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Part 1 - How Will Malls Evolve In 2020?

A unique perspective disruption in the shopping mall business model

2020 will be remembered in our lifetime as the coronavirus pandemic sweeps across the globe. Without doubt, the brick and mortar business including malls are among the hardest hit in the economy. We analyze what challenges are coming for malls, the opportunities available and what some malls are doing in the face of the pandemic. Finally, the key question is whether our local malls will take action to seize this opportunity to defend and who in the organization will need to make it happen.

Part 1 - Business Model Disruption Across The Year

The current pandemic hits directly at the foundations of the mall business model. What is considered a strength for malls has now turned into a weakness. Gather a large amount of people into a space, bring in a diverse tenant mix and charge tenants rental, take commission from sales, charge for parking and charge for advertising. Malls will face the following challenges:
1. Prolonged Forced Disruption
To curb the spread of disease, the government mandated the closure of non essential services, limited restaurants to takeaway and limited operating hours of retail outlets. Currently, in mall retail, supermarkets are experiencing a 20% to 50% increase in sales but other segments have suffered massive losses anywhere from 50% to 100% and this is expected to draw on till the end of 2020.
2. General Fear of Crowded Places
While China eased lockdowns across the country, malls in China have seen a slow trickle of shoppers into their malls as people are weighing the risks of going to crowded places. We can expect similar slow recovery in the foot fall to malls as shopper confidence slowly recover. Even then, there might be new clusters or import cases which may spark fear for people to visit malls.
3. Sticky Effect of Ecommerce
The eCommerce war in Malaysia kicked off with the arrival of Lazada in 2012, Shopee in 2015, and many more online malls and stores. With over 5 years to mature, even older people are beginning to shop for their items online. This pandemic has thrust a large majority of people into online malls.
The investments into online malls were huge. Lazada with the backing of Alibaba has invested RM8 billion while Shopee with the backing of SEA Group has invested RM2 billion into their online malls. Now they reap what they sow. Online malls have recorded growth of 50% on average revenues while certain essential categories have recorded online sales growth by 500%.
4. Online Delivery Platforms
Interestingly, online delivery has been an area that is helping malls survive somewhat. Platforms like Grab and FoodPanda now deliver not only from restaurants but also pharmacies. Some malls share the revenue from these platforms as the sale is recorded in the stores within the malls. On the other hand, this means that people have greater choices to buy from places outside of the malls.
5. Imminent Recession
Even before 2020, several big names in retail like Toys R Us, Crabtree & Evelyn filed for bankruptcy. With unprecedented market forces at play here, traditional brick and mortar businesses face huge cashflow problems. Some estimates indicate that 25% of retail brands will go bankrupt in 2020.

Together with the oil price crash globally, travel bans and other disruptions, direct or indirect, the fear recession is real. The Malaysian Institute of Economic Research (MIER) projects 2.4 million job losses and an income loss of RM95 billion. For comparison, total mall transactions in Malaysia is estimated to be around RM50 billion.
With all these challenges ahead, what are malls doing to secure their future and what opportunities arise in this economic conditions? Find out in Part 2 - How Are Malls Responding To COVID-19