In Trends

Updates on Covid-19 : a global economic crisis

The disease has now an official name,  Covid-19, COronaVIrus Disease 2019.

“Severe Respiratory Disease associated with a Novel Infectious Agent” refers to the cluster of viral pneumonia cases occurring in Wuhan, Hubei Province, since December 2019.

Wuhan, the city in the Chinese province of Hubei that is the epicentre of the coronavirus outbreak, has been under an unprecedented quarantine since 23rd January 2020.

The date marked the beginning of the festivities for Chinese New Year, which every year, represents the biggest exodus of people travelling from one part to another of the world to take advantage of the long holidays. Chinese moving back to China to spend the festival with their families, or more recently for the youngest the chance to go to Europe or the US. Besides Chinese, also expats living in China enjoying sunshine in SEA. And this year, timing has become one of the causes for such a fast spreading of the virus.

In 2003, SARS did spread all over the world, but in 2020, world is much more connected and the trajectories of the cases within China and globally reflect economic agreements and holidays destination.

Roughly 9 million residents are currently trapped in the city, and about 5 million left before the lockdown began, according to Hubei officials cited by the South China Morning Post.

The lockdown started on January 23, with closures of airports and public transportation in Wuhan. Authorities then banned all private cars in the city’s downtown area on January 26, according to China’s state-run press agency, Xinhua.

According to investigation by the Mainland health authorities, a novel coronavirus was found to be the causative agent. According to information provided by the Mainland health authorities, symptoms of the cases were mainly fever while a few had presented with shortness of breath. Some cases were in serious condition.

The main mode of transmission of novel coronavirus is contact, but chances that it can be spread through respiratory droplets are also under investigation. Current information suggests that the incubation period can be as long as 14 days, and some other information have already extended the period to 2 days. Here, a map to track the coronavirus worldwide.

While the WHO declares a global emergency, and countries issue travel ban from and to china, basic principles to reduce the general risk of transmission of acute respiratory infections are reported in our previous article.

WHO does not recommend any specific health measures for travellers. In case of symptoms suggestive of respiratory illness either during or after travel, travellers are encouraged to seek medical attention and share their travel history with their healthcare provider.

In the meantime, countries mainly through airlines all over the world have issued travel ban from/to Mainland China, sometimes including Hong Kong and Macau. This causing discontent among people, but also making difficult for business to continue their operations.

It is time for fashion weeks, and some buyers have already canceled their participation given to travel ban and contradictory information regarding quarantine. This especially applying to Italy with a travel ban issued by the government.

In the past few days, positive news about developments of vaccines and cures have been released together with warnings towards fake news spreading unnecessary panic and racism.

In Thailand and Russia are confident they have found a drug cocktail able to cure people who have contracted the virus, and Europe seems to be more relieved after the virus has been isolated.

However, the virus has now reached Egypt in Africa through a foreign traveller, the only continent that had not registered any case so far. Hopefully, it will be contained as the continent is not ready for an epidemic.

Moving to business… 

Mainland China
In Mainland China, companies have prolonged the Chinese New year holidays till 10th February 2020, with some offices and factories only resuming work on 17th February with a presence of employees from 20 to 40% and hopefully reaching 60% by the end of the month.  This causes a global disruption in supply chain where in any sector globally suppliers are mostly based in China.

This could redefine a new order in the world of supply chain where dependence on one country only will no longer be a possibility. It is time to focus on which ones will be the new factories of the world.

For retail, Mainland Chinese mall landlords have moved to relieve the pressure on stores and restaurants brought on by the Wuhan coronavirus outbreak, by cutting rents and offering zero-rent periods. Also, because some stores have decided to shut down as a precautionary measure.

In the meantime, mall landlords have also donated money to non-profit groups and hospitals in Hubei province, the epicentre of the new epidemic.

Beijing-based Dalian Wanda Group has exempted all merchants at its Wanda Plazas from paying rent and property management fees for a month, from January 24 to February 25. According to mainland media, this could cost Wanda 3 billion yuan (US$432 million).

The immediate reaction of mainland Chinese mall landlords has created discontent as Hong Kong mall landlords have not been that understanding towards retailers during protests and the current situation is not yet sorted.

In the meantime, in Hong Kong and Macau…
Macau is currently in isolation with none entering from Mainland China or Hong Kong. Casinos are closed this month, so are retailers which seem to have found cooperation with some of the landlords.

In Hong Kong, where borders with Mainland are partially closed, with travellers from Mainland China obliged to quarantine for 14 days even without symptoms.

Retail companies are adopting flexible working hours for offices with guidelines which do not allow employees who have visited Mainland to go to office for 14 days.

In the past few weeks, stores has remained open with adjustments to opening hours, however, last week some doors have started closing exhibiting different types of notice to inform the customers. Some of them for safety reasons, some others stating it was due to the latest events, others are under construction, and a long variety of reasons.

SEE ALSO : DFS closes 2 stores in Hong Kong till the end of February 2020

The number of stores closing is increasing every day and most of them say “till further notice” or that they will reopen “as soon as possible”. Sasa has already closed down 21 stores and has not hidden his cuts in salaries and number of employees.

J. Crew has announced its closure in Times Square, Hong Kong, following the exodus of brands leaving the most expensive district in the world, which is now a desert left empty by the lack of Chinese tourists which account for the majority of spenders in Hong Kong.

Schools are set to reopen 16th March, but HKU announced its closure till the end of March. Events have been postponed till further notice, including Art Basel and Rugby Seven, key pillars for the tourism industry in HK. Main touristic attractions remain closed.

