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Retail outlook: The year ahead
What are the challenges and opportunities that retailers across Asia will face in the new year? RETAIL ASIAs team of reporters find out from some of the regions key retail personalities and retail trade associations. Reports by Angeline Yeo, Shirish Nardkarni, Tina Arceo Dumlao and Jayanthi Iyengar.
With the Asian Development Banks prediction for Singapores GDP in 2006 to stand at a 4.5% growth, all seems to be picking up speed in the city states retail industry. While this bodes well for retailers there, many must be alert to spot changing consumer profiles and consequently change their own images, products and storefronts in order to adapt to, and pre-empt, the new shopper.
As a younger, wealthier shopper demographic emerges, it is imperative that retailers also reinvent themselves to cater to this new, hip and undeniably powerful section of consumers, says Dato Dr Jannie Tay, president of the Singapore Retailers Association (SRA), who is vice-chairman of Singapores leading watch retailer The Hour Glass.
The younger generation are earning a lot more than we used to, plus they are living with their parents. So they have a large amount of disposable income on their hands, she says, highlighting the fact that purchasing power is increasingly getting passed down to the younger shoppers.
Bearing that in mind, retailers should heed this new trend as young consumers now call the shots, she continues.
Consumers today are in their 20s, 30s to the 40s, and their buying patterns are totally different from the older generation. They want to see the range; they are very knowledgeable; and they know what they want to see before they come into the shop.
This is perhaps one of the reasons why there is an increasing number of malls scaling back large department stores and replacing them with numerous smaller stores, lending the malls a younger, more vibrant feel.
She also believes that the young consumers of today are mindful of not just the product they are purchasing, but also the ambience in which they are making a purchase.
I think that if the choice and quality is there, and the ambience [within the store] is right, they will make the decision to purchase on the spot. Because, previously, you sold the product as a product. Today, you sell the ambience as part of the product.
As such, there is a pressing need for retailers to reinvent themselves just as the customer profile has.
Today, every four to five years, you should have a new image, in line with the aspiring new customers that you are going to serve
and this cycle is getting shorter.
The Hour Glass has also not been spared from the renovations. With more and more younger customers frequenting and purchasing high-end watches at the store, Tay says its store in Takashimaya Shopping Centre has recently been redecorated.
The store has even been reconceptualised: It is now more informal, more educational, more in line with the younger customers.
She says that since the Asian crisis of 1995-98, watch-buying has been confined to the older and wealthier. However, this has changed with the increasing number of 20-40-somethings buying the watches.
We have transformed [The Hour Glass] from a sit-down shop where we pamper our customers to buy a S$3,000 (US$1,817) to S$1-million watch. Today, were really going for the trendy, younger people, so even the sales assistant stand, [and there are] computers and a wider range of merchandising.
It is not merely the ambience and images that have to be reinvented, but storefronts as well, espouses Terry OConnor, honorary secretary, SRA, and managing director at Courts (Singapore) Ltd.
Storefronts need to be refreshed, rejuvenated at least once every threefour years to ensure we stay relevant to the consumers.
For Courts, this policy has done them well, as shown by the Xtreme Makeovers it carried out in its Ang Mo Kio and Bukit Timah stores in 2005 which saw an increase in sales of between 50% and 80% as compared to the same period last year, OConnor tells RETAIL ASIA.
The same hope runs through all mall owners and retailers on Orchard Road, Singapores prime shopping belt, as the malls there undergo their own exterior makeovers.
Besides being quick to adapt to a changing consumer profile, OConnor believes quick retailer response is also crucial when retailing technologicallyforward gadgets. This is because the introduction of new technology in retailing is swift, equating to shorter lifecycles. As a possible solution, it is important for retailers to be quick on the uptake, he suggests.
The company also takes it upon itself to shoulder some of the costs, just to stay competitive. Price depreciation, which erodes the profit margins for the higher-end goods such as plasma TVs, is a problem that all electronics and IT retailers will face. In Courts case, we often make the decision to shoulder the uncertainty of price depreciation and stay ultra-competitive in the name of customer service in order to give a price guarantee to our customers for IT products.
