The CEO of the Retail&development Advisor Taisia Lytovchenko explains how different segments of retail trade are going through the current crisis, and when the market can be expected to recover.
Despite the removal of the essential part of the quarantine restrictions, the coronavirus epidemic continues to hurt the most Ukrainian retailers’ sales. There is a stigma in society that the coronavirus epidemic played into the hands of pharmacies and grocery stores, which had queues during panic purchases at the beginning of the quarantine. However, with the time, sales went down and they did not come out to the pre-crisis index even after the lifting of the tight quarantine.
According to the analysis of the Retail & Development Advisor, in June this year, grocery stores’ turnover was 10-40% (depending on the location) less than in the same period of the last year. Commercial outlets in densely populated sleeper cells and large residential complexes were the least affected. However, sales in downtown stores, which operates in places with busy human traffic, squatted more dramatically. Some markets located near business centers, subways, or train stations, lost 50% or more of their turnover.
The drogerie retail chains have also been affected in a manner comparable to the food retail. Even the big system market players lost about 15–20% of sales and adjusted development plans by renouncing experiments and image locations. Perfume and cosmetics companies are not planning to cut their trading networks substantially, but they don’t rule out spot closures of stores in premises, where lessors cannot recognize the new market realities by refusing to review the rent.
Interestingly, home appliance and electronics networks have recorded relatively good performance over the last month. For example, Allo’s sales increased by 7% compared to June 2019.
According to the Executive Director of the omnichannel retail company Allo Alexandra Pashchenko, the company introduced several new projects (Allo-Express, Allo-Online) and expanded the category of “marketplace” on the website allo.ua.in to increase sales and improve business performance during the difficult period.
The top manager believes that the crisis is the best time for active action. Therefore, even under strict quarantine, the retailer didn’t stop recruiting staff to expand the IT, marketplace, marketing, HR, and retail departments. Now, it continues to develop its trading network by active transforming of shops and opening new outlets.
Children’s stores also report relatively good sales in June. In particular, the Antoshka retailer has increased like-for-like sales by 7% compared with the previous year. However, according to the Director of Operations and Development of the Antoshka Network, Ivan Chivkin, a negative turnover rate is recorded in about a quarter of the outlets. Most of these shops are located in shopping centers, which Ukrainians have begun to visit much less frequently in the context of the epidemic. With positive developments, market participants hope that the pre-crisis turnover level will return in the fall or winter of this year.
Sporting goods retailers also complain about significant sales losses in malls. They observed that the most significant drop in sales by 50–60 per cent occurred in the large metropolitan TECs in the central part of the city. At the same time, street retail stores show a much smaller decline in turnover: 7%–10% compared with last year’s figures. The reason is obvious: people are still afraid of going to the large TECs and prefer them to the small, off-site stores for a targeted purchase. The sporting goods retailers try to stimulate demand through stocks and sells-off under such conditions. They plan to restrain the prices of the products to get the maximum return from the fallen traffic in the nearest future.
Nevertheless, the major players in the sporting goods segment are still expecting a significant market collapse by 2020.
For example, Intersport Ukraine’s CEO Yulia Maksimenko believes that the sporting goods market will change the structure of sales both between categories and key players. The overall fall in the sporting goods market could be in the range of year-to-year 10% and 30% by 2020. The leader of the Ukrainian segment of sporting goods Sportmaster network has similar expectations. Sportmaster’s CEO in Ukraine Lyudmila Knish says that sales recovery may take more than a year if the current currency market forecasts change (the average dollar exchange rate is 29.5), or the surge of the second wave of coronavirus. In the current situation, sales can stabilize at minus 15%–20% of the pre-crisis level.
Fashion and jewelry segments came out of the post-quarantine period surprisingly well. Last month, two largest jewelry chains in the country recorded only 10% less turnover than last June. They consider this a success in the current situation. Moreover, the clothing and shoe stores took advantage of catch-up demand accumulated during the quarantine and increased their turnover compared with June 2019.
Catering operators have been far less fortunate since they have felt the significant negative impact of corona-crisis. The complex dining facilities for office staff squatted most of all. As a co-founder of the Dinner's chain Alexander Borschevich told, his restaurants work 10%–30% of their pre-crisis levels. Most of them are located in such large business centers. Many of their renters continue to work remotely, and those returning to the offices try to avoid restaurants, having home-packed lunches, or ordering meal delivery.
As a result of falling traffic and sales, Dinner's had to reduce its workforce by a third (from over 600 to 200) and shift the work to free delivery and sale of frozen food.
The situation is slightly better for restaurant chains, which were able to successfully restructure and make money on delivery. For example, the Sushi Master network’s sales were about a third less in June of this year than in June 2019. They managed to avoid closure and mass layoffs, but the company had to freeze further development and optimize costs by shifting some employees to a remote work.
Now Sushi Master tries to increase sales through the promotional offers with lower average check and expects to reach pre-crisis rates in September of this year. Dinner’s are less optimistic: according to Alexander Borschevich, pre-quarantine levels might be achieved only in spring 2021, but only if the coronavirus’ second wave is avoided.
In the past four months, Dinner's has been operating at a total loss like many other restaurateurs. Expansion of the business is out of the question. Note that the company was in the final stage of opening three more locations for restaurants, spread over 2,700 square meters, as early as March. Now, the company doesn’t hide that survival is the key challenge in such circumstances.