Hospitality and F&B have started contingency plans given the low occupancy in hotels and consequent lack of customers in the restaurant.

During weekends, expats still populate SOHO, where restaurants and bars do not seem to be affected at the moment in the area. Different is the situation is in shopping malls, which are empty at any time of the day.

What mall landlords will do to support their tenants? Last week, Hong Kong mall landlords were all over local and international media announcing their fulfillment of social responsibility towards the community with rent cuts (20-50%) for some of the tenants in the month of February (and some including March).

Will that be enough after 7 months of social unrest and current drop in sales of over 70%?

During the SARS, the worst month, drop in sales was 30% and the recovery was boosted by the flow of Chinese travelers after China had joined the WTO in 2001.

We are monitoring the situation and will approach some tenants.

Taiwan

We are still collecting data about retail, but the drop in tourism is consistent with other countries in Asia given the travel ban and the limited mobility of Chinese tourists. Taiwan has also extended the travel ban to flights from/to Hong Kong.

This is not a Greater China problem only

Alert is high as in the rest of the world, and some companies have cancelled business trip in the region to limit their employees’ exposure to crowded airplanes and airports.

From a business perspective, tourism industry is the most affected because of the travel from/to China, and as a consequence retail will be impacted.

In Asia, drops in visitors and sales have been registered in Singapore, where the number of cases is same as Hong Kong and events have been postponed till further notice not to increase the spread of epidemic.

Korea is also under pressure, so has announced Australia. It is not surprise that tourism-wise the world is registering drop in number of visitors.

Singapore

While tourism and retail are definitely suffering, a quite rational approach has been taken from the government trying to limit the panic among Singapore inhabitants.

Singapore Prime Minister Lee Hsien Loong used media channels to explain the situation to his people and provided suggestions to avoid the spread of the epidemic.

Afterwards, he also raised the possibility last weekend that if cases continued to increase, his country could move to let hospitals focus only on the most vulnerable patients, rather than risk overwhelming the health-care system by hospitalising every patient.

SCMP reported that in the announcement, he added: “Even if we completely shut down Singapore, it doesn’t mean that all the cases will disappear and everybody will be all right. “You will have visitors, they will come in … you can’t be sure that you will not have a disease still continuing to develop.”

For retail, given the situation, will Singapore landlords be more understanding? We are monitoring the situation to confirm news.

South Korea

It is not secret that South Korea’s economy is heavily dependent on Chinese consumers. Being the biggest travel retail market in the world, with over 60% of the flights cut from/to China, the flow of tourists is no longer the same, so are the sales.

Soon after the announcement of the coronavirus outbreak, some operators in Jeju Island had immediately closed their stores given the drop in visitors.

Hana Tour, the nation’s biggest tour agency, saw travel demand for China dip around 50 percent for February on-year on the combination of the virus and Hong Kong protests. No. 2 Mode Tour saw more than 4,000 cancellations for travel to China this month.

Uncertainties are also growing among Korean companies doing business in China.

In line with the Chinese government’s policy, Posco, Hyundai Motor and Kia Motors have delayed restarting local plants after the shutdown for the Lunar New Year holiday. SK Global Chemical, which has factories in Wuhan, urged employees to return home. LG Group and Hanwha Group banned employees from traveling to China. Low-cost airlines, such as Air Seoul, have suspended flights to China.

South Korea will use 20.8 billion won ($17.7 million) of its national budget for containment of the new Wuhan coronavirus.

On the possible economic impact of the outbreak, Finance Minister Hong Nam-ki said  the government is closely analyzing the effects it could have on “China’s consumption and productivity, the global economy and Korea’s exports.”

The Industry Ministry launched the task force to respond to the spread of the virus. The Small and Medium Enterprise Minister Park Young-sun ordered to closely monitor the damages of small businesses.

Korea Trade-Investment Promotion Agency set up an emergency team at the headquarters to identify trends and situations in each country to inform buyers and investors.

Japan

For Japan, the number of cases is increasing due to the latest cases on cruise ships. Business-wise, we are collecting data, but the impact seems to be lower than other countries.

Some numbers

Global airport retail sales’ forecast is to reach $48.2bn in 2020, up 6.1% on 2019, but the escalation of the severity of coronavirus could now have a detrimental impact on airport passenger numbers – causing concern for airport operators and retailers.

Asia Pacific is forecast to be the fastest performing region for airport retail spend in 2020, with sales rising 8.4% to $21.7bn – 45.1% of the global channel. While this recent outbreak cannot yet be compared to the impact of SARS, if the coronavirus continues to spread globally over the course of 2020 its impact on tourism and economies, particularly across APAC, could be severe

The prevention of travel for Chinese consumers will impact the performance of airport retail worldwide. Over the last few years airport retailers, especially those in Europe, have tailored their propositions, integrated Chinese payment solutions and invested in Mandarin-speaking staff to target Chinese passengers and maximize sales growth opportunities. If outbound tourism from China suffers as a result of coronavirus, airport operators and retailers must adapt their strategies to target other passengers.

The 2020 Olympic Games in Tokyo should provide a significant boost to airport retail in Japan, but also neighbouring countries as visitors tour the APAC region. As seen with previous Olympics, we would also expect to see a halo effect with 2021 and 2022 also benefiting from the games. However, controlling the spread and severity of coronavirus over the next two months is vital to ensure this event will still attract international visitors and achieve the forecasts produced pre-breakout.

The recommendation is to read news from official sources, to avoid the spread of inaccurate information.

 

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