Coronavirus crisis: Remembering the relevance of local suppliers

By Manfred Wiltschnigg

In light of the enormous dynamics of the corona pandemic, which has reached virtually all countries around the globe (albeit at varying degrees), it is hard to predict which consequences are to be expected in the medium term. Their manifestations will strongly depend on the further progression of the spread, and they will be complex due to the multilayered nature of these chains of effects.

What we can say today is that stationary retail in Europe is one of the most immediately affected business sectors in this regard. Especially the luxury industry, sports goods manufacturers, fashion, as well as seasonal goods report heavy losses due to country-wide store closures. Shopping centers and retail parks are under massive pressure. The most likely to be expected market shakeout in the retail sector ultimately depends on how long this crisis will last. However, sustainable declines in sales or vanishing tenants for commercial properties will sooner or later affect the properties’ earnings situation and therefore the market value and market yield of these assets.

The massive and long-lasting restriction of individual freedom of movement in many European countries undoubtedly benefits the online retail sector, which has already been becoming more important at a consistent pace. Virtually all goods, from furniture to necessities, are being ordered via e-commerce. Consumer electronics, TV and video providers, as well as streaming providers will probably see significant increases. Even those consumers who stayed away from e-commerce until recently will bow to necessity and get used to online retail. This change in behavior will most likely remain that way for many after the end of the crisis. On the other hand, people now remember the benefits of local suppliers within walking distance. In a crisis, society acknowledges the great accomplishments of retail staff in a way that they usually tend to forget.

These days, European states are confronted with the very real possibility that production, stockage, and distribution of indispensable goods–basic foodstuffs, pharmaceuticals, and alike–may become economic key issues. Outsourcing of vital goods productions to remote countries in combination with supply chains that are susceptible to problems may turn out to be problematic in times of crises. It would be a positive consequence of the current crisis when, in the future, more production capacities  would be established in Europe. This could, in turn, lead to a massively growing demand for storage space all over Europe. However, what will remain a challenge are last-mile logistics is the final step from the supply chain to individual households.

It is very likely that consumers will change their shopping behaviors under the pressure of the current crisis due to short-time work, impending layoffs, and loss of income. Potentially lower incomes result in increased safety-mindedness and decreased spending. Decisions in the investment market will most likely be delayed due to the restrictions to communication via e-media, the current travel restrictions, and generally elevated economic insecurity. Already initiated retail transactions will undoubtedly be delayed or even cancelled. Investors will consider investments in retail properties more carefully, while other asset classes, like logistics properties, will step into the limelight. Due to further increased risk aversion, the importance of core properties at good inner-city locations–preferably with retail aspects–will increase significantly.