1、COVID-19 Industry Pulse Report: Retail June 2020 COVID-19 Industry Pulse Report: Retail What is the industry sentiment around the impact of COVID-19 on the Retail sector? How is COVID-19 expected to impact the Retail sector? What response measures have been taken to date to address the impact? Indus

2、try Pulse Report: Retail3 Foreword Stelios Demetriou Partner Transaction Advisory Services Leader “ As the developed world is exiting from lockdown, the virus is taking hold in poorer countries. The overwhelming uncertainty around how the pandemic will continue to affect our lives and the economy li

3、ngers on. In Cyprus, we have seen a series of support measures from the Government and we are in the process of exiting the lockdown and relaxing social distancing. But as people return to the streets and businesses begin to re- engage, there is little doubt that there is still a long road ahead, pa

4、ved with economic restructuring and business transformations to adapt to the new era. Executives are focusing on addressing the next day of the new norm by adjusting supply and value chains, volumes, prices and margins based on rapidly and drastically changing consumer behaviours. Business leaders h

5、ave had to reassess their business outlook and to reconfigure short-term and mid-term operations. As part of our efforts to understand the impact of COVID-19 on the Cyprus economy, we have prepared a new Industry Pulse report on the Retail sector, adding to our portfolio of reports for Banking, Real

6、 Estate and Hospitality. Like its predecessors, this report aims to provide a sector-specific perspective on the COVID-19 impact, fiscal and monetary policy, recovery scenarios, trends and recommendations. Though it comprises of many different industries with varying cyclicality, in recessionary per

7、iods, the Retail sector is always in the eye of the storm. Collectively, the sector is now facing a downturn triggered by unprecedented changes in consumer behaviour and, as such, there is a real challenge in deciphering and capturing the magnitude of the impact. As part of the effort to overcome th

8、is challenge, our team has spoken with retail sector leaders and executives to obtain a comprehensive sense of their sentiment regarding this crisis, their views on government measures to date, expectations for the future and insights on the road to recovery. This publication will be updated periodi

9、cally with respect to the impact of the virus on the sector, government and regulators response actions as well as an updated economic assessment in accordance with our view. We trust that this material will become a reference document for discussion among stakeholders such as corporate executives,

10、financial institutions and the Government. Industry Pulse Report: Retail4 Contents COVID-19 Key facts delays in production, distribution and stock issues with long lead times for non-food suppliers. Most retailers agree that technology and data analytics are vital for management decisions especially

11、 in times of uncertainty. Many retailers have increased their online banking features to improve user-friendliness and accommodate increase in traffic. The majority of retailers agree that the Cypriot consumer is getting ready to embrace alternative sales channels, closely following their European c

12、ounterparts. Retailers agree on the need to invest in online channels for business continuity reasons and because Cypriot consumers increasingly place a higher premium on omnichannel experience. Half of retailers think that this crisis will be worse than that 2013 as the halt in tourism deals a blow

13、 on direct and indirect demand in the medium term. Retailers are satisfied with the Governments swift response but express grievances on delays in loan restructuring and rent guidance. Key takeaways from Industry Sentiment Expected Impact of COVID-19 on Retail for 2020-2023 Below are the sales forec

14、ast for each retail segment over 2020-2023 for Scenario 2 (mild resurgence). Recovery profile for turnover of retail segments under review Necessity goods (e.g. F each phase lasts two weeks and the decision of transition to the next phase is revaluated based on epidemiological data. Industry Pulse R

15、eport: Retail8 COVID-19 Key facts no recapitalisation of accrued interest Temporary suspension of foreclosures for 3 months ECB support measures to release capital reserves for CBC (1.3bn) 3 month suspension of planned increased NHS contributions in April Temporary suspension of VAT payments by 10/1

16、1/2020 Advance payment of VAT by businesses in some categories (e.g. supermarkets, pharmacies) to support the economy. Incentives to landlords for rent reduction in the form of tax relief3 Additional budget of 11mln to support tourism between June and September 2020, as well as initiatives to attrac

17、t tourism for October 2020 March 2021 Tourist accommodation establishments allowed to issue vouchers in case of booking cancelations due to pandemic3 Government guarantees in the benefit of companies to assure travelers protection in case of insolvency (86.6mln)3 Reduction of electricity tariff by 1

