Post-COVID Gulf retailers realign goals

As businesses in parts of the GCC began reopening in a phased manner, retailers are realigning critical goals. While the COVID-19 pandemic has severely impacted most businesses – around the world – and reshaped consumption patterns, retailers have and are confronting the challenges with agility and flexibility.

When COVID-19 bullet hit the GCC, businesses were unprepared for such an unprecedented crisis, but quickly developed a phased approach towards recovery. It included accelerated digital transformation, new ways of engagement, building supply chain agility and, importantly, standing united by sharing each other’s pain, among others.

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During the ensuing lockdown – in the UAE, Saudi Arabia and then other GCC countries – the primary focus was on the safety and well-being of people and pivoting businesses to build resilience. On April 24, as Ramadan began, the UAE government eased lockdown and movement restrictions, issuing stringent guidelines for reopening of businesses with limited capacity. Saudi Arabia and Bahrain followed suit. Even though complete recovery is difficult to predict, there are signs of optimism despite different retail segments facing varying degrees of challenges.

Waking up in a new world

Overnight, the world changed, observed Mark Tesseyman, CEO, LIWA Trading Enterprises. “Beginning of 2020, we were expecting to have one of our best years in recent times, estimating a 20% growth. We were well up on our budgets in January and February. Then COVID-19 happened, and the situation changed. Our obvious focus was on our people and customers. Then we had to quickly think of optimising what was left of the business when the lockdown became effective in the country after country. From reasonable to no revenue, we had to honestly communicate with our people about salaries and vendors and suppliers about payments and so on.”

“In the beginning, it was a shock, but we quickly went into the response mode. Although we did not know how long the pandemic would last, we had to think about our cash situation and focus on our people’s well-being. We also had to keep the communication alive with our customers,” said Marwan Moukarzel, CEO, Fawaz A. Alhokair & Co.

“We quickly realised that food security is a huge responsibility and not anymore, a business proposition,” added V. Nandakumar, chief communications officer, Lulu Group International.

“The first six weeks of 2020 were amazing,” said Naim Maadad, founder & chief executive, Gates Hospitality. “But that changed towards last week of February as the hospitality industry got stripped off from any kind of first-hand experience as dine-in venues shut down, and hotels and airlines saw massive declines. And our industry is all about creating great first-hand experiences.”

“Our business is also public-facing,” added Timothy Earnest, group director, Al-Futtaim Malls. “Shopping malls – especially in the Middle East and more so in Dubai – tend to be big, as they are built to accommodate many people. When an unprecedented crisis hits and business shuts down, it requires a completely different approach compared to anything we may have faced before. Our foremost priority was to protect the welfare of our employees. Then we turned the focus towards our ‘primary customers’ – our retail tenants – swiftly and effectively communicating how we would collaborate to overcome the crisis. We announced immediate rent relief for our tenants.”

Lockdown creates pent-up demand

Consulting firm McKinsey & Company estimates revenues for the global fashion industry to contract by 27-30% in 2020 year-on-year and regain growth of 2-4% in 2021. At a time when consumers might be reluctant to discretionary spending, fashion retailers are positive.

“Our sales are encouraging despite the current situation when there is no refund, return or trial room facilities. Despite 30% of mall traffic and reduced operating hours, we are clocking similar or slightly better numbers compared to the same period last year, on similar days during Ramadan,” shared Moukarzel. “It is a great time for retailers to focus on customer service.”

“There is a clear pent-up demand as people are looking to get out. Our standalone unit in Al Ain has been trading very well and recorded a 200% rise in sales compared to the same period last year. Our community malls based stored have performed much better than the ones in bigger malls. However, there are still concerns among people being close to each other. But in tourism-dependent cities like Dubai, businesses might take a longer time to recover,” Tesseyman stated.

Al-Futtaim Malls in Dubai – including Dubai Festival City Mall and Festival Plaza – also witnessed queues in certain stores owing to pent-up demand. “We see this demand even after operating at 30% capacity with age restrictions, strictly following social distancing norms. Also, entertainment centres are closed, so there is no knock-on effect. As more restrictions get eased, we will be able to understand some long-term trends,” opined Earnest.

Food retail sees the dual effect

Research firm KPMG estimated that F&B sales declined by 30-80% in March and probably more during the lockdown.

“These estimates are timid to the kind of losses we are seeing,” confirmed Maadad. “Even if the guidelines are to operate at 30% capacity, it is 10% currently, driven by weather, movement, age and service-oriented restrictions. Add to those mandatory requirements of wearing face masks and gloves, limiting dine-out experiences further. With delivery and takeaway services, people are opting to stay at home. I think the reopening of businesses happened prematurely and rapidly without having sufficient measures in place to ensure confidence.”

