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Denis Cupic, President of Coordination for non-food retail and shopping centers in Croatia. F.O. / Group Chairmen, Head of Asset Management Westgate Shopping City Zagreb.

Brick and mortar retail under coronavirus, or why we must act now. A call for action

“Action will be needed to save millions of jobs around Europe. This will be a call for action for all of us who still operate, manage, develop, build, and expand stationary points of sales. Survival instinct is the prerogative of the species and now we have to find ours.”

By Denis Cupic

You may ask yourself which business entity is the most endangered by the corona virus. If you are not working in the retail or a retail real estate business, even though most of you who read this probably are, we all know it comes down to our bones.

Chilling fantasy of SF movies about places without people have become reality. Dystopian visions of societies without social contact have become real at least, as we all hope, only on a temporary basis. But when the lock-downs, shut-downs, isolations, and quarantines will have become the thing of the past we will face a new challenging world of post-traumatic businesses and shoppers.

Unfortunately, “alea iacta est” as the Romans would say, and brick and mortar retail is endangered as only few species in the world are. We lose money each day as the times of no sales continue, left unguarded by national governments, with no safety nets and mostly only with announcements of the public obligation payment postponements, no write-offs.

What we need is a deep understanding of what brick and mortar retail is and what it means for the national economies as well as the general economy of the EU. This is the point where the EU must act in the best interest of all and for all its member states. Retail, brick and mortar retail, is the second largest sector employer in the EU right after the public sector. Action will be needed to save millions of jobs around Europe.

This will be a call for action for all of us who still operate, manage, develop, build, and expand stationary points of sales. Survival instinct is the prerogative of the species and now we have to find ours.

We all started to develop new types of malls, bringing entertainment, amusement, leisure, and gastronomy to our bricks ensuring that this will be the new mortar for our stationary consumption hubs. And now we see how a disruptive element like a virus erases years of efforts to develop, improve, and change customer experiences. We all started to pair our stationary retail with online, developing omnichannels and hybrid stores as click-and-collect centers, interactive hubs, and collection points. 

Isolations will leave customers, shoppers, and visitors traumatized and reluctant to socialize for some time, making a return to normal life as it was before corona harder and much later. Ask yourself, can I expect at least the footfall of the time last year two months after opening? I think we all can agree that we are not sure and we fear not to have it. The return to normal life will be slow, contacts tending to take time to be picked up again. Imagine two teens having feelings for each other not having the courage to show them.

What will we have to do? We will have to motivate, to relax our visitors but at first we need to draw them from their mental safe harbors of their inner walls of isolations to our places of pastime. After weeks of isolation, maybe months, the times of no sales will drive sales to the online shops, much too often the ones outside the EU and much too often the ones in the EU that use the tax advantages of one country and operate in others. Much too often it will be online stores with no stationary retail operations. Isolation and the fear will accelerate the penetration of this disruptive retail sector against our stationary one as well as our omnichannels in which many of us invested in the last years.

What should our call to action be? For starters, we as retailers, retail property operators, and managers should come together and fight to preserve the brick and mortar retail instead of fighting each other. We are natural partners making use of our synergies in retail. We should make a call of action inside the EU to keep competition of stationary vs. online retail a fair game. We have to start to cooperate across border, bringing these initiatives more effectively to Brussels’s regulators and our national governments. A fair implementation of taxation of online sales with a customer VAT is the first step to secure the fair game, and a call to action that online stores have to declare the company registration country, as we see regularly online stores from Cyprus, the Baltic States, Romania and other EU countries operating in the customers’ national domains, emulating that they are domestic companies to the buyers. If you investigate the sites you cannot see clearly whether you are buying from a local company or not, and you do not see what kind of VAT this store is charging on the bill.

Why is it important to gain the transparency and achieve the fair VAT implementation? Because brick and mortar retail depends on domestic purchase power, which is also being built by the general taxation incomes. Consumption evasion to some countries of the EU by online players is becoming a big issue. 

We see the big players like Amazon and AliBaba opening stationary points of sale, but these usually open in countries with strict VAT policies. In countries where we see a more laisser-faire approach, such as in Croatia, Austria, Slovenia, they do not open these stores because local taxation only applies to larger orders. The small ones evade local taxation and as such offer them a tax advantage if they do not operate stationary. They use the EU’s inability to come up with a joint policy on trade, VAT, and general taxation of online sales and digital services. 

If states inside EU start to really start to charge VAT on cross border online sales, omnichannels will grow, securing the survival of the brick and mortar species and bringing the big players in omnichanneling on each national market. And yes, this would secure the fair game of stationary as well as omnichannel retail versus the solely online one, and versus the one that uses the taxation loops of some of the EU countries as well as advantages gained nibbling on the local purchase power of national retail and bringing the turnovers across borders without the VAT of that consumption contributing to local economies.

Is this interventionism? No, this is only a sane implementation of EU and national legislation that brick and mortar as well as omnichannel retail adhere to. Many online players do not adhere to local legislation and taxation, and thus are able to reduce their prices due to lower taxations or offer a free delivery. Whereas the ones that contribute to local taxation pay higher taxes and therefore are facing an unfair competition.

Retail in times of corona has to ask itself, how can I help myself survive. Let us make this call to action and then compensation measures can be financed from such VAT incomes on behalf of national governments to help local retail to overcome the losses incurred in the time of no sales. We all, but most of all retail property operators can promote the transparency of the online stores educating our customers on how to make sure that their consumption pays local tax and contributes to local companies, which ultimately employ their relatives, neighbors, and themselves.