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  2005 Jan Issue
   
Retail Outlook 2005
Battle lines are drawn as barriers fall
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Better prospects or tougher challenges?
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Affluent urban consumers drive modern retailing
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Higher consumer spending to drive KL’s retail growth
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Vibrant retail prospects for Manila


 




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Retail Outlook 2005
Better prospects or tougher challenges?

In its recent report on Singapore’s economy, the Ministry of Trade & Industry (MTI) has recorded a 7.5% growth in the first nine months of 2004 for the overall economy. Growth for wholesale and retail trade stood at 15.7% during the same period.

Grocery chain PSC Corporation, home-furnishings and electrical-goods retailers Courts Singapore as well as Aspial-Lee Hwa Jewellery are just some of the local retailers who have registered double-digit growth of between 17.2% and 24% for retail sales in the first nine months of 2004.

Rising consumer confidence could also be instrumental to the success of these retail businesses. According to Asia Development Bank’s Asia Development Outlook 2004 Update, private consumption, including shopping in Singapore is expected to stand at 6% in 2004 and could decrease only by 1% this year due to improvements in consumer sentiment.
Lau Chuen Wei, executive director of Singapore Retailers Association (SRA), believes rising consumer confidence and spending could continue to drive up sales for the local retail sector in 2005.

“This means that consumers are once again starting to feel more comfortable about increasing their discretionary disposable income, as opposed to the past few years when they were more concerned about putting money aside for basic necessities like housing, education, health-care and transportation,” she says.

However, retailers across the board are still viewing 2005 with cautious optimism. In fact, the same MTI report has predicted a reduction in economic growth to the range of 3%-5% for 2005, due to deceleration of the global economy and falling semiconductor sales.
Many retailers also believe that the challenges they face in 2004, such as rising costs, global competition, a shrinking labour pool, new product technologies, could spill over to this year.

According to Terry O’Connor, managing director of Courts Singapore, overheads will remain to be a common headache for all retailers, as the recovering economy puts pressure on wages, and possibly already-inflated occupancy costs.

Michael Lim, corporate branding director, Aspial-Lee Hwa Jewellery, says rising costs have also toughened competition for the consumer dollar in the retail jewellery market.
“Costs and price pressures are increasing, seen in the rise of both diamond and gold prices in the past year. Costs also are bound to go up for rental, staff and raw materials but the upside in increased turnover may not be certain,” he says.

Lim also warns that the lack of self-regulation in the retail-jewellery market has allowed some players to sell diamonds at a quality standard that is lower than what they verbally promised to their customers.

“This gross misrepresentation can go undetected by an untrained eye and someone who lacks the knowledge on diamonds. As the most prominent player in this market and Singapore’s only publicly-listed jewellery company, we are taking steps to educate Singaporeans to make them aware of the quality misrepresentations,” he says.

The home-furnishing and electrical-goods sector also has its own set of challenges for this year. While O’Connor has anticipated signs of a return in consumer spending for the sector in 2005, he remains ‘cautiously’ confident of achieving sales growth for this period.

“We say ‘cautious’ as we have seen many ‘unforeseen’ happenings in recent years. Overall, with wages rising and bonuses returning, we see greater spending power but also stiffer competition for that dollar. To avoid a zero sum game, we’ll have to be on our toes,” he says.
Companies retailing in home furnishing and electrical goods also have to cope with ever-changing trends of their customers’ lifestyles, which could largely affect their product mix in 2005.

First, increased convergence between electronic and IT product groups are creating new products in digital imaging, entertainment products, gaming, telecommunications and PDAs. Martin Dunkerley, managing director of Harvey Norman Singapore, said his company is already addressing this challenge by refurbishing its stores to allow presentation and easy selling of these converging product groups.

Second, new technologies in consumer electronics could lead to shorter lifecycles for products and swift changes in consumer demand. Smaller living spaces are also providing the challenge for retailers to offer home-furnishing solutions that are both contemporary and practical.

Equally critical to many retailers is the problem of finding productive manpower from an increasingly tight labour market as the economy continues to recover in 2005.

“Retail is a labour-intensive business and the challenge lies in finding the right people, those with the right calibre and right attitude to join us,” says Tan Kian Chew, CEO of NTUC FairPrice.

