How soon will the retail industry regain some semblance of normalcy, even as the definition of normal has changed since the COVID-19 pandemic? “It depends on when footfall will return to a certain level of acceptable normalcy, which will possibly be towards the end of the first quarter of 2021,” says Mark Tesseyman, CEO, LIWA Trading Enterprises.
“However, that there could be some kind of recovery in the region towards the fourth quarter of 2020 can’t be totally written off – except from a financial perspective. Having said that, the possibility of a second wave around that time can’t be underestimated either,” he adds.
As shopping malls and retail stores have emerged from the ‘great lockdown’ and reopened, businesses have started feeling slightly confident. “In the past couple of weeks – since the age restrictions have been lifted – we have noticed a considerable spike in footfall, which makes a difference,” Tesseyman shares. “Our conversion numbers have been better since the shopping malls reopened. We are still seeing less footfall, but higher conversion. However, our total business in Dubai is still operating at 30-40% of the normal level, which isn’t good enough.”
Tailoring trading tactics
The LIWA business is largely dependent on the UAE and, as such, it is witnessing a massive difference in consumption behaviour location-by-location.
“In terms of cash and profitability, The Dubai Mall used to be one of our best locations, which has really suffered during the past few months,” Tesseyman admits. “Whereas, we are seeing a 30% higher conversion rate at Yas Mall in Abu Dhabi. Our standalone, high street department store in Al Ain might even have one of its best years in 2020; it is the number one cash making store in our entire portfolio currently. We have had to divert stock to this store to ensure enough inventory to meet the consumer demand. The allocation plan and trading forecasts for each of our stores were done six months ago and the business landscape has changed significantly over this period of time. Hence, we have had to revisit deployment plans, which is extremely labour-intensive.”
Tesseyman opines that retail businesses have to think with a lot of clarity to survive the crisis. “Can we grab more market share when there’s less to share? We have started thinking on these lines through our trading tactics for some brands. If we have enough inventory and the logistic position is protected, we can trade more aggressively even accepting lower margins, if necessary, to improve our cash position and gain market share.”
The challenge is to strategise brand by brand, relative to whether it is a vertical or franchised business. In this regard, Tesseyman is popular for saying: “If your host brand catches the cold, you catch the flu!”
“During this crisis, we have realised that some of our franchise partners were more protected than others. Some are more agile to quickly change their supply model when necessary. We have realised the crucial importance of building franchise partnerships with brands that are more flexible to adapt to changing business environments,” Tesseyman observes.
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Rethinking investment decisions
In a post-COVID world, is LIWA considering shutting down some of its brick-and-mortar assets and invest more heavily in digital assets?
“We will evaluate redirection of spend, investing heavily to enhance our digital capabilities, while relooking our physical retail real estate portfolio,” Tesseyman responds. “We will examine if our store network can fulfill the omnichannel shopping experience. We will look at making our small stores larger in terms of experience. Lease renewals will also determine a lot of decisions on our brick-and-mortar portfolio.”
A case in point: LIWA operates the globally largest GANT store in The Dubai Mall. Is such a set up still relevant?
“That store is a beautiful showcase of GANT’s breadth in terms of the product range,” Tesseyman affirms. “We have one such store and may not consider opening another of a similar scale. The commercials have to make sense; that GANT store is able to aid our online business.”
A look at the bright spots
Despite the pandemic and the resulting slowdown, there are some bright spots. For LIWA, the bright spots have been its home businesses – DWELL and Simply Kitchen.
“As people have been largely at home over the past few months, the home segment within retail has generally done well. At Simply Kitchen, product ranges like cookware and bakeware have performed exceptionally well, so much so that we ran out of stock,” Tesseyman states. “With an evolved product range – now including some basic furniture along with bath and bed ware – DWELL has also done well. These two brands are actually not far off from our initial predictions for 2020. This comes as a genuinely pleasant surprise, at a time when our fashion brands – menswear and women’s fashion – are somewhat challenged, although kids wear is still relatively protected.”
Further, even as La Senza faces trouble globally, LIWA has got a grip on the business by switching from a franchise model to operating more independently. “We have turned a negative into a positive. Now, we independently source our merchandise and plan several other aspects for the La Senza business, which has improved our margin and profitability,” Tesseyman says.
“Overall, there will always be winners and losers; we have to be on the right side with innovative thinking and flexibility. Now is a great time to do stress testing and understand the strategy that works best for each business and brand,” he concludes.