18、0% for a period of 3 months 2 month halt in housing evictions Allowance for students studying abroad to avoid their return for Easter holidays and repatriation Introduction of price ceiling on products of personal hygiene New support package under way4 Participation in the Pan-European Fund Guarante

19、e, expectation to draw an amount of 300 - 400mln Liquidity grant for SMEs (800mln) through Cyprus Entrepreneurship Fund and increase of lending scheme (by 500mln) in conjunction with EIB Interest subsidy scheme for new loans to enterprises including self-employed and new housing loans Grants for sma

20、ll businesses and self-employed whose operations were fully/partially suspended Fast-tracking of tenders for ripe development projects Incentive scheme for airline companies at 6.3mln and 10mln to increase Cyprus attractiveness as tourism destination through tourist agents Decrease of VAT from 9% to

21、 5% for tourism accommodation Other: e-commerce, and other Due to COVID-19s ability to transmit rapidly and the need for home quarantine and social distance while in public spaces, consumer social interactions and buying preferences have changed dramatically. As a result, we have found it helpful to

22、 analyse the sector by looking at the effects of the pandemic on each category of consumer goods as well as the impact experienced by each type of retail outlet (i.e. technology based platforms/online/telephone, individual shops, malls). In the matrix below we depict the maturity of each retail cate

23、gory under the scope of our study, by type of outlet. For example, street shops and malls are developed in Cyprus and the Food and Beverage (F innovate or perish Industry Pulse Report: Retail16 LowMediumHigh Retailers within international group structures referred to slow decision-making taking a to

24、ll on operational agility; in parallel, digital transformation appetite increased. Business model adjustments Operation flexibility Embraced flexibility and reconfigured operations. Contemplated between forming new strategic alliances vs developing capability in-house. Long-term plans and investment

25、s postponed in the face of more imminent needs. Deferral of long term plans Health (iii) small distances, shop density, high car ownership and low traffic allow for easy access to stores compared to EU. Industry Sentiment EY Survey results Industry Pulse Report: Retail17 3. Consumption channels “Is

26、the Cypriot consumer ready to embrace alternative consumption channels (e.g. online)?” Retailers agree on need to invest in online channels: Cypriot consumers increasingly place a higher premium on omnichannel experience User-friendly and functional digital interface is important for informative pur

27、poses, product research and transparency For business continuity, in anticipation of virus resurgence LowMediumHigh Repeat purchases “Standard” products / commodities Few technical specifications Recommended /trendy Inexpensive E.g. detergents, DIY tools, work laptops, favourite cosmetics First-time

28、 purchases Many technical specifications After-sales service Perishable / fresh goods Size fitting Material/ feel/ colour fitting Expensive E.g. couch, shoes, fridge, fresh food Cypriot consumers willingness to switch to online channels Industry Sentiment EY Survey results Industry Pulse Report: Ret

29、ail18 4. Promotions“Did you make use of above-normal promotions to attract customers during and/ or after the lockdown?” Disruptions and shortages in supply chain 5. Supply chain “What challenges did you face along your supply chain and how have these hindered your operations? Looking ahead, will yo

30、u make any permanent changes to your supply chain model?” F we now stand stronger in comparison to the 2013 crisis of participants think this crisis will be worse than 2013 of participants think this crisis will be better than 2013 of participants are uncertain Participants view of impact on retail

31、in comparison to 2013 crisis* *Participants who provided no answer were excluded from the analysis High uncertainty regarding virus resurgence and unknown recovery of tourism Global solidarity Swift Government action Greater consumer confidence Healthier banking system More robust businesses and fin

32、ancials The Government can only do so much; it is up to the individual businesses to survive EU supervision and sovereign debt constraints restrict ability to intervene 6. Government measures “How would you rate the governments economic response to the pandemic? From your perspective, what more woul

33、d you like to be done?” Participants satisfaction with Governments support measures* 23451 9%27%55%9%0% Satisfaction with Governments swift response and determination, in comparison to other countries. Grievances on the delay in supporting banks in restructuring debt and tenants in paying their rent

