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This article is written by Aditya Saurabh, pursuing a Diploma in Business Laws for In House Counsels from LawSikho.

Introduction

2020: the bizarre year, when the Indian government issued an order of the nationwide lockdown, imposed stay-at-home policy, and ordered to maintain social distancing norms as an effort to limit the spread of COVID-19, was such which no one ever thought they would hear. The government also ordered all nonessential retailers and businesses to close and, overnight, the lives of every person changed and streets became empty. People were so scared that they no longer felt the urge to purchase non-essential items or luxuries as were stuck at their homes. Several months have passed since the first nation-wide lockdown, but even today, most of the people are spending their majority of time at home and have not overcome the fear of Covid-19 which they must not until the cure is found.

However, this has raised a major concern for the businessmen and retailers as when everything is at halt so have been their sales. Due to lockdown, customers were pushed to trade fully online and brick-and-mortar businesses had to face immense challenges as they were fully or partially shut down due to Covid-19. Now, the circumstances are such that the brick-and-mortar retail stores are at risk of falling due to Covid-19 as customers don’t feel safe to visit the physical stores and prefer buying online.

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Now as the businesses reopen, there is a need for such brick-and-mortar stores to adapt, evolve and strategize as per the changes in customer behaviour, altered demand patterns, and increased concerns about health and safety, to bring it back from the risk of falling. Also, learning from the past, and preparing for the future is the second step to protect the retail store from another wave of the virus attack, which might halt the business again. This pandemic has brought a challenge before the brick-and-mortar retail stores to be more efficient and gain new perspectives to earn revenue.

What are brick-and-mortar retail stores

Brick-and-mortar retail stores refer to those retailers or businesses that are physically present and operate to provide goods and services to the customers such as grocery stores, clothing stores, hardware stores, bank branches, and other outlets including those at the mall. Also, companies that own warehouses, factories, or other spaces for operating and storing goods can be termed as Brick-and-mortar retail stores.

Brick-and-mortar denotes the physical storefront and not literally the building materials used to construct these physically present stores. The term “brick-and-mortar” began to be used commonly after the entry of online businesses or online retailers in the market. These online businesses have no physical store or location of any kind and operate solely online.

Difference between brick-and-mortar retail stores and online stores

Brick-and-mortar retail stores because of their physical presence have several differences with respect to the online-only businesses as the customers have to walk-in the brick-and-mortar retail stores to buy the products which have in-house employees who guide the customers through their products or services; allow the customers to touch, feel and experience the products; and solve the customers issue in real-time. On the other hand, in the online-only businesses the products are directly delivered to the customers and thus have no unique experiences and human connections. This here makes the difference!

People would be happy to buy from physical stores, if they get unique and good experiences or can treat the trade as more than a transaction such as posting pictures of themselves shopping in a mall. But only this won’t confirm a success for the physical stores and won’t slow down the online sales. Customers prefer to look online about the products and its details, in spite of the fact that they may or may not make their final purchases from the online stores. This gives online stores the opportunity to make first impressions.

Thus, when it comes to doing business both online retailers and brick-and-mortar stores have to face their part of obstacles. In order to surpass this, many businesses have started to incorporate aspects of both types of stores: Online and Brick-and-mortar. For example, Lenskart, Pepperfry, Shoppers Stop, etc. have a brick-and-mortar location in a city, where customers can figure out products and the company build its customer service reputation; and also operates online business that saves on some overhead costs of rent, electricity, etc. giving them an opportunity to make first impressions.

Covid-19 effect on brick-and-mortar retail stores

When it comes to the Covid-19 pandemic, it has brought a unique ordeal before the brick-and-mortar stores as due to lockdown these stores, whose revenue were dependent on the customers visiting malls, stores and outlets, were hit hard.

Due to lack of revenue and a diminishing ability to meet their financial obligations, such as lease rents and loan repayments, these stores have also been challenged with difficult decisions about aligning costs with revenue, leading to layoff of many loyal employees. The brick-and-mortar stores due to this pandemic have the same fears as to when would the customer traffic return to normal, how the lockdown has changed the customer behaviour, how those changes would impact the products, services and environments where the transaction will occur and how would they complete their obligations (such as rent payments).

During the initial days of lockdown, people panicked and were mostly isolated at their homes for weeks or months, adjusting to life without their favourite restaurants, local shops, and personal and professional services like parlours and gyms. People started to avoid engaging in out-of-home activities, and chose to step out only when necessitated. Unemployment also grew which impacted customer spending, and resulted in changes to customer behaviour.