On the other hand, grocery retail thrived during the pandemic. As an essential sector, retail grocery sales rose significantly. “As the COVID-19 outbreak became apparent, we formed a high-level committee steered by our chairman, Yusuffali MA to ensure uninterrupted supply of products – even if it meant chartering flights to bring in essential perishables from around the world. Managing logistics in a restricted movement scenario was challenging. Our priority was also to ensure the stores were safe for employees and customers to instil confidence,” Nandakumar stated.

“The next 12-18 months will be particularly challenging for our industry. Even though restrictions are eased, it will be challenging to get people back to the ‘old norm’ of going out. Building social confidence will be a significant challenge as businesses and individuals are facing hardships, and we have to adjust to a paradigm shift,” cautioned Maadad.

Omnichannel is non-negotiable

In a post-COVID world, if there is one thing on which retailers have a consensus on, it is the necessity to offer omnichannel shopping experience.

“We were late in our digitalisation efforts to create an omnichannel shopping environment,” admitted Moukarzel. “Since offline is huge, at least in Saudi Arabia, businesses seemed laid back in their omnichannel initiatives. The pandemic forced us to learn fast, quickly establish a presence in the online marketplaces such as noon.com, Namshi, Mumzworld.com and Amazon.ae. Of course, we were already trading on a few online platforms, mainly with mono-brands such as Zara, Zara Home and Massimo Dutti; but jumping on to the online marketplaces have been a massive learning for us. By reacting quickly, we were able to increase our online sales by 700%, with online now accounting for 15-18% of our overall sales.”

LIWA also has a similar experience. “We launched our DWELL business online in less than two weeks, compared to GANT that took around six months. Our Simply Kitchen business is doing brisk business online through the Instagram platform. Both these are our home-grown brands, which has made us realise that development of our brands will be the way forward at least for a while,” shared Tesseyman.

“We are also ramping up our digital engagement with visitors,” added Earnest, “through click-and-collect service as well as digital loyalty and reward programmes. From an information-oriented interaction, we are keen to facilitate online transactions through our platform across retail, F&B and entertainment offerings.”

“What I am optimistic about is our social nature, and therein shopping malls will always have its relevance. We will certainly bounce back, but online is here to stay. Omnichannel isn’t a choice; it is a must-have,” Moukarzel emphasised.

While grocery retail segment has been open all along, Lulu Hypermarket has seen changes in consumption patterns, like rise in online ordering to the tune of 200-300% at a certain point in March.

“There has never been a better time to ramp up our online offering, which has been a focus area where we have already invested significantly to improve last mile and customer experience,” said Nandakumar. “To lessen the burden on the website, we also launched ordering via WhatsApp. We also introduced more self-checkouts for contactless shopping as well as drive-thru facilities. Overall, grocery basket sizes have gone up, as people are buying more but less frequently.”

“While we are not able to deliver the full dine-in experience, we are also leveraging the online channel to offer some of those experiences to our customers and engage with them – be it through home-schooling initiative wherein our expert chefs shared knowledge via social media or virtual quiz nights. Commercially, whatever we do is not sufficient to maintain the business. Still, it is vital for stakeholders – from businesses to landlords as well as financial institutions – to shoulder certain responsibilities for survival until the discovery of a vaccine and people have the confidence to re-engage,” Maadad stressed.

From transactional to experiential

After initial crisis management, businesses turned the focus to rewiring – developing omnichannel to contactless facilities, rethinking layout to readjusting supply chain.

Will consumers’ reasons for visiting shopping malls change, at least in the near term? Will retailers’ reasons to exist in a mall also change? For a shopping mall, will the change mean digitalisation initiatives, upping the entertainment proposition, rethinking tenant mix?

“A shopping mall is part of the social fabric. We have to accelerate the pace at which we were already undertaking initiatives around digital visitor engagement, expand food offerings – dine-in, takeaway, delivery to gourmet, enhance entertainment and experiential retail,” Earnest responded. “Our focus will be to engage with visitors, even if they are not in our facility.”

“Not now, but a year ago we decided to make our stores more exciting and technology-enabled,” shared Moukarzel. “Importantly, we will focus on making our existing stores more interesting rather than growing for the sake of growth. There could be possible consolidation, wherein a brand like Zara could become bigger, while some other brands might disappear.”

“We have to give people the theatre impact, social engagement as well as value for money to bring them back through our doors,” Maadad observed. “We have a huge responsibility to regain our customers’ trust in a situation where 40-50% of the F&B industry may not even survive the pandemic.”

