It has been almost 7 months since the first COVID-19 case was officially identified in the Netherlands. Two weeks later, the Netherlands went into lockdown – with major consequences for the Dutch economy. Many retailers saw their sales plummet or even stagnate. Entrepreneurs are slowly starting to recover, but they are not in the clear yet. What consequences are clear already? What factors determine the traces the Coronavirus leaves behind? And what does this tell us about the future?
Recovery of footfall in shopping streets is stagnating
After the announcement of the lockdown on March 7th and the compulsory closure of the hospitality industry and a number of other sectors, footfall dropped dramatically. In the main Dutch shopping streets this resulted in a footfall of just over 20% of what it used to be.
However, with the gradual easing of the measures, more people started to visit cities again. In June, it seemed just a matter of time until footfall in the Dutch inner cities would recover to pre-corona numbers.
From mid-July onwards, however, the increase in footfall stagnated abruptly. The number of passers-by even decreased slightly, only to stabilise in the first weeks of September to just over 50% of what it was on 7 March).
Vacancy rate is rising less than expected
Many retail industries are experiencing major problems as a result of all of the corona measures. The hospitality industry was forced to close for a number of weeks and since the reopening, it has had to deal with measures that do not make it easy to cover costs. The same applies to sectors such as fitness, escape rooms and saunas. They have been closed for an even longer period of time and have therefore had a prolonged period of little to no turnover.
Normally, companies would have to close down permanently in these circumstances. But the government’s support measures clearly do have an impact. Vacancy has increased in recent months, but the increase is still slightly less steep than in 2019. In 2019, vacancy rates have increased by an average of half a percent per month. In the first eight months of 2020, this was slightly lower: vacancy levels rose from 7.3% to 7.6%.
What next?/ How to proceed?
For the retail industry, the main question is what will happen if the government support measures come to an end.
The general expectation is that without support measures, the vacancy rate will rise rapidly. How rapidly? Well, opinions differ. Figures of 20% vacancy at the end of 2021 (compared to the current 7.6% now) are even mentioned. It seems inevitable that vacancy levels will rise within the next year, but tripling rates seem highly unlikely to us.
What the vacancy rate can then come down to is one of the questions we want to answer with the Corona Impact analysis. In this analysis, the following elements are addressed:
Not all sectors are equally affected
Many sectors have suffered from the corona-measures, but the push for staying home has also been positive for some sectors. For example, between March and May this year, DIY stores achieved almost a quarter more sales than during the same months of 2019.[1] Supermarkets, home furnishing stores and electrical stores also sold more during the lockdown than during the same period in 2019.
However, industries such as the hospitality, clothing, and shoes showed a 30-40% decline in sales. Not only do people try to avoid busy areas such as shopping streets, but since people have to work from home and go out less often, it also reduces the need for a new wardrobe.
Differences between industries create differences between shopping areas
City centers mainly consist of hospitality and fashion retailers. Both these industries have been severely hit by the corona crisis. As a result, the city centers are the shopping areas that have been hit hardest. All while Big Box Retail and shopping areas for daily groceries have done particularly well over the past few months.
Thus, we see that shopping areas are performing differently compared to pre-corona. This has consequences for the future prospects of shopping areas. Old truths may have to be put aside.
What determines the prospects of shopping areas?
We already mentioned the footfall, the vacancy rates, and the composition of the shopping area, but there are more factors that are important. The most important of factors are:
Reliance on (international) tourism
In recent months, national governments have issued travel warnings and/or established a quarantine obligation for people returning from a large number of countries (or even specific regions). Some countries have even locked down entirely to foreign travelers, with unprecedented consequences for tourism. In some places, tourist numbers dropped to almost zero.
Cities such as Amsterdam, Utrecht and Maastricht – which usually welcome high rates of tourists – have a harder time than cities where visitors mostly come from their own region.
Reliance on employees
Most office staff still largely work from home. Most of these employees would go for a walk during their break and buy something, or visit a store in the immediate vicinity of the office after work. Now that office staff spend a lot of time at home, the shopping areas with a lot of offices are heavily affected.
Shopping centers in residential areas benefit because the purchases previously made near the office are now made in the vicinity of home.
Strongly increasing number of online purchases
The internet has been an important factor in reducing the number of physical stores for a long time. COVID-19 has given this development an extra push. Consumers want to avoid crowded places, making purchases over the internet extra attractive. Some industries (e.g. electro, shoes and clothing) lend themselves better for an internet purchase than do-it-yourself articles or flowers.
