Magazines Archives - 2009 January

How are retailers in Singapore bearing up?
Story 3 - Focus

Unusually early festive sales and heightening competition signal tough times ahead for Singapore’s recession-hit retail sector. But retailers are seeing this as an opportunity for differentiation. Jolene Klassen finds out how some players are bracing themselves for the downturn.

A year ago, Singapore’s retail industry was riding high on the back of record tourist arrivals, with new attractions such as the Singapore Flyer observation wheel and the country’s inaugural Formula One Grand Prix night races being big draws.

The economy, then enjoying the decade’s lowest unemployment rate, was abuzz with activity as new mall projects were announced amid much anticipation over the citystate’s two integrated resorts under construction.

But, as the global financial downturn rippled through markets across the globe late last year, Singapore’s economy took a downward turn, with pensive government forecasts, which do not appear to be lifting anytime soon.

Visitor numbers last October fell by 8.1% from the year before while retail sales dipped by 3.6% year on year. According to a Nielsen study, the consumer sentiment in 2008 had also stumbled 10 points to 92
in a second double-digit drop for the year.

Predictably, the mood on the streets turned noticeably sombre last festive year-end. Even the colourful lights and Christmas trees did little to spread cheer, as consumers began to “squirrel away whatever spare cash they have”, says Lau Chuen Wei, executive director of Singapore Retailers Association
(SRA).

“At the moment, with all this gloom and doom, people are just afraid to spend,” she observes.

Recessionary effects began to be felt in the shops when, for the first time last year, “retailers [came] up with offers and discounts a whole month before Christmas, doing their utmost to appeal to their customers and give them value buys”, says Lau.

Calling this a “rarity”, she explains that “retailers get their highest yields” from the period leading to Christmas right through to the New Year. This is one of two major peaks in Singapore’s retail
cycle, the other being the Great Singapore Sale, Lau points out.

It seems the dreary outlook for the retail industry set in only in the latter part of 2008. Earlier, the industry was still enjoying the spillover effects of a 2007 that had “ended on a very high note”, before “news of the slowdown started creeping in around the middle of last year”, she says. The industry did
not feel the effects of the global crisis until end-September to early-October. “All in all, we’ve had a pretty good nine months or so.”

Despite the slowdown, one perennial concern has remained little changed. “Rentals have been escalating,” Lau laments. “Even now, with the economic crisis, they have still not come down.
The rate of increase has perhaps slowed somewhat, but has [yet to see] a downward trend.”

“The landlords will tell you that it’s a matter of market forces — ‘if the supply is there, the natural thing is that rentals will come down’. But, historically, we have not seen that happen.”

Real-estate specialist CB Richard Ellis’ latest ranking names Singapore the 17th most expensive shopping location globally, and sixth in the Asia- Pacific. The country’s rate of rental increases is the 22nd fastest in the world, with rents along Orchard Road going for US$455psf annually.

Another real-estate consultancy, Cushman & Wakefield, has also credited events like the launch of the ingapore Flyer and the three-day Formula One races for the spike in tourist arrivals, sustaining international retailers’ business and driving rentals. The number of tourists for the period the races were held had increased 30% over the same period last year.

With the spate of new malls coming up across the island-state at a time of poor economic outlook, it has been speculated that landlords may be compelled to lower their rents. But SRA’s Lau remains sceptical, maintaining that high retail rentals have been an issue among tenants “for the longest time”.

She encourages retailers to continue building their brands while standing their ground concerning rentals. “Maybe, in the current economic situation, the time has come for retailers — having taken
more than they can stomach because their margins just would not let them push on any further — to have the upper hand [in rental negotiation],” she says.

Mall projects still on Despite the anticipation of a protracted slowdown, a number of new malls are
slated to come on stream this year. Along Orchard Road alone, four developments are set to open, led by Far East Organization’s Orchard Central in the first quarter, followed in mid-2009 by ION Orchard, a joint venture between CapitaLand and Sun Hung Kai Properties, and Lend Lease Retail’s 313@Somerset at year-end, while The Meritus Mandarin Hotel’s Mandarin Gallery, now being revamped, is scheduled for completion this October.

