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Retail Outlook 2004
Singapore: Retailers tread cautiously
Retailers in Singapore are starting the new year with caution. The industry has to grapple with some momentous issues — increasing operation costs and decreasing consumer confidence. Suzanne Loh reports
In his New Year message this year, Singapore Prime Minister Goh Chok Tong announced that the re-public’s economic growth this yearwould likely reach 3%-5%.
However, the big question for the retail industry remains: To what extent will Singapore retailers remain profit-able, with consumer confidence in danger of being jeopardised by rising costs and taxes?
In a move to keep business costs competitive to attract new investments and boost external demand, the Singapore government has reduced employers’ contribution to employees’ Central Provident Fund (CPF) from 16% to 13%, effective October 2003, and raised the Goods and Services Tax (GST) to 5% this year, starting this month, from 4% last year.
The Singapore Retailers Associa-tion (SRA) is concerned that these regulations, which will increase retail-ers’ operation costs and discourage re-tail spending, will adversely affect sales.
Dr Jannie Tay, president of SRA, said that recent wage cuts, higher GST and rising cost of basics such as education, health care, utilities and transportation would mean that consumers need to set aside money for these essential needs instead of spending on shopping.
Dr Tay also sees the GST increase pushing up the cost of merchandise, rentals and utilities for retailers. “The only hope they have is to try to sustain sales turnover by keeping prices affordable and attractive to their customers,” she added.
Many local retailers are already absorbing the 1% GST hike this month. In addition, Cold Storage, G’Value, Shop N Save, Giant Hypermarket and NTUC FairPrice are also offering dis-counts of between 5% and 30% on their basket of 800 house-brand items until June this year.
“It is a matter of retailers understanding the needs of their customers and how their customers behave. The problem is that even if they can sustain sales turnover, the ultimate impact [of rising costs] is a reduction of their al-ready slim margins,” said Dr Tay.
Speaking for the Association of Small and Medium Enter-prises (ASME), Elim Chew, an elected ASME executive council member and managing director of 77th Street (S) Pte Ltd, said it would be very diffi-cult to stimulate consumer confidence in light of costlier utilities and transportation, higher GST and uncertain income levels.
“If consumers do not spend and are fearful of the general economy, they will keep their money for a rainy day even if that day is not forthcoming,” Chew said.
The retail industry is not too hopeful that any economic improvement this year will increase consumer spending.“This is largely because recent experiences have shown that economic cycles are getting tighter and tighter, with peaks and troughs following each other within shorter and shorter time spans,” said SRA’s Dr Tay.
In retrospect, the growing consumer trend towards spending on essentials might have helped neighbourhood provision stores rejuvenate their businesses.
Chris Oo, general manager (group consumer business division), PSC Corporation Ltd, said that regardless of all economic situations and tax cuts, consumers would need basic necessities.“Life will continue to go on and our businesses shall remain the same,” he
Meanwhile, retail-property agents are more optimistic, saying that retailers could tap a host of factors to improve their business in the new year.
Good location is one factor. Sub-urban malls, for example, are expected to continue to have a regular customer base because they cater primarily for shoppers living in the neighbourhood.
Junction 8 was cited by Pauline Tan, associate director, head of retail, Jones Lang LaSalle, for its ability to attract shoppers living in public housing estates in Bishan, Ang Mo Kio and Toa Payoh, as well as high-income earners from the nearby Thomson area.
“With additional effort from the shopping-centre management in enhancing the product mix over time, the mall has grown increasingly vibrant,” Tan added.
According to Stephanie Ho, associate director of DTZ Debenham Tie Leung, a new product line can go as far as offering customised merchandising to respond to shoppers’ needs, even for basics like apparel sizes.
Differentiation is essential for small retailers, who face tough competition from well-established retail chains in the ‘fight’ for space in new and suburban malls.
“Cash flow and business prospects are more stable for bigger retailers because they can offer good brands and have more financial reserves to help them tide over bad times,” said Tan of Jones Lang LaSalle.