Businesses also began to struggle at providing a safe environment for employees and customers, which became more difficult to maintain due to social distancing norms and increased concern about health and safety. Store retailers also struggled to keep up with the demand, and customers started looking for online stores or for that retail stores that ensured contactless delivery of products directly to their homes with contactless payments. This further increased customer’s reliance on digital technology.

Ways to curb the effect of Covid-19 on brick-and-mortar retail stores

The Coronavirus has heightened the brick-and-mortar stores’ need to bring innovative ideas to their businesses and to look for ways to lure customers. The brick-and-mortar stores sales have gone down due to Covid-19 but the same fate does not lie for the online stores. Brick-and-mortar stores may think online stores to be their real competition and may even think of them as the reasons for their fallout, but the thought and reality can be changed. Technology and the internet can be made allies to the brick-and-mortar modelled stores for its success in today’s world because customers are constantly looking for more convenient and quicker ways to purchase products and services.

Certain technological adaptations that can be used by the brick-and-mortar retail stores to lure customers and enhance their safety during the Covid-19 crisis can be:

  • Cashless Payments: Limiting interpersonal contact among and between customers and employees is one of the solutions for preventing spread of viruses. The cashier less checkout system like tap-and-go payments, e-wallet payments, or online payments through UPIs, is a speedy checkout method that many brick-and-mortar retailers can introduce. It can help to reduce or eliminate checkout queues, and shorten the duration for which customers stay in the stores and deal with the cashiers, which shall reduce the risk of infection.
  • Publicize Safety Measures: The Brick-and-mortar stores should inform and aware the customers through social networking sites and media about the spread of Coronavirus and how it can be controlled even by not being stuck at homes and should make their employees wear PPE kits (if possible and recommended), masks and make available sanitizers and other safety gears so that the people know the store’s efforts and feel safe and comfortable in visiting the stores.
  • Support other Local Businesses: Community and support can help in getting through any crisis such as running cross-promotions or simply engaging with other businesses on social media or sharing out their content can help expand the reach of target customers. It shall also bring goodwill to your business and shall increase your Take the example of the viral Burger King’s Tweet (in the below picture) where it asks its customers to order food from other sister outlets due to the pandemic. It gained massive love and support by the people and was highly appreciated. Must have increased the sales!

Credits: Twitter

  • Deliver the products and Services: Even after providing in-store precautions and a safe environment, people might not feel confident about shopping in-store. In such situations people would be elated to shop at such stores where the products are delivered directly at their homes or where they could speedily pick up the products by ordering online or where they could reserve their places online so that it does not become This provides a contactless way for people to continue to patronize your business.
  • Online Communication: Since people have to spend more time at home with their phones and laptops, the easiest way to connect with your customers is to communicate via emails and other social networking sites about your hours, safety protocols, promotions, and other information about your business in an effective way to reach your customers. See how Zomato interestingly engages with its customers via emails and tweets.
  • Provide Customer Experience: Shopping should go beyond simply purchasing products and instil in the customer’s mind as an experience. Take the example of IKEA, where people like to spend an entire day navigating the maze of showrooms and products, which are also labelled and easy to find on their online site. One of the best parts of shopping in IKEA is that during your shopping excursion you can take a break at its own in-store cafe. Queues outside IKEA stores on the days following the relaxation of lockdown measures prove the importance of customer experience in the post-lockdown recovery for brick-and-mortar stores.

Further there are definitely opportunities for brick-and-mortar retail stores to benefit from and utilize the convenience of online by:

  • Creating an Online Presence: Marking an online presence by creating a website will help in protecting your business from the shutdowns that many brick-and-mortar companies had to face during the pandemic, and may have to face again in future outbreaks. Nowadays, for customers, their first stop is online, whether doing research or making a purchase. This can be adapted by brick-and-mortar retailers to create ‘web-rooming’ rather than ‘show-rooming’ where retailers shall advertise products online as only available in store and shall show the product descriptions and prices online. The customers will then easily identify the product online, and then they will go to the store to physically buy the product. This has been and is continued to be adapted by various businesses such as Reliance Trends, Lenskart, Pepperfry, Walmart, etc. Also, online reviews of your product or service from trusted sources are increasingly important as people are less likely to be able to experience your business’s service in person.

Covid-19 and commercial lease agreements

Due to the Covid-19 pandemic, the brick-and-mortar retailers (lessees) who have entered into commercial lease agreements to run their business on leased premises have not been able to conduct sales and have not been able to pay rent to the lessors. It is therefore important for the brick-and-mortar retailers (lessees) to understand the application of a Force Majeure clause in the commercial lease deed in order to get payment reliefs to overcome their financial crisis.

