Mixed outlook for Singapore retail sector

Prospects for the Singapore retail sector are expected to be mixed this year, with consumers likely to stay cautious as both the domestic and international economies experience headwinds, according to new report.

“There remains a wide spread in performance and confidence between the different retail sectors, and this inevitably has implications for both retailers and retail landlords,” says the Colliers International Research & Forecast Report on the Singapore Retail market for the fourth-quarter of 2015, compiled by senior associate director, research and advisory, Anthea To.

Sentiment among retailers has remained mixed amid a myriad of challenges ranging from high operating costs, a tight labour market and heightened competition from online retailers. In the wake of economic uncertainties, consumers scaled back their discretionary spending.

This was reflected in the official retail sales index (excluding motor vehicle sales) that recorded negative year-on-year growth of 4.7, 2.5 and 3.8 per cent in October, November and December. In contrast, the retail sales index (excluding motor vehicles) expanded by 1.2 and 2.6 per cent year-on-year in July and August, before falling by 2.3 per cent in September.

While some retailers reported deteriorating trading results and profit warnings, others confidently continued with expansion programs, says the report, citing as an example music retailer HMV closing its last outlet at Marina Square in September while announcing on its website vague plans for a new store.

Home-grown fashion brand M)Phosis also shut all its Singapore outlets in November, citing a severe cashflow situation. Retailer and property group Metro Holdings closed its City Square Mall store at the end of the year when its lease expired.

In contrast, several major flagship stores were opened by foreign retailers, such as Hong Kong’s Pedder Group launching Pedder on Scotts in Orchard Rd in October. The same month, French womenswear label Maje launched its first Singapore outlet at The Shoppes at Marina Bay Sands. Australian