Vicinity says retail environment will remain tough for 12 months

Mall owner Vicinity says retail will remain tough for the foreseeable future, despite small signs of improvement.

Melbourne's giant shopping mall Chadstone has been empty in the wake of coronavirus lockdowns. Picture: Christine Lacy

Mall landlord Vicinity Centres, part owner of Melbourne‘s landmark Chadstone Shopping Centre, has revealed that the COVID-19 virus started to deeply cut into its operations March even as it now looks to a recovery, as half the stores in its centres are back trading.

“Over the past week, we have seen early signs of a recovery in centre visitation, as restrictions have begun to ease. Retailers who closed their stores voluntarily in prior months are beginning to reopen for trade, with 530 stores reopening in the past seven days,” Vicinity chief executive Grant Kelley said.

But the company gave a sobering view on the retail outlook.

“The retail environment remains unstable and we expect challenging conditions to persist for at least the next 12 months. However, we have been buoyed by Australia’s resilience and the speed with which the pandemic has been contained,” Mr Kelley said.

The company joined rivals in GPT and Mirvac in painting a gloomy picture of the impact the virus had from March, with April likely to have been even tougher.

The listed retail landlord said comparable growth at its specialty stores had plunged by 35.1 per cent in March on a year ago while “mini-major” stores were down by 19.9 per cent.

The hardest hit areas were cinemas, travel agents, auto-accessories, lotteries and other entertainment with these categories plunging by 45.2 per cent while department stores which were off by 39.1 per cent.

However, supermarkets were a bright spot and were up 22.2 per cent and discount department stores also rose by 7.6 per cent, as consumers stockpiled.

Also hard-hit were apparel, which was down 43.7 per cent, and food catering which was off by 41.9 per cent. Other areas that were hit include leisure that was down by 24.1 per cent and homewares which were off by 22 per cent. Retail services were down by 28 per cent and jewellery was off by 31.3 per cent. Sales of mobile phones were also down by 24.3 per cent in March.

Vicinity said sales had been hurt by government initiatives to contain COVID-19, including mandated store closures and stay at home directives, along with voluntary retailer closures, and lower customer foot traffic.

Overall, moving annual turnover growth to the end of the March quarter, increased by 1.6 per cent, a dip on 3.2 per cent at the end of December when it was at 3.2 per cent. Specialty stores and mini-majors increased by 0.6 per cent, down on December 2019’s lift of 3.7 per cent.

Vicinity has been under pressure as some major retailers are refusing to pay rent while they are closed and other small shops are unable to pay. But the company said it had $1.3bn of cash and undrawn facilities, while Moody’s and Standard & Poor’s have revised Vicinity’s credit rating outlook from stable to negative.

Vicinity has slashed working hours for 70 per cent of staff until June 30, cut top salaries by 20 per cent and cancelled its short term incentive program. It has also deferred major projects, including the proposed redevelopment of Chatswood Chase in Sydney.

The company said it was assessing rent relief requests on a case-by-case basis and said it can’t provide an earnings forecast.

Mr Kelley said the COVID-19 pandemic was having a significant and broad-reaching impact on communities and businesses globally.

“We are working with our retailers to support them during this challenging period, and have been focused especially on our smaller retailers,” he said.

“We continue to negotiate in good faith with all retailers whose businesses have experienced a downturn as a result of COVID-19, and will accelerate temporary arrangements to assist them through this situation.”