As states announce measures to counter the coronavirus outbreak, malls, retailers, multiplexes and filmmakers could see business slow down, at least in the short-term.
Maharashtra, Karnataka, Delhi, Kerala, Jammu & Kashmir and Tamil Nadu have ordered a shut down of non-essential stores in malls along with cinemas until the end of this month as the number of confirmed Covid-19 cases in India mounted. That means lifestyle and electronics retailers and multiplexes will remain closed in some of the large cities like Mumbai, Delhi, Bengaluru, and Chennai.
“Even before the government ordered the closure of malls in some of the key cities, footfalls had already gone down by 50 percent due to the anxiety surrounding the virus,” according to Rohan Sharma, head-research at real estate consultant Cushman and Wakefield. It’s too early to gauge the impact but there will definitely be financial implications of low footfalls and subsequent closure of malls if the situation continues, he said.
Channel checks found 5-15 percent drop in footfalls at certain malls in key metros, and this could worsen in the coming days, Latika Chopra, an analyst at JPMorgan, said in a report. Department stores and apparel retailers would also be impacted and if the situation worsens, there could be a risk of higher discounting to clear the inventory, she wrote.
That comes when Indians cut down consumption in a slowing economy expected to grow at its worst pace in more than a decade in fiscal ending March. Deserted malls and shuttered stores will only drag growth lower.
Impact On India’s Largest Mall Owner
India’s top eight cities — Mumbai, Pune, Bengaluru, Chennai, Delhi-NCR, Hyderabad, Ahmedabad, and Kolkata) have 126 malls—61 million square feet of space with more than 100 malls having multiplexes.
Phoenix Mills Ltd., India's largest mall developer, will feel an indirect impact as part of the rent is linked to the revenue of retailers. The company, according to its filings, derives around 77 percent of its revenue from malls in Maharashtra—the state that has reported the highest number of cases, with Pune and Mumbai leading the count.
Phoenix Mills is likely to see near-term earnings pressure as the company’s operations are located in high consumption states and cities that are increasingly imposing restrictions to curb the spread of Covid-19, Kunal Lakhan, an analyst at CLSA, wrote in a report. There will be no shutdown impact on the minimum guarantee portion that comprises 90 to 92 percent of its revenue, the brokerage said. The remaining 8 to 10 percent is at risk as it is derived from tenant revenue sharing, which is driven by mall consumption, it said.
Sharma of Cushman and Wakefield said a consortium of retailers is approaching a few developers for considering a renegotiation on rent.
Abhishek Bhandari, an analyst at Macquarie, said cited the example of the global financial crisis when contracts for High Street Phoenix, Mumbai were renegotiated to factor in lower base rent and higher revenue sharing. For Phoenix Market City, Kurla, in periods of underperformance, tenants were issued credit notes to be adjusted against future rents, he wrote. “If the shutdown persists for a longer period, tenants are likely to approach Phoenix Mills for rent relief.”
Manoj Agarwal, chief executive officer at Viviana Mall, Thane, however, said rentals are governed by the agreement signed between the mall management and retailers. Being long-term, such contracts are not subject to revision in the short-term, he said.
Phoenix Mills declined to comment. BloombergQuint awaits a response on queries emailed to Inorbit Mall, DLF Ltd., and Korum Mall.
Impact On Retailers
All stores selling non-essential items have been shut Maharashtra, Karnataka, Delhi, Kerala, Jammu & Kashmir, and Tamil Nadu.
Tata Group’s Trent Ltd., the operator of 251 Westside, Zudio, Star Bazaar, and Zara stores, has shut down 40 outlets across India, including 11 standalone ones, the company said in an emailed statement without commenting on the financial implications. These include 11 in Mumbai and 22 in the rest of Maharashtra.
BloombergQuint’s emailed queries to Shopper’s Stop, Aditya Birla Group and Future Group remained unanswered.
Adhidhev Chattopadhyay, an analyst at ICICI Securities, said in a note that apparel stores, quick-service restaurants, and other retailers face a double-whammy of lost sales and having to pay store rental costs which typically range between 15-25 percent of store revenue. Both mall operators and retailers, the brokerage said, face potential losses in the March-June period.
The retail sector will also be facing sourcing disruptions in apparel, footwear, and accessories, Samantak Das, executive director and head of research, real estate intelligence services at JLL India, said in a statement. That comes when the ongoing slowdown is already reflected in the delayed decisions by retailers to lease space.
Impact On Multiplexes
Delhi, Kerala, Maharashtra, Karnataka and Jammu Kashmir have shut cinemas theatres till March 31. Indian Film & Television Directors' Association, Indian Motion Picture Producer’s Association and Producers Guild of India decided to put shootings of films, TV shows and web series on hold.
That will have a significant impact on the current quarter’s result and there is a high probability of a spillover of closures of cinemas in April as well, Urmil Shah, research analyst at IDBI Capital, said in a report. This quarter is expected to see a 20 percent decline in net box office collections, he wrote, adding that the impact will be short-term and not structural.
The Delhi circuit accounts for 15 to 18 percent of the Hindi box office, Karan Taurani, analyst at Elara Capital, said in a note. PVR has 7.5 percent of its total screens in the capital while Inox has an exposure of 3 percent. The shutdown in Kerala will have an impact on SPI Cinemas, now part of PVR, he said.
Impact On Multiplexes
Shares of Phoenix Mills have tumbled more than 37 percent since its all-time high in February, tracking the virus-driven turmoil. PVR Ltd., India’s largest multiplex owner, has seen its stock tumble more than 45 percent since its peak last month.
Future Retail tumbled 63 percent, while Aditya Birla Fashion Retail Ltd. fell 29 percent and Shoppers Stop Ltd. declined 42 percent. That compares with more than 27 percent decline in Nifty 50 since its January high.
Mall and multiplex closures will have a transient impact on mall revenues, Mohit Agrawal, analyst at IIFL, said over the phone. The steep correction in stock prices should be seen as an opportunity to add these to the portfolio.
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