34、. Main suggestions include improvements in employment scheme coverage and relaxing of tax obligations. Most popular response LowHigh 50% 38%12% *Participants who provided no answer were excluded from the analysis Halt in tourism deals a direct blow on retail turnover and indirect hit on medium-term

35、disposable income and consumer confidence No construction boom to help recovery this time Respondents Rationale Industry Sentiment EY Survey results Industry Pulse Report: Retail 20 8. Industry outlook “What is your outlook on the industry and how do you picture the road to recovery?” Demand increas

36、e in H1 2020, except for bakeries. Economic woes and budget constraints in medium term may translate into overall decline in the order of5% for 2020, with a recovery in 2021. Displacement of market share from hypermarkets to smaller stores and online. Industry is prone to pent-up demand. Mixed impac

37、t on revenues for 2020 as retailers expectations vary from +ve to -35%. For most, the decline is expected to persist in 2021. Outlook for furniture stores is positive, expecting to return quickly to normal business levels as people get on with new home plans. Majority of participants expect slight d

38、ecrease in revenues in H12020 and overall decline of 10%-15% for 2020, despite an increase in demand for equipment to support working from home, small domestic appliances and entertainment products. High uncertainty with regards to the time required for recovery of the sector due to likelihood of se

39、cond wave and impact on consumer finances. Decrease in revenues for 2020 at 10%-15% as people socialise less and airport traffic drops. Online sales compensate for part of the loss during lockdown and reopening of stores is met with enthusiasm. All participants anticipate decrease in revenues in 202

40、0, and some large market players fear a decline in the region of 40-50%. The downward trend is expected to continue in 2021. Large decline in revenues for mall tenants and owners in 2020, due to extended closures, lack of tourists and behavioural changes. Participants remain positive for recovery to

41、 start by Christmas, unless second wave. How do revenue expectations compare to actual 2019 levels? Food retailers predict increase in revenues in H1 2020 but expect H2 2020 to be impacted by unemployment, lower disposable income and lack of tourists. Projections are mixed, with majority of non-food

42、 retailers planning for recession and expecting market consolidation. F it risks the enterprises ability to survive as well as being perceived as lagging behind the curve. 1 Create efficient and agile Supply Chain processes Enhance people competencies and redesign the organization Redefine customer

43、experience Reengineer enterprises back office operations Employee Peer recognition & rewards platforms Blockchain eCommerce Capabilities with Augmented Reality Features Robotic Process Automation (RPA) Advanced Loyalty Schemes Interactive Portals for optimized Brand Digital Strategy Predictive & Pre

44、sciptive Analytics Conversational Artificial Intelligence (AI) - Chatbots 2 43 Services that bolster your resolve and reshape your future Short-term cash & liquidity management Financing options Independent business review Negotiations with banks M&A support Analysis of cash gaps Identification of q

45、uick wins Dynamic forecasting of cash needs under crisis scenarios and identification of mid-term solutions Analysis of financing structure Identification of alternative options Securing non-bank / quick financing Advice with bank negotiations Lenders deck and banking presentation preparation Prepar

46、ation of financial projections Capital structuring Independent Business Review preparation for your lenders, creditors, etc. Stress testing based on market situation Lean organisation and processes optimisation Supply and demand planning Assessment of key Working Capital drivers and cash release opp

47、ortunities Working capital advisory Divestment advisory Real-estate sales Quick direct sale process Identification of opportunities Economic Advisory Economic Impact Assessments Cost-Benefit Analysis Incentives analysis & planning Regulatory economics Competition economics Corporate Finance Strategy

48、 Corporate strategy Value optimisation Investment strategy Feasibility & business planning Portfolio strategy Retail specific sector expertise Services relevant to:Government/RegulatorsBanksBusinesses How EY can help 27 Industry Pulse Report: Retail27 Financial, technical and commercial due diligenc

49、es Business plan preparation and independent assessment Advisory valuations and reviews Strategy Business Process Optimisation and Automation Customer Experience Journeys Customer Data and Behaviour Predictive Analytics Information Management with Advanced Reporting Capabilities eCommerce Capabilities and Go-to-Market Commercial Strategy on Digital Channels Customer Loyalty Programs Intelligent Networks with WIFI Analytics Why EY Transaction Advisory Services? EY ensures the best outcome by combining: A highly experienced and entr