Tesseyman feels that the population density in the Middle East is quite low, compared to retail GLA per capita. “There is way too much space. As new shopping malls come up, there will be more secondary locations. Especially after this crisis, retailers will become overly cautious about discretionary spend on capex. The digital piece will play a big role but must be fit for purpose for the local markets. Even though there has been exponential growth in digital sales, the delivery infrastructure needs massive improvements. During the lockdown, some big players have not been able to fulfil orders even after 15 days, so there are frailties in the model. There is an interesting knock-on effect for the shopping malls, as retailers like us would look at making ‘small stores large’ by broadening the offer. Customers in the Middle East will always visit shopping malls. What we want to offer to them is the ability to buy a product digitally within our brick-and-mortar environment, even if it is not on display in the store and choose doorstep delivery or pick-up options.”

Being true partners

The importance of unity and collaboration has become apparent in the post-COVID world because, during a crisis of this scale, no one emerges a winner!

For example, Al-Futtaim Malls was one of the first developers to announce rent relief for retail tenants. “We aren’t only developers; we have our retail business too. We understood, back in March, the replications would be long drawn. That is why we immediately announced three months of rent relief for eligible retailers. Eligibility was determined by our relationship with the tenants based on any outstanding issues. Post-June, we will re-evaluate the situation – category by category and case by case. After all, shopping malls will not be successful in the absence of our retail partners. We will be sensible in our approach in the future and expect the same from the other stakeholders.”

“The whole ecosystem is under pressure. It is no longer about negotiating; it is more about partnering to offer a great experience to customers,” opined Moukarzel. “As such, landlords have been supportive. The challenge is to determine when the basic rent structure will again become effective, which will depend on when sales will rebound. Having said that there could be some empty spaces to fill in shopping malls.”

“Rent relief is always welcome, and we have a solid partnership with our landlords. The difference lies in the approach of each landlord; some have been very prompt and bold in their statements, while we haven’t yet heard from the others,” Tesseyman pointed out. “Some might be waiting for government stimulus and legislation because if they get some relief, it will be passed on to tenants. If everyone is treated fairly and equally, it is alright. The last thing tenants want to see is landlords overlooking smaller businesses – which may perish due to lack of support – in favour of the large groups.”

“Besides, the banks could be power brokers in the room for many retail businesses not only for survival but also to grow,” he observed.

“Every stakeholder must shoulder their responsibility. In my P&L the biggest entry is rent. How can we think of paying rent when our venues were not operational and ‘fit for purpose’? Now that we have reopened and working with limited capacities, the challenge is to find out how best we can work with landlords and financial institutions to resume rent payment gradually. Until then, transparency and unity should prevail for each one of us to get a fair chance of survival,” said Maadad.

On its part, Lulu Group has formed different kinds of partnerships during the lockdown. “We had to scale up and deliver quicker, which led us to partner with the likes of Zomato, Careem Now and RTA Dubai Taxi,” shared Nandakumar.

Preparing for a new tomorrow

Pause for breath and think carefully about which strategy is going to serve each brand and the overall business recommended Tesseyman. “Look at your priorities and be brave to innovate, possibly with the digital piece at the forefront. A lot of retailers will also look to minimise risks. Companies will have to become leaner, sharper, and faster to be able to maximise opportunities that come our way. In our case, managing inventory is a key focus. We must rethink merchandise assortment, as plans made last year are no longer viable. We also have to adapt very quickly and change strategies for locations that are doing well versus those that aren’t.”

“Going forward, for us online is ‘the’ opportunity. It helped us tide over the crisis in the last six weeks. Our organisation has transformed in terms of mindset towards shifting investments. We must revisit our investments, prudently decide where we should go, which brands we should we keep. There will be consolidation. We need to do more with less – fewer stores, less but relevant brands and unfortunately, with fewer people on the ground,” added Moukarzel.

“Changes in the floor plan, seating capacity, reservations will take place in the short-to-medium term. In the long-term, if a vaccine is found and there are indications of overcoming the pandemic, people will resume life as we knew before COVID-19,” stated Maadad. “On our part, we must be nimble, agile and connected to be able to plan faster. Importantly, we need to own the communication with our audience.”

“Once we get past the fear, anxiety and negative impact of the pandemic, we will be able to gauge how we can get better and stronger,” Earnest observed. “Right now, our focus is to get through the next three-six months.”

Compared to the global markets, GCC countries are optimistic about the reduction in the risk of the spread of the virus, Nandakumar pointed out. “A study that we commissioned indicated that most people surveyed in the UAE and KSA feel it is a short-term situation and will tide over soon, within three-six months. They are expecting the situation to normalise within three and a half months, against a global benchmark of five months. These are optimistic signs for retailers to plan and ramp up for a new tomorrow. Of course, we must relook at how we do business – from procurement to product mix, store layout to health and safety measures.”

 

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