The customer profile in Singapore will also make an impact on the retail outlook for 2006. One such profile is the increasing importance women play in the retail scene.
In the past two years, women have become very important, Tay observes. They are now earning a lot more and, in a lot of places, are even equal to men, especially with [Singapores] knowledgebased economy.
She reckons these women are a demographic the retailer should not overlook.
Coupled with a hectic lifestyle and ample disposable income in hand, it is not uncommon to see women engaging in retail therapy or simply enjoying spas and facials to pamper themselves.
They are putting more money on themselves. They are the ones going to spas, nail clinics and restaurants, Tay says. As proof, she cites the fact that there are more and more spas in the past two years than ever before, which means more and more women are pampering themselves.
Even Dairy Farms Guardian Pharmacy is aware of this fact. Its recentlylaunched Guardian Beauty Hall at Suntec City Mall is dedicated to beauty and spa services for the tired career women.
One of the driving forces identified by both OConnor and Tay is the way in which Singapore is fast adapting to the idea of warehouse retailing.
Launched by the Singapore Economic Development Board (EDB) in November last year, the Warehouse Retail Scheme (WRS) promises to benefit not only retailers in terms of having a centralised locale to situate their headquarters and logistics, but also shoppers who are searching for inexpensive items without compromising on quality.
WRS is located in the Tampines suburbs.
The scheme is due to be in place by early next year, after which three retailers Courts, Ikea and Giant will commence operations there.
The warehouse zone is going to be the new thing to look out for, says Tay, who believes the WRS will benefit the retailer as it creates a more cost-efficient way of doing business.
If you are selling [lower-priced goods], you cannot afford to be in a higher rental place. For such goods, you have the warehouse. People are going for quality and value, and you can only offer that if you have a warehouse concept where prices are low.
OConnor believes that the WRS will also benefit the consumers at large: We are confident that the site will become a shopping destination for Singaporeans. When completed by the end-2006/early 2007, we expect it to draw both the domestic crowd and tourists who are on a faster visit cycle as it offers both value and ease.
While Tay suggests that going warehouse be a good business move, she thinks a better move for other retailers who cannot afford to price their goods competitively is to create a market niche.
Everyone has general products, and thats why market differentiation and catering to a niche is getting more important.
However, she stresses that before this can happen, a retailer must first take time out to fully understand his customers. You have to understand who your customers are when you develop this niche and differentiated concept. Thus, your service has to be of the highest quality.
Either [have warehouse concepts], or go to the very top, where the product is niched.
She confirms that many retailers in Singapore have, in the past six years reinvented themselves. One example is Tangs. It is now getting very niche, very renewed, with a new concept and new merchandising.
Tangs recently received the Best Retail Concept of the Year award presented by the SRA for its innovative Retail Theatre layout on levels two and three of the store, which redefined the concept of department store retailing, making it aesthetically pleasing and emotionally engaging for the customer.
For the first time, I feel we are in the sunrise industry, Tay comments on the year gone by.
She forecasts sunny skies in the immediate future, as Singapore pulls itself out of the sunset of the Asian crisis.
One particular point of worry, however, remains at the back of her mind, as well as every other retailers in the country. The only concern I have is the avian flu. Thats the only thing that may mar our blue skies.
Should an outbreak occur, retail sales in Singapore and around the world would suffer significantly, she says, remembering the staggering effects of SARS (severe acute respiratory syndrome) on retail and tourism industries in 2004.
Another possible problem retailers in Singapore may face is the rising rental costs. With an occupancy rate of almost 100%, according to real-estate services provider Jones Lang LaSalle, rental costs have skyrocketed and may continue to do so this year.
Rent will always be a problem, says Tay. When youre selling something with lower value, you cannot possibly afford to be in a place with high rent. She thus sees the trend of department stores whittling away as the immediate effect of this problem.
It just does not make sense to have a big department store where you have low-value and high-value [products]. So, for most of Orchard Road, retailers have to sell high-value products.