The resurgence of stock markets in the second quarter was at least partly a bet by investors on a strong recovery in the second half of the year. However, the optimism didn’t extend to retail property. For most of the quarter, the Dow Jones U.S. Retail Reit Index was trading more than 40 per cent down from its 52-week high. In Asia, the stocks of mall REITs from Hong Kong to Singapore were being hammered. If stock markets really are any kind of realistic window into the future, then a lot of retail property owners would want to slam it shut and draw the blinds.
The financial markets are not the only major forward indicator of the industry’s future. One that has slipped by almost unnoticed is the withdrawal from the global stage of the industry’s largest professional trade group – the International Council of Shopping Centers (ICSC). I’m particularly sad about it because for a while I was its head of research at a time when it was globalising.
ICSC, which is headquartered in New York, once had offices in the UK, Asia and Latin America. Now they are all gone. In Asia, the China office was shuttered in 2016 and by last year its Singapore office had met a similar fate. ICSC is now back to where it started – a North American trade group servicing the interests of primarily US shopping centre operators.
This leaves a vacuum in the region that will be more noticeable now, since a strong trade association has a useful role to play in the post-pandemic world. One of these roles is unfamiliar but increasingly urgent: to start engaging with the region’s governments and media to reverse creeping perceptions that tourists are of little benefit to local economies and, to put it bluntly, are badly-behaved bringers of disease.
Thailand is a case in point. In a national opinion poll conducted by Suan Dusit Rajabhat University from 9-12 June and reported in the Bangkok Post, more than 75 per cent of respondents answered “No” when asked if they wanted tourists to return to Thailand soon.
International travel and tourism
Perhaps in contrast to the local consumers, shopping centre operators and retailers would love the tourists back, but fear of the pandemic and hesitancy on the part governments to reopen their borders has made it increasingly unlikely that a ‘new normal’, when it solidifies, will be anything near as vibrant as the old one. The hit to retail spending in Asia is material and the implications hugely concerning.
Thailand again exemplifies the problem. According to the Mastercard Global Cities Destination Index, three Thai cities – Bangkok, Phuket and Pattaya – are all in the top 10 most visited destinations by international tourists. It now appears that the decline in international visitor traffic in 2020 across Asia will be somewhere on the order of 80 per cent. If we take – 80 per cent as a starting point, I estimate the loss to retail sales (including food and beverage) in the three cities amounts to approximately US$13.8 billion in 2020.
Applying an 80 per cent reduction in international tourism across the ten most visited Asian destinations results in a loss to retail sales of US$48.9 billion in 2020 in those destinations alone.
Countries in the region have been falling over themselves to reassure tourists that they aren’t welcome. Cambodia had a booming tourist industry before the pandemic and international retailers were entering the country to take advantage of rapidly improving real estate platforms. The country suffered relatively few cases of the virus, but slapped the trickle of incoming visitors with a US$3,000 deposit on arrival. This was to cover testing, accommodation and food at a government-designated location while awaiting the results, and then hospitalisation in the event of a positive test result (credit cards were accepted for those who don’t usually carry 3,000 bucks in their trouser pockets).
It gets worse. Novel post-pandemic tourism doctrines have been floated by government officials that discriminate in favour of particular groups. Travel bubbles are being considered that could have the perverse effect of damaging tourism and retail further by delaying the timing of open international travel.
Walls are going up and travel bubbles are one way of faking the appearance that they are really coming down.
Retailers and shopping centres beware: Lockdowns are popular
Should the pandemic linger, or in the inevitable event that other pandemics come to visit us in the future, further lockdowns are possible and these would include a tightening of restrictions on international travel. The effects on some retail and retail property are likely to be terminal.
Experience with public reaction to lockdowns across Asia in the second quarter suggests that they were popular, even among those who appear to have most to lose. Indeed, governments around the region that have imposed some of the most stringent lockdown measures have seen massive boosts in their poll ratings. Narendra Modi’s government in India was on particularly shaky ground until he imposed a sudden 21-day lockdown with four hours notice on March 24. Since then, the government’s popularity has soared, sometimes reaching 90 per cent.
There has also been strong resistance in some quarters to actually coming out of lockdowns. Although it might seem counter-intuitive that the loss of livelihoods would lead to a universal push for normalisation of business, this has not always been the case.
The constant buzzing of food delivery motorbikes, while restaurants stay empty and lifeless, is testament to the reticence of people across the continent to go back to normal patterns of socialisation. Worse, if you’re a retail landlord, the sheer habituation of people to staying at home, avoiding restaurants, malls and anywhere else where you might need to share space with strangers, casts doubt over a return to the way we were.
Shoppers who were heavily into e-commerce before the pandemic are even more habituated to it now. And those who had their doubts before are now converts.
So when lockdowns ended, there were vast swathes of the population who simply carried on as though it hadn’t. Some even complained on social media that now their peace and quiet was at risk and made fun of people trying to go anywhere.
The mall marketing machine
One of the world’s best-known investment gurus, Warren Buffett had a famous one-liner: “You only find out who is swimming naked when the tide goes out.” Is this a tide-out moment for shopping centres?
Certainly it is a tide-out moment for the shopping centre marketing machine, which in recent years has gone into overdrive rebadging the industry as a place where people congregated not just to shop, but to socialise and enjoy ‘experiences’ as part of a ‘community’. The marketing spin has been tireless and was backed up by a changing of the guard in the mall tenant mix: in galloped a veritable cavalry of global fast fashion, food and beverage, entertainment and services, backed up by an infantry of all manner of kiosks, carts and pop-ups.
Now the pandemic has messed all that up. The marketers have fallen silent. Can a mall still be a community hub, a great gathering place for the masses? Does the community even want a gathering place? These are questions to which no one knows the answers yet.
Either way, rents obviously need to come down – significantly – and many tenants will be wanting lease terms to be restructured.
If any shopping centre format can benefit from this situation, it isn’t the enclosed megaprojects but rather the smaller, well-ventilated inner-suburban community malls in Asian cities that don’t depend on tourists or office workers but play instead to well-heeled locals.
Suburban neighborhood centres should also benefit from the work-from-home trend. These centres may well be the incubators where a whole new generation of retailers take root and flourish.
For centres that depend heavily on tourism, the future looks bleak unless the retail industry as a whole can pull together and help to reverse the growing xenophobia around the continent. A huge amount of shopping infrastructure is at risk. Tourism has been one of the gooses that laid golden eggs around Asia and around the world – now it’s being plucked before our very eyes.
Michael Baker is a retail consultant and former head of research at the International Council of Shopping Centers: firstname.lastname@example.org