UAE retailers should have compulsory cash reserves by law, says Mashreq Bank

Dubai: Laws should be brought in to have UAE retailers set up cash reserves to help them tide over any sudden losses from unforeseen events. This would also ensure protection of employees.

This is one of the recommendations a Mashreq Bank promoted think-tank has suggested for the retail sector in the wake of the COVID-19 impact. Statutory cash reserves are maintained by banks and financial institutions, but making it compulsory for retail represents a whole new ball game.

In another major recommendation, the new industry report says there should be a deferral of VAT payments and "giving retailers longer time to pay customs/VAT". "This will ease cashflow of retailers," the report states.

Apart from that, "Insurance policies should be re-written to cover lost revenues against epidemics and pandemics," is another recommendation. "While expensive, in light of many recent major outbreaks such as SARS, MERS and now COVID-19, this could soon become a necessity.

The other suggestions include a "break clause" that would allow a retailer to vacate premises without incurring major penalties. But there must be "sufficient notice period built in," the report adds.

Given the state of their current cashflows, it will be difficult for retailers to spare any cash for reserves in the current market situation. Cutting across categories, retail-focussed businesses are intent cost cuts. Exits from non-performing locations and more layoffs could be in store early next year.

A mindset change

Another of the Mashreq Bank think-tank recommendations will find more favour with retailers. “There needs to be increased collaboration between retailers and landlords” and “moving away from the current transactional approach – which is largely governed by profits and losses – to a partnership model.”

This could be achieved by retailers and landlords engaging in joint ventures, marketing efforts and costs and in data sharing.

According to Joel D. Van Dusen, Head of Corporate and Investment Banking Group at Mashreq Bank, “While the COVID-19 pandemic has exposed weaknesses in and brought new pains to the sector, there continues to be massive value and potential waiting to be seized by those who rise to the challenge. Only by creating a permanent shift in the way business is done, will the retail sector be able to future-proof its position for the long-term.”