On the city outskirts, City Development Ltd also aims to open City Square Mall, the country’s first ecomall, by the end of the year. Farther away in the heartlands, refurbishments and asset- nhancement
projects are breathing new life into suburban properties. Wendy Low, general manager of Frasers Centrepoint Ltd, reveals: “Aside from the newlycompleted Northpoint extension [in Yishun], we will be completing assetenhancement works at the current Northpoint by early [next] quarter. The Frasers entrepoint Malls group will also be unveiling YewTee Point [this quarter] and a mall in Bedok in 2010.”

Unfazed by the number of new players, Low believes these new malls will “keep the industry on its toes” to the benefit of consumers. “Landlords and retailers will be challenged to work very closely to roll out more unique mall and retail concepts.

Shoppers will have more variety and hence choices. Furthermore, we have witnessed the growing popularity of suburban shopping destinations. Retailers have stretched themselves [to offer] differing concepts at the malls,” she adds.

This “makes for some good news”, bringing more excitement to the scene, Lau says, averring that differentiation remains the key to success in what is becoming an even more challenging
retail landscape. “Some [mall owners] are also saying that they will be bringing in foreign brands that have never been in Singapore before,” she reveals.

However, attempts at mall positioning are only the beginning of differentiation, as Lau warns: “At the end of the day, if landlords cannot get the tenants that ... match [their] niche, they will end up taking anybody who is ready to pay the rent to fill up that space.” This could result in “copycat” malls, which
will reduce their appeal to shoppers.

Expansion continues, along with investment in training and technology Dubbing tourist dollars the “icing on the retail cake”, retailers have not forgotten that the bulk of their sales is generated by the domestic market.

In order to keep local consumer confidence from waning further, and at a time when other companies are retrenching staff to stay afloat, homegrown retail group NTUC FairPrice has announced that it plans to train and retrain its employees as well as proceed with the opening of two new stores — this in addition to its third hypermarket, opened last December at Jurong Point.

“The government has always pushed for training and re-training,” Lau acknowledges. Recently, the Singapore government has set aside S$600 million (US$406.43 million) for employers’ staff-training schemes. On top of that, the government has earmarked S$2.3 billion in loans for over 120,000 local
companies to tide them over until after the recession.

Foreign retail groups, too, are taking the slowdown in stride and forging ahead. Isetan Scotts is sprucing up its men’s section to introduce labels by Mango and Croquis, while sportswear brand Nike opened its first 8,000sqf South-east Asian flagship duplex store at Wisma Atria last November.
Meanwhile, technology providers are anticipating a busy year ahead for the retail industry, says Peter Robilliard, solution director, Asia-Pacific and Japan, Torex Retail Holdings Limited,
a retail-solutions provider.“More and more retailers in Singapore are adopting global Tier-1 solutions. As these retailers become more competitive, they look at systems that can help run their business [with] more information to help them make better decisions quicker,” Robilliard reveals.

Maneesh Sah, marketing director, Asia-Pacific at Torex, adds that during recessionary times, retailers
should focus not only on increasing sales by creating impulse buys, but also on sustaining customer$
loyalty to brands. “Retailers are not shying away from investing in technology, even in these times. It clearly means that, [far] from stopping their IT investments, retailers are using this downturn to
implement technology, retain customers and increase customer loyalty,” Sah maintains, stressing the importance of using technology in the retail environment to further convert browsers into customers.

Lau affirms that, in terms of technology, Singapore is reputed for being a well-connected country. She adds: “To survive, retailers are by and large looking at what will contribute to the Industry players in Thailand now pin their 2009 retail-growth forecast at only 2%-3%, about half of the 4% expected to have een recorded for the year just ended. next dollar in sales and how they can contain costs.

“On the whole, a lot of Singaporeans still see shopping as ... more than just going out to buy something. It is a whole leisure activity to meet up with friends and be with the family. Just to trawl the
shops, whether they buy or not, is something that Singaporeans still cling on to and enjoy doing.”

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