“Their presence as anchor tenants is also important to help new and sub-urban malls attract shoppers. A case in point is Sembawang Shopping Centre, which tries to position itself as a subur-ban retail mall with Giant Hypermarket as its anchor tenant,” she added.
Apart from the more efficient use of rental space within their permitted gross floor area by removing non-profitable space, many mall owners are looking at new avenues to increase their ambience and change their merchandise display to capture shoppers’ attention.
“Eventually, such efforts will lead to a positive chain reaction, with shopping malls bringing in more crowds, leading to more business for, and rentals from, tenants,” said Tan.
Strategic advertising and promotional programmes are also vital in driving up consumer spending, said Pua Seck Guan, CEO of CapitaMall Trust Management Ltd and MD (Retail) of CapitaLand Commercial Ltd.
“With consumers demanding better value for their dollar, it is necessary that our malls cater for their needs by providing value-added services, and a broader consumer and family entertainment experience to further induce spending without losing sight of building on our brand values,” he said.
This is even more so when local retailers face competition from highly-populated countries like Thailand, Malaysia and Dubai which have large consumer bases.
Said Ho: “These countries are constantly making the effort to spruce up their shopping centres, as they see the value of retail in enhancing their domestic economy and tourism.”
Despite Singapore’s well-established amenities and the Singapore Tourism Board’s schemes to boost the image of key local shopping malls, Danny Yeo, executive director, Knight Frank, sees room for improvement.
“Retailers have to improve their service level to compete with those in regional economies, and push new boundaries for innovative trading and packaging concepts to entice shoppers
to part with their money,” he said.
With the majority of Singapore’s retailers located in malls, both shopping-mall owners and retailers will need to work together for bigger shopping crowds and better sales.
Said Ho: “The retail business is really a matter of survival and adaptability. It is important for landlords and tenants to work hand in hand. If retailers don’t innovate and upgrade themselves, it will be hard to expect customers to keep coming back to shop.” market go in 2004?
Which Way Will The Retail-Property Market Go in 2004
Retail-property agents have stated that prices for prime retail space in 2004 would continue to remain in high demand because of their proximity to human traffic and amenities.
“I expect the retail market to continue to firm in 2004, although at the lower end — 4%-5% — largely due to a lack of new supply,” said Danny Yeo, executive director of Knight Frank.
Statistics from DTZ Debenham Tie Leung’s fourth-quarter report on the retail market also showed that prime retail rents might stay relatively stable, if there is no significant increase in supply over the next three years.
While stable rentals are good news for retailers, there is a growing urgency for them to increase sales in line with the emerging trend for retail-property owners to use Real Estate Investment Trust (REIT) as a means to up the value of their properties.
According to Stephanie Ho, associate director, DTZ Debenham Tie Leung, shopping-centre owners can prescribe REIT either as an annual incremental rental rate or as additional rent from a percentage cut from tenants’ monthly gross sales.
The bottom line is that retailers must be able to build value into their merchandise and services to increase the mall’s overall profitability.
Pua Seck Guan, CEO of CapitaMall Trust Management Ltd and MD (Retail)
of CapitaLand Commercial Ltd, said that the increased retail and institutional investor
base via REIT could empower local retail players to tap new opportunities to deliver desired risk-adjusted returns and satisfy different investment preferences.
However, the Association of Small and Medium Enterprises (ASME) and the Singapore Retailers Association (SRA) are taking a cautious approach.
Maintaining its view that retail space rentals are expensive, ASME warns that consumers will be put off by retailers passing on their higher rentals to them by way of costlier products. SRA believes that REIT will be more of a detriment than a benefit to the retail business.
“The more malls are bought up by REIT companies, the more likely it is that rentals will go up, as the main interest of REIT companies lies in achieving high returns for their investors,” said Dr Jannie Tay, president of SRA.
“If these companies own the majority of malls, they will be operating in an almost oligopolistic situation. Thus, when they jack up their rentals, retailers end up not having much choice but to fork out the sums to continue operating their shop space,” she added.