Times of Malta in conjunction with Seed is serializing the economic report Agile. Perspectives on Malta’s economy post COVID-19. The report was authored by JP Fabri, Glenn Fenech, partner and senior consultant at Seed, and University academics Professor Vincent Cassar, Dr Stephanie Fabri and Dr Jonathan Spiteri. The full report can be read here. 

The wholesale and retail sector remains an important pillar of the Maltese economy, accounting for 9.8 per cent of total gross value added and 13.7 per cent of total registered employed.

The sector is also an important source of income for a significant number of self-employed which make up 16 per cent of the total market.

Between 2010 and 2019 the sector grew by 7.1 per cent annually on the strength of a growing population driven mainly by the increase in the number of foreign workers, as well as strong tourism performance. Private household consumption also grew annually by 5 per cent, or the equivalent of €2.4 billion during this period, boosting demand for retail trade including food and beverages, furnishings and appliances and clothing and footwear.

Source: National Statistics Office

Immediate and short run

This sector has been one of the hardest-hit due to the restrictions that were imposed for health reasons. With social distancing in place, imposed closures for non-essential goods and no incoming tourists, retail outlets have borne the brunt, with demand plummeting fast. With no revenues, outlets and retail groups have been faced with the burden of carrying all the costs including wage bills and overheads.

Despite the assistance put forward by Government, the retail sector is facing a crisis of liquidity bordering on insolvency due to sunk costs coupled with fixed recurring expenditures, including rental of premises. It is here that the retail sector actively requires support to deal with rent. It also appears, by and large, that most of the landlords are being flexible in supporting them. However, this is very dependent on the duration of the current crisis and the lifting of social distancing measures.

Therefore, it is imperative for support measures to start looking at other overheads including rental arrangements. Also, the volume of stock is also expected to be an issue and further impinges on the liquidity of said sector. A number of outlets have scrambled to digitally transform their business and launch their online stores with the direct effect of strengthening the logistics and delivery sector. It is currently a question of survival and retail groups are using past savings to plug the haemorrhage. 

Medium to long run

The retail sector is cognizant that the impact of COVID-19 on their sector is going to be of a longer-term and structural nature. Primarily, they believe that consumer habits will be changed on a number of levels. Expectations are that following the lockdown and the general level of uncertainty, the propensity to consume luxury items will decline, with more individuals increasing their propensity to save. This will mean that the domestic demand levels seen in 2018 and 2019 will not be seen anytime soon. Retailers are speaking of a return to a lower normal moving away from the possible overheating that was experienced in last couple of years.

Also, consumer purchasing habits will change with a stronger shift towards e-commerce. They believe that the percentage of people who buy online will increase and also cover wider age groups. Internet users who engaged in e-commerce activities during the reference year amounted to 67.3 per cent. The majority of e-commerce users were between 25 and 34 years. The most common items or services acquired online were clothes and sports goods, holiday accommodation and other travel arrangements (NSO Release 026/2020. ICT usage by Households: 2019).

It is expected that more retail efforts will be directed towards improving the digital experience and to strengthen the delivery offerings to clients. Some retailers believe that even the concept of retail stores will change with them becoming more of an experience-driven destination whereby the actual transaction will happen online. This will also have a long-term impact on brick-and-mortar stores. This is also in view of the large number of commercial projects that came on stream in the past few years.

Market players are expecting there will be an adjustment in this sector with a correction in terms of number of outlets and possible sectoral consolidation happening with increased merger and acquisition activity expected to happen in the longer-term horizon.

All these factors will lead to an adjustment in the labour market with a number of players hinting that redundancies will happen. This is also going to be driven by a smaller market size. Players said that a lot of the growth over the past few years came from an expanded tourism market and an increased expat and third country national population. These too face uncertainties in the future as tourism is expected to pick up gradually and more in the medium-term, and the population might stabilize or even decrease due to a contracting economy.

This sector is expected to undergo some particular adjustment and transformation in view of the operating environment but also because of changed consumer habits.