On a broader scale, the local retail market would be faced with ever-rising competition from new players within Singapore and others from the Asia-Pacific region.

“Strong competition from fast-developing countries, especially in the wake of cheaper travel and currency exchange rates that are not always in Singapore’s favour, means that consumers have a larger playing field in which to exercise their purchase choices,” says Lau of SRA.

“And it’s not just competition from the region that has a strong impact on Singapore retailers, but also domestic competition. The strong call to entrepreneurship from the industry and the government could incidentally lead many down the road of retailing,” she adds.

A case in point is the local supermarket sector, which, according to FairPrice’s Tan, is becoming intensely competitive with changing market conditions; entry of established foreign players; and rising business costs generated by a recovering economy.

Even when hopes are high for the Orchard Road shopping belt to generate new retail business opportunities in 2005 through the government-initiated Remaking Orchard Road Committee, Lau warns retailers to look at the broader picture.

In one scenario, the emergence of innovative concepts resulting from this plan could help draw consumers to shop at Orchard Road, and negatively affect retail businesses outside the area.

“However, if the ‘remaking’ process means the building of more of the same in terms of shopping centres housing similar tenants, then it is perhaps time to examine whether or not Orchard Road is ‘over-shopped’ with very little differentiation. If this happens, consumers may go the other way and seek out retail shops outside of this area for something unique, something charming, something different,” says Lau.

Overall, the big question is, what can local retailers do to keep themselves in good shape and overcome the hurdles in 2005?

For a start, Lau advises that local retailers need to be more enterprising about how they extend their competitive edge amid looming domestic and regional competition.

Besides streamlining cost structures to reduce unnecessary expenses, Aspial-Lee Hwa Jewellery is expanding its brand portfolio from Aspial and Lee Hwa to CITIGEMS, a new segment of affordable jewellery gifts, to cater for wider customer preferences.

The company is also working with Belgium’s AMC Diamonds and gaining access to DeBeers’ diamond mines to enhance its product quality for diamonds.

Likewise, Tan says NTUC FairPrice is continuously finding creative ways to operate its business, such as introducing new ideas and concepts, looking for cheaper sources of products as well as exploring ways to reduce costs and enhance productivity.
These creative ideas, coupled with technology, could also help small and medium-sized retailers enhance their operational efficiencies.

“The general retail trade (consisting of small grocery stores) has to upgrade themselves with modern technology and an updated shopping environment to cater to the lifestyle of today’s consumers. PSC plays the role of a catalyst by introducing the new i-econ franchise concept in order to help the general retail trade modernise itself,” says Chris Oo, executive vice-president, group consumer business, PSC Corporation.

PSC Corporation has also undertaken new initiatives to enhance supply-chain efficiencies, as well as investments on wireless technologies and cashless facilities to improve its grocery-chain business.

Refurbishments could also be another viable option for retailers to revitalise their businesses. With bigger plasma displays, more vibrant furniture settings, dedicated digital counters and projector areas, as well as stronger lighting and lifestyle focus, Courts Singapore’s six revamped stores, including Courts Suntec, have recorded a 20% increase in sales which could go further in 2005.

In addition, a productive retail workforce, says Lau, can contribute significantly to consumer satisfaction and sales performance.

At the industry level, retailers and the government have jointly formalised the Continuing Education and Training Framework and established the Retail Academy in the second half of 2004 to help enhance the professional standards for retail workers at all levels through training.

“With bright enthusiastic people, the training offered through the Retail Academy, plus our own training programmes, can achieve a greater level of professionalism and productivity,” says Dunkerley of Harvey Norman Singapore.

Although it is clear from the recent cross-industry initiatives that government support is vital to the local retail industry, industry players believe the onus is on themselves to improve their business prospects for 2005.

“Productivity is down to the retailer first and external agencies second. The tools and support agencies are there. It is down to us to select appropriate training, measure and develop our people, and have the right fit of skills, staff levels, service backup and knowledge,” says O’Connor.

The year ahead — a cautious attitude, coupled with quality staff, good technologies for operational efficiencies, sharp business acumen and right competitive spirit — could well be the ingredients to a sustainable and profitable retail industry in Singapore.


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