The foremost relief which brick-and-mortar retailers can seek in such situations is to look whether the Commercial Lease Agreement has Force Majeure Event Clause, in order to postpone or suspend the performance of obligations. A Force Majeure Event means an event or effect that cannot be reasonably anticipated or controlled by the party such as war, strikes, riot, epidemic, or an event better described as an “Act of God”, but is not limited to it. It is an event that disrupts the party from fulfilling obligations but does not entirely excuse a party’s non-performance, and may suspend it only during the period of force majeure. A force majeure clause in an agreement is governed by Section 32 of the Indian Contract Act.

A force majeure clause clearly stating about the pandemic or epidemic or government order shall easily help the lessee get payment reliefs but anything else such as an act of god needs to be analysed and proved in order to invoke the force majeure clause.

Also, there are three key elements to establishing that the Covid-19 will trigger the Force Majeure Clause in a Commercial Lease Agreement:

  1. That the situation is outside the party’s control.
  2. That the gravity of the actual event is massive.
  3. That the affected party cannot mitigate the loss.

Further, the Lessee is required to look into whether this pandemic has affected the fundamental basis of the agreement, in order to postpone or suspend the performance of obligations.

For the situations where there is no contract at all or there is no specific force majeure clause, then the issues would have to be determined on the basis of the applicable law. Section 56 of the Indian Contract Act, deals with impossibility of performance, would apply in cases where a force majeure event occurs outside the contract.[1] But a lease agreement being an ‘executed contract’ is not an ‘executory contract’ and does not attract the doctrine of frustration (doctrine of “impossibility of performance”) as under Section 56 of the Indian Contract Act, 1872 because a lease agreement is different from other types of agreements.[2] Thus, the doctrine of frustrations under Section 56 of the Indian Contract Act, 1956 does not extend to lease agreements.[3]

A lease agreement is governed by the Transfer of Property Act, 1882, under which Covid-19 could be claimed as force majeure under Section 108(e) of the Transfer of Property Act, 1882, when the Covid-19 pandemic is interpreted as “irresistible force” that renders the leased premises substantially and permanently unfit for the business upon a notice sent by the lessee to the lessor. As per Section 108(e) of the Transfer of Property Act, 1882, a lease can be declared void at the option of the lessee if any material part of the leased property is wholly destroyed or is rendered substantially and permanently unfit for the purposes for which it was let by fire, tempest or flood, or violence of an army or of a mob, or other irresistible force. The burden to prove the occurrence of such a frustrating event falls on the lessee. However, interpreting Covid-19 as an “irresistible force” shall depend upon the case to case interpretation of the courts.

However, recently, the Delhi High Court in the case of Ramanand and Ors v. Dr Girish Soni and Anor, has rejected an application for waiver or suspension of rent on account of the lockdown. The Court took the view that temporary non-use of premises on account of lockdown which was announced due to the outbreak of Covid-19 cannot be construed as rendering the lease void under the Transfer of Property Act, 1882 and therefore a tenant cannot waiver payment of rent. This reiterates that force majeure clause would be governed as per the provisions of each contract and shall differ on a case-to-case basis.

Also, the relevant provisions of the Transfer of Property Act, 1882 are useful only if the lease is sought to be voided, and the TPA does not contemplate suspension of rent in such a situation. Further, the question as to whether the suspension of rent ought to be granted or not would depend on the facts and circumstances of each case[4] and shall also be subject to satisfaction of various factors, including those taken into account by the Delhi High Court in Para 32 of the case of Ramanand and Ors v. Dr Girish Soni and Anor.

Therefore, in situations where the Force Majeure clause is not inserted or not framed correctly in the agreement, rather than going before the courts, the best solution before the parties is to act in good faith by sending a legal notice about its problems of non-performance and negotiate the agreement accordingly.

Government policies to support brick-and-mortar retail stores

Due to the nationwide lockdown, brick-and-mortar retail stores had to either work with reduced resources or had to completely shut down. This severely impacted their sales, production, and working capital which are critical to run the business. The Government is required to support the brick-and-mortar retail stores by providing them access to capital, tax breaks, moratoriums, etc. through laws and policies that help them to keep their businesses running. The Government of India along with other sectoral ministries (such as RBI, SEBI, IRDAI) has in furtherance of this announced various relief measures to help businesses affected by the lockdown enforced to fight COVID 19.

