail sector has not yet overcome the consequences of the spring lockdown.

  • Many customers are switching to online retail, and brick-and-mortar shops are suffering as a result. Consequently, there is fear of insolvencies and vacant shops.

  • Owners of retail properties should now carry out detailed analyses and develop alternative concepts.

Although the retail sector is not affected by the current "lockdown light", large parts of the industry are again suffering huge sales losses. Retail properties need comprehensive, active management and alternative concepts so that they can use the properties attractively in the medium to long term.

The consequences of the first lockdown have not yet been overcome

In March 2020, the Covid-19 pandemic led to a first, hard lockdown of the economy and trade, with the closure of many businesses. The loss of sales for the affected stationary retail sector alone is estimated at around 30 billion euros. The onset of easing and the recovery of the overall economy allowed the retail sector to recover slowly.

Direct effects of a lockdown without shop closures

With rising infection rates, the decision to "lockdown light" followed from 2 November, initially until the end of the year. The renewed lockdown included the closure of eating establishments, leisure facilities and the majority of cosmetic services. Although the stationary retail trade has not been directly affected, there are expected to be far-reaching consequences. The first analyses of the HDE trade association show an average drop in sales of more than 30 per cent in November compared to the previous year's figures. The analysis shows that the clothing sector has been hit particularly hard, struggling with sales declines of around 40 per cent in open shops and having to pay running costs. 

With the "lockdown light" now extended until the end of the year, retailers fear continued low sales and that even the much-needed Christmas sales will not meet expectations. Recent surveys by Verizon Media suggest that more than 70 per cent of Germans plan to spend a similar or increased amount over Christmas, despite the current economic uncertainty. However, they prefer to do so online.

Expected consequences of the new lockdown

The second lockdown thus reinforces the current trend of shifting market shares towards online retailing. For example, the online share in the "fashion & accessories" segment has risen by about 50 percent in the last five years to a market share of around 30 percent. This increase shows that even before Covid-19, bricks-and-mortar retail was struggling with significant sales losses.

Covid-19 is now accelerating the ongoing structural change and thus leading to further reductions in stationary retail sales with sharply declining space productivity. A significant increase in insolvencies in the retail segment has already been evident this year, and it can be assumed that below-average Christmas sales will lead to more retailers going out of business, especially in fashion. In order to counter declining space productivity, a large number of operators are being forced to consolidate the branch network on the one hand and to reduce the costs of the individual spaces on the other. 

I assume that this development will lead to significant segmentation of the market: while a change in supply and (in some cases) declining rents are to be expected in the prime locations in large cities, I expect that the spaces outside the prime locations or in shopping centres will find it increasingly difficult to serve as retail area in the future due to the lack of demand. 

Initial analyses show that shopping centres are suffering more as a result of Covid-19. Studies show that more than half of retailers think that business in shopping centres is worse or much worse than business in city centres. The analysis also shows that out-of-town centres dominated by grocery retailers are coping comparatively well with the crisis. The operators of inner-city centres with a high share of fashion, on the other hand, are clearly more dissatisfied.

Acting with foresight helps to secure cash flows

Due to the expected increase in insolvencies and vacancies, property owners should now act with foresight and anticipate possible consequences for their properties. Early and continuous discussions, as well as ongoing monitoring of tenant turnover, will allow owners to gain an in-depth understanding of each tenant's performance and likelihood of default. 

I recommend that owners prepare an adapted master plan early on that takes into account the anticipated reduction in overall retail space. Possible complementary uses for non-ground floor space include for office and service purposes, and could also be addressed to the health sector (doctors' surgeries, physiotherapy and massage practices, etc.). The goal should always be to develop a clear, recognisable and stringent concept for the respective property and then to implement it consistently. 

What is also necessary is early and cooperative collaboration with the relevant authorities in order to quickly implement any necessary requirements due to changes in planning law and to create opportunities for new uses, such as housing.