Post Lockdown Strategy

[Chris_]

 

"It's just like the Flu"

 

Any other options?

 

Its a hoax.

 

 

 

 

Joking....

[Chris_]

Okay "it's just like the Flu" it is. So imagine a scenario that over the weekend Cyril decides that the impact on the country is minor and of no more consequence than seasonal flu. Possible? Actually the numbers suggest it is, 1845 infected with only 18 deaths does not sound like a pandemic does it? So yes it is possible now stop yourself from going into the probable discussion other wise we never get through this step.

 

So in this scenario Cyril lifts the lockdown and society is open for business on the 17th we immediately start what the economists call a V shaped recovery. How does this impact on our key uncertainties? Here's a stab  at the first key uncertainty.

 

1.We expect a spike in activity immediately after lockdown ends but we don't now how much.

Our customers have a pent up demand for all the non essentials and there's a run on the shopping center. The bottle store, hardware etc will all being under pressure even the restaurants and coffee shops are full as people celebrate being out and about. Tenants are capable of recouping about 30%? of lost revenue.

 

I think 'our' LSM will have survived fine, and will go straight back to old shopping methods. There will need to be a period of restocking our houses/social lives.

 

I agree with an uptick in vols, but I think the surge lasts less than a week though, so that equates to much less impact over the month. If it turns out to be no big deal I think theres less reason to celebrate so it just fades away.

[Chris_]

 

Okay let's take on board the next key uncertainty in terms of our "it's just like the Flu" scenario.

2.We expect an economic impact on our customers but we don't know how severe or for how long.

 

Although our customers have lost some income during the lockdown their costs were lower and because the world comes to terms with the fact that this virus is just like the flu it takes about 6 months for the demand side of the economy to come back to normal and with that earnings recovery back to where they were before lockdown.

 

 

 

As per 1, we've depleted some of our savings, but are mostly still standing. Work continues and we go straight back to normal. A holiday or new big expense is delayed but standard of living continues as normal. 

 

I think less than 6 months though. The delay would be as long as the supply chain takes to come back to life and most people are back on board again. Which I have no idea how to quantify but 6 months sounds a bit long to me.

[Chris_]

 

Now here comes an interesting discussion

3.We expect customer shopping behavior to change but by how much and for how long?

 

Our survey is clear 88% of our customers will change their behavior .....

 

 

No, 88% will change - based on our current unknown assumptions for todays virus.

 

If this is to be our best case scenario, and its just another bug, then the number won't be close.

[Chris_]

I think that you are forgetting that other sectors, like the hospitality, leisure and travel industries have been decimated and will not recover nearly as quickly (some are already unlikely to recover) as the salary earner in a business which has had sufficient reserves to sit out three weeks without income and still pay salaries.

 

Also factor in the loss in value in equities which impacts on both confidence and security for finance on spending patterns, we have lost at least 30%, some even more, and this will be reflected in larger value items and discretionary purchasing.  This is purchasing power removed from the market.

 

I do not believe that the effects of what has happened to date will be a once off 30% monthly drop followed by business as usual.  The effects, whatever the extent will last at least 18-24 months as things stand now, any lockdown extension will further aggravate the extent and duration of the effect

 

I agree with these points in general but are you forgetting we're working a best case rebound scenario?

 

Hospitality, leisure and travel will take longer but if an only-slightly-weaker demand comes back - perhaps then we see a pop in local travel? At least this way, its cheaper for the buyer (as opposed to foreign travel), and beneficial for the local operator to rebuild. The majority of our consumer (LSM in this case) is not wiped out and people with a little extra in reserve will be desperate to get out the house for a long weekend.

 

Maybe we're forced to use more local suppliers now? The money would still be cheap to borrow here to rebuild and also the ZAR is surely making it impossible to import anymore? Thats almost win win for all.

 

For small businesses I think to myself (quite bluntly, and perhaps inconsiderately) thats just the nature of the beast, and where demand emerges again the clever & able ones will plug the gap again.

 

Granted this is all well outside my expertise so I may very well be underestimating things with my rose tinted specs on.

[Captain Fastbastard Mayhem]

I agree with these points in general but are you forgetting we're working a best case rebound scenario?

 

Hospitality, leisure and travel will take longer but if an only-slightly-weaker demand comes back - perhaps then we see a pop in local travel? At least this way, its cheaper for the buyer (as opposed to foreign travel), and beneficial for the local operator to rebuild. The majority of our consumer (LSM in this case) is not wiped out and people with a little extra in reserve will be desperate to get out the house for a long weekend.

 

Maybe we're forced to use more local suppliers now? The money would still be cheap to borrow here to rebuild and also the ZAR is surely making it impossible to import anymore? Thats almost win win for all.

 

For small businesses I think to myself (quite bluntly, and perhaps inconsiderately) thats just the nature of the beast, and where demand emerges again the clever & able ones will plug the gap again.

 

Granted this is all well outside my expertise so I may very well be underestimating things with my rose tinted specs on.

In a best-case scenario the lack of import options may bring production back here in some sectors, resulting in an uptick in employment and more entrepreneurs filling the gaps that weren't there before. 

 

LOL. Just read your post again and I see I've just summarized it. I agree fully with your better post, in a BCS situation. 

Edited April 10, 2020 by Captain Fastbastard Mayhem

[River Rat]

My apologies for not maintaining the momentum over the Easter weekend. I have been rather busy helping someone save their business and the good news is that we have managed to get them a reprieve from the banks using this scenario planning tool. We created an at best and an at worst scenario, this was presented to the bank with a payment plan that addressed the at worst. The response from them was extremely positive as they engaged with us on the likely outcome from these scenarios, they accepted the uncertainty of the situation and were most supportive of the business because it planned for the worst. What we got yesterday is a 6 month payment holiday with interest capitalised with the obligation on the business to start paying sooner if the outcome is better than expected.

