Retailers struggle to pay rents as sales decline

…demand pop-up shops

Retail shops are struggling to pay rents due to decline in revenue and escalating costs caused by Covid-19 pandemic, forcing them to resort to pop-up stores.

“It is a fall-out of cash flow problems that arise from reduced sales – caused by poor macro conditions in the economy,” Gbolahan Ologunro, senior research analyst at Cordros Capital told BusinessDay.

“So, if they are to adapt with the current challenges in their industry, it probably requires them to think of an innovative method as to how to manage costs.”

Pop-up shops are temporary retail spaces that can be used to promote and sell products of all types, ranging from food and drinks to clothing, gifts or other merchandise, experts say.

They are cheap and relieve the cost burden off retailers, according to reliable sources from Broll, African-focused commercial property firm. Retailers are estimated to have seen over 30 percent drop in sales as an industry with many of them adjusting costs downwards to stay afloat.

“This is something we have noticed from some reputable tenants in the malls because of the situation on ground. They are exploring options to reduce their rental obligations,” an anonymous analyst at Broll said.

A pop-up store can run for just a single day or up to six months. And because these stores are temporary, they don’t need all the trappings of regular business such as a lease, insurance, equipment, or even employees.

When the lockdown was eased in May, it was revealed that a sizable number of retailers in the trading and non-trading segment were engaging property owners on rental concessions, given the subdued level of business activities, particularly in the second quarter of the year.

According to Broll, concessions have been granted to retailers in some malls, while some property owners acceded to certain percentage reduction in rental payment. Additionally, some landlords have been aggressive with reductions, while others are yet to offer concessions against the backdrop of debt servicing requirements on facilities obtained from banks.

For example, an official at Lennox Mall, Lekki Phase 1, noted that the mall had to give their retail tenants concession because of COVID-19. Typically, a per square metre shop costs about N100,000 without service charge and the price gets higher depending on the measurement.

Since the COVID-19 pandemic, market conditions in the retail industry have been heading from bad to worse as retailers such as Shoprite, Spar and Mart grapple with low patronage following the adverse impact of the pandemic on household incomes.

“Retailers’ opting for pop-up stores is an indication that they are significantly affected by the COVID-19 shocks on their top-line amid the escalating cost we are seeing right now,” Damilola Adewale, a Lagos-based economist, said.

“So, I think it still boils down to the fact that they are still feeling the heat of the destructive effects of the pandemic on their revenue. So, it is actually a cost optimising technique to trim down operational cost,” he further said.

He noted that the current economic conditions make it logical for now.

“It is more beneficial to the retailers due to the reduced cost of rental, but at the other end, it is not favourable for landlords who are used to collecting rental income in bulk.”

Around 82.9 million Nigerians are extremely poor, constituting 40.1 percent of the total population with real per capita expenditures below N137, 430 in 2019, according to the National Bureau of Statistics’ (NBS) Poverty and Inequality report in May 2020. This means that consumers can only spend on essentials. The World Bank predicted that there would be 95.7 million Nigerians living below the poverty line by 2022.

At Lennox Mall, about 50 brands set up pop-up stores at the mall for the whole of 2019 because of its good location and space for customer patronage.

“Having the pop-up stores bought us some level of good patronage for us,” the official at Lennox mall said.
He advised that the stores would be something good for retailers to explore but that they would need to have the right marketing plan, space and location to attract patronage.

But Cheng Fuller, a retail consultant, believes that pop-up store is not the right way to go, as it is not secure and can lead to loss of customer patronage.

“For example, if a retailer sets up a pop-up store, it would be moving from one place to another, thereby losing its customers,” Fuller said.

From the landlords’ perspective, according to a top analyst at Broll, the stores are not preferred options that landlords are looking to explore as they give them uncertain revenue streams.