Certain relief measures provided by the Government are:

  • To support the retail stores by giving them liquidity assistance that is easy and readily available to keep them afloat and be solvent. One such measure is Emergency Credit Line Guarantee Scheme (ECLGS) which is a Working Capital Term Loan (WCTL), under which the businesses can borrow credits to enhance their working capital needs, meet operational liabilities and restart their businesses which have been impacted due to the COVID-19 crisis. Another is Startups Assistance Scheme (CSAS) by Small Industries Development Bank of India (SIDBI) that provides instant liquidity to startups and ensures its employees’ safety and financial stability.
  • To help employees or laborers that are laid off due to unavailability because of containment measures and confinement restrictions or are laid off due to decreased revenues and inability to pay wages. There has been suffrage on part of the employees in either case. One such measure helpful in this case is Atal Bimit Vyakti Kalyan Yojana scheme, under which the individuals who have subscribed to Employees State Insurance (ESI) scheme and have lost their job will be granted compensation, from the time of unemployment, in the form of cash deposited in their bank accounts for three months.
  • To ensure that competition remains sufficient in the retail sector following the crisis as the impact of covid-19 is higher on brick-and-mortar stores than the online stores. One such measure helpful in this case is MSME Ideas Portal which facilitates venture capital inventors to connect with businesses that have ideas or innovation. Similarly, banks, government Labs, Incubators, accelerators, foreign collaboration can be added in future to invest. This portal can also be used to explore the schemes offered to the growing MSMEs during these times of a pandemic by the central and the state government.
  • To increase Brick-and-mortar retailer’s flexibility so that it can expand their sale channels, especially by introducing online sales. One such platform for brick-and-mortar stores can be Government e-Marketplace (GeM), where the seller can sell goods to the government directly using this online platform. Firstly, you will have to register and then after a simple step of authorization, the government shall buy goods from you and will pay you online.

However, these are not enough as there is always a possibility of further extension of lockdown by several state governments due to unpredictable covid-19 health effects or there can be a chance of the second wave of Covid-19, which shall have a significant impact across various sectors of the economy.

The Indian Government can thus also take into consideration the policies which other countries have implemented to support the retail sectors and to fight COVID 19. In Japan, the government will provide a business continuity subsidy, which allows firms to diversify and expand their sales channels.[5] In France, payment of rent is deferred for small businesses by granting tax credit to the lessors. Also, retail workers are at a high risk of infection, which tends to decrease labour supply because of the fear of contamination. Some governments have increased the pay premium by either paying a bonus directly (Italy) or by introducing a tax free bonus to help firms incentivise their workers (France).

Countries around the globe are also making schemes on providing Unemployment benefits, Job Retention Schemes, Deferred Tax Payments, Emergency Leave Entitlement, asking Banks to support businesses, ensuring Credits, boosting Business Transformations and providing measures for temporary lay-off among others, which Indian government must look into.

Conclusion

As businesses reopen after the lockdown, it is clear that the market shall function differently for the brick-and-mortar retail stores and the online only stores. But with the use of technology and internet, smart marketing tactics, understanding customer preferences, enhancing customer experiences and improved safety standards, brick-and-mortar stores can run their businesses effectively. Further, in situations where lockdown persists in certain states and brick-and-mortar stores are not able to fulfil their obligations, the Force Majeure clause is to be included in the agreement to postpone or suspend its obligations.

There’s definitely opportunity with pain to restructure the bricks-and-mortar retail businesses, as it will take time and the future is uncertain. But the bricks-and-mortar retail stores need fresh perspective to bring normality to the unprecedented disruption. Bricks-and-mortar retail stores may continue to see a loss in revenue, layoffs, and store closures as  another wave may come, for which they have to be prepared which cannot be done without the support of the Government. The Indian Government must look and take into consideration the various policies implemented by different countries and their ways to support businesses in fighting Covid-19 and its after effect.

References

[1] Energy Watchdog v. CERC and Ors, (2017) 14 SCC 80

[2] Sushila Devi and Anr v. Hari Singh and Ors, 1971 SCR 671; Raja Dhruv Dev Chand v. Harmohinder Singh & Anr, 1968 SCR (3) 339

[3] Ramanand & Ors. v. Dr Girish Soni & Anr, CM Appeal No. 10848 of 2020

[4] Surendra Nath Bibran v Stephen Court, AIR 1966 SC 1361

[5] ht tps://www.unescap.org/sites/default/files/Japan_COVID%20country%20brief%200 4 1120.pdf

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