 

I get the distinct impression that the banks are keen to renegotiate loans rather than have defaulting customers and bad debts on their books. This is extremely good news for our economy as a whole, hang in there guys there is light at the end of the tunnel. So let's get this exercise completed.

[Benjamin]

Think maybe we better modify  some of the best case scenarios from last week though. Goalposts moved a bit 

 

One of the certainties we have is uncertainty it seems 

[River Rat]

This the beauty of creating a robust process when something changes it's easy to update and run through the issues to review the impact. At this stage this is what our matrix looks like.

[River Rat]

Considering the extend lockdown it is really only the timeline of the graph that is impacted. So this is where we are.

1.We expect a spike in activity immediately after lockdown ends but we don't know by how much.

Our customers have a pent up demand for all the non-essentials and there's a run on the shopping center. The bottle store, hardware etc will all being under pressure even the restaurants and coffee shops are full as people celebrate being out and about. Tenants are capable of recouping about 30%? of lost revenue.

2.We expect an economic impact on our customers but we don't know how severe or for how long.

Although our customers have lost some income during the lockdown their costs were lower and because the world comes to terms with the fact that this virus is just like the flu it takes about 6 months for the demand side of the economy to come back to normal and with that earnings recovery back to where they were before lockdown.

3.We expect customer shopping behavior to change but by how much and for how long?

.

 

 

 

[River Rat]

Right let's consider the next key uncertainty under "It's just like the Flu scenario"

 

4.Government could extend or lift the lockdown depending on where we are on the curve.

We have to consider which data government would consider

 

A decision on a further lockdown extension would be informed by the rate of spread seen in average new daily cases between 10 and 16 April, which they were 95% sure would remain between 40 and 80 cases. Above 90 cases a day calculated over a week would result in a lockdown extension. This is according to Professor Salim Abdool Karim, the chairperson of Health Minister Zweli Mkhize's Covid-19 advisory group, who addressed a media briefing alongside other scientists on Monday night. You can read the entire article here https://www.news24.com/SouthAfrica/News/sa-unlikely-to-avoid-wildfire-spread-of-covid-19-but-lockdown-bought-time-top-scientist-20200414.

 

This confirms a Rule of the Game and gives us an excellent parameter to monitor and for the sake of this scenario the average of new daily cases for the period 10-16 April 2020 is <90.

Edited April 14, 2020 by River Rat

[River Rat]

5.Will the development of regional shopping mall continue.

 

Under this scenario it would suggest that shopping patterns will be back to normal within the next 12-18 months. Regional shopping centers are usually based on long term demographic studies which are incorporated into a feasibility study with a 20-30 year time horizon. The worst of the economic impact would be felt during the construction phase so it follows that there would be no reason to halt the development.

[Andrew Steer]

Zoom discussion I am busy following on the implications of Covid in sport in SA heading forward...

Definitely some lessons to take forward in all aspects of life in SA.

Sorry, started at 2pm, I only got the link just before it started 

https://zoom.us/webinar/register/WN_UEFIUJJgSoW-GvMXh2TYwQ

[Shebeen]

 

5.Will the development of regional shopping mall continue.

 

Under this scenario it would suggest that shopping patterns will be back to normal within the next 12-18 months. Regional shopping centers are usually based on long term demographic studies which are incorporated into a feasibility study with a 20-30 year time horizon. The worst of the economic impact would be felt during the construction phase so it follows that there would be no reason to halt the development.

I think big malls will suffer. Edgar's is just the first, and vacancy rates will be up.

I don't think the rental market is that efficient, as the leases are long-term and it will take a while for things to stabilise.

A lot of malls will not be feasible in their 2019 state and will need to change their models.

 

I don't think any new malls will be planned, and the ones currently under construction could be mothballed.

 

For our big little centre, I think tenant relationships are going to be a huge issue and we will need to bend over backwards to keep them in store and in business. And this is mostly financial support

[River Rat]

I think big malls will suffer. Edgar's is just the first, and vacancy rates will be up.

I don't think the rental market is that efficient, as the leases are long-term and it will take a while for things to stabilise.

A lot of malls will not be feasible in their 2019 state and will need to change their models.

 

I don't think any new malls will be planned, and the ones currently under construction could be mothballed.

 

For our big little centre, I think tenant relationships are going to be a huge issue and we will need to bend over backwards to keep them in store and in business. And this is mostly financial support

I am being generous in the best case scenario and having done a few of these feasibilities myself I can tell you that the economic cycle is always factored into this. Usually a down turn of about 5% is expected for a 12 month period every 5-7 years. In this case my assumption is that the down turn and development period coincide. However, I am not so sure that your concerns won't be valid when we consider the at worst scenario.

 

[Chris_]

I am being generous in the best case scenario and having done a few of these feasibilities myself I can tell you that the economic cycle is always factored into this. Usually a down turn of about 5% is expected for a 12 month period every 5-7 years. In this case my assumption is that the down turn and development period coincide. However, I am not so sure that your concerns won't be valid when we consider the at worst scenario.

 

 

Best case I agree it goes ahead pretty quickly. I reckon (as it was pre-event) construction companies are almost giving business away to remain relevant and afloat so there will be plenty bidders for the project. There may even be some not quite 'hot money' but maybe 'excited money' as a relief that we made it through this (non-)crisis and looking for some good deals/purchases.