Limited use of public transport
Public transport use is currently just over 50% in comparison to a year ago. Commuting becoming less common is not the only cause, public transport is also used less to visit to the city center. People who do visit city centers, mostly do so by car and bicycle. Cities that are difficult to reach by car – or that have high parking fees – will be less popular to visit than other cities who do not have these limitations.
The degree of closures during lockdown
A closed store does not generate turnover. With small margins a closure of a few weeks can immediately drain a business’s buffers.
Thus, stores that were temporarily closed are more likely not to survive the current crisis than stores that could remain open.
The number of COVID-19 cases
In regions where the Corona virus has struck hard, people are more cautious than in regions where few cases have been recorded. For example, we see that in northern Dutch cities footfall has decreased less than in cities in Limburg and Brabant, where COVID-19 case numbers were higher.
Performance pre-corona
Many shopping areas were already experiencing difficulties with vacancy and a declining number of stores. Although some problems are different now than in pre-corona time, this still has an impact. Cities that were struggling before corona will continue to experience more difficulties over the next few years compared to high-performing cities.
The coming recession will affect all industries differently
Economic recession is causing consumers to cut back on their spending. Some expenditures are being reduced more and sooner than others.The crisis of 2008 has given us an impression of which sectors are cut back on most, and which sectors less. The previous crisis showed a decline in spending in the sector ‘Home & Living’ and in the hospitality industry. At the same time, the Food sector (supermarkets, bakers, etc.) showed some increase in turnover, because consumers would eat out less and cook at home more frequently.
The Corona Impact Analysis
Locatus has an extensive Retail database that provides insight into the impact of the Corona virus. Our data shows, among other things, that footfall has fallen significantly as a result of Covid-19, while the vacancy rate is not yet increasing at the same pace. Nevertheless, an increase in vacancies seems inevitable.
Where and to what extent this vacancy will arise is the question we want to answer through our Corona Impact Analysis.
In the Corona Impact Analysis, all shopping areas in the Netherlands (approx. 2,500) have been assessed for all of the components described above. Each shopping area has received a score in the Corona Impact and Recovery Index. The higher a shopping area scores, the better a shopping area will be able survive this crisis.
Where does COVID-19 have the greatest or smallest impact?
The Dutch city centers have many hospitality and fashion retailers, and are thus more often reliant on tourism and consumers who come from further afield. Logically, this group of shopping areas is the group hardest hit by the corona crisis.
The smaller a shopping area, the less severely it is affected by corona: especially if such a center focuses on daily shopping.
Apart from to the more obvious cities such as Amsterdam, Rotterdam and Utrecht, the shopping centres most affected are the city centers of Maastricht, Zwolle, Enschede, Arnhem, Drachten, ‘s Hertogenbosch, Tilburg, Roermond, Goes and Leeuwarden.
Sub-indicators sometimes cause very different shopping areas to emerge as the most affected. The airports Schiphol and Eindhoven, for example, are the most affected by tourists staying away and by the lack of employees around the existing retail outlets. Tourist areas such as the centers of Domburg and Renesse suffer most from the restrictions in the hospitality industry.
The Big Box Retail is still doing well and suffers relatively little from the direct effects of corona. However, these Big Box Retail Centres do have most to fear from the recession that is looming as a consequence of corona.
Vacancy rate will increase to 9.9% by the end of 2021
By calculating the effects of corona from the Corona Impact Analysis, we arrive at the following estimate:
Over the next eighteen months, some 30,000 retailers (retail outlets, hospitality and services) are likely to close down at their current location. However, this cannot be translated directly into vacancy rates. In the past, we have seen that these closures are counterbalanced by approximately 85% openings. If we apply this statistic, it would mean that ultimately 15% or 5,000 stores will actually be vacant.
Currently, a total of 16,500 properties are vacant. We cannot be sure whether the recovery of shopping areas can be compared to previous recessions. However, taking these numbers into account, our best estimate is that by the end of next year approximately 21,500 properties will be vacant, i.e. a vacancy rate of 9.9%.
Monitoring in the future
The government’s support measures help many entrepreneurs to continue their businesses. As a result, the vacancy rate is barely rising. Gradually, these support measures will be phased out. It remains unclear what the result of this will be. The assumptions made in this analysis will therefore be tested early next year, taking the developments that will take place in the retail sector in the coming months into account.
In addition, we are currently at risk of entering a second wave of the pandemic. The government is therefore imposing new restrictions. How this will develop is still uncertain, but these decisions will be vital to the survival of many retailers.
Therefore, this analysis is a snapshot, it shows the evolution up until now but may evolve in the light of a new wave of the pandemic and resulting restrictions. It seems evident that the corona crisis and its effect on retail are far from over. Locatus will therefore continue to monitor the situation closely and will publish an update of this analysis early next year.
