How Corona weakens retail industry and what might help now

The corona virus continues to spread rapidly in Germany and throughout Europe. Sales in drugstores and the food industry are increasing enormously – at least in the short term. Retailers who sell other goods and have to close their shops are the losers of the corona crisis. Some of them are still allowed to sell animal feed, but otherwise many equestrian shops are closing – mostly indefinitely.

Effects on stationary trade

The German Retail Federation (HDE) already announced on March, 13th that customer demand is steadily declining. Among the 700 retail companies surveyed by the HDE, it was mainly small and medium-sized enterprises that suffered from declining demand and lower customer frequency. A total of two-thirds of those surveyed confirmed a significant drop in demand, with just over 50 percent of companies already feeling the effects of a significant drop at the beginning of March.

In order to mitigate the economic consequences of the pandemic, the HDE is calling for help from the government. To ensure that companies remain solvent and jobs are preserved, the trade association cites measures such as deferring advance tax payments on income tax, corporate income tax and value-added tax. In addition, the HDE emphasises that the retail trade will be particularly dependent on the possibilities of short-time work compensation – but such measures would only really take effect in April. In a letter to German Chancellor Angela Merkel on March, 18th, the HDE called for rapid and comprehensive help for retail companies that have to close down to prevent further corona infections. This would affect large department stores, specialist store chains and many thousands of small and medium-sized businesses, and massively endanger their existence. The HDE estimates the loss of sales due to the closure of shops nationwide at around 1.15 billion euros per day or seven billion euros per week. “Many small textile retailers, shoe and sports shops, perfumeries, furniture retail and electronics stores as well as department stores are affected. But many online retailers are also suffering from the consumer reluctance caused by Corona, with a drop in sales of 20 to 30 percent,” notes HDE President Josef Sanktjohanser.

Following the nationwide store closures on March, 18th, the HDE also appealed to the solidarity of shop landlords to suspend rents and limit them to current operating costs. Only in this way could many of the shops survive the Corona-related closure. “Retailers affected by the closures have considerable liquidity problems in the short and long term. Without income opportunities, it is impossible to cope with the running costs. Rental costs make up a large part of these costs,” says HDE managing director Stefan Genth. The HDE also mentions rent deferrals as an option. Genth emphasizes: “Stable tenants are also in the interest of the property owners. The retail sector urgently needs help now”. In addition, the retail trade is in a position to pay the highest rents at the location. Without stationary retail, these revenues would be lost to landlords in the future.

Effects on online trade

Delivery shortages and cancelled orders also make online retail suffer in times of the corona virus. A glance at the survey conducted by the Händlerbund at the beginning of March 2020 provides the relevant figures: Of the 412 surveyed online retailers in Germany, 52 percent said they had problems in delivering their services due to suppliers, partners and service providers. At the time, 32 percent said they had not (yet) noticed any changes, while 15 percent had already had to cancel orders and lost sales. Only 1 percent of the respondents stated that they had improved their performance. According to the survey, 70 percent of online retailers feel generally affected by the Corona crisis. For the coming weeks and months, 45 percent of those surveyed expect lower sales, while 11 percent hope for an increase in sales.

Current demands and measures

On March, 19th, the HDE presented an 8-point program to support retailers in the Corona crisis. This rescue program includes setting a nationwide uniform legal framework, securing the liquidity of companies by means of emergency aid and deferring taxes, fees and social security contributions. In addition, the HDE proposes to compensate companies for financial losses, to exclude commercial rents (see above) and to liberalise the labour law in order to lend employees unbureaucratically to companies that urgently need additional staff. Two further aspects of the program are to facilitate logistics nationwide and to ensure the free movement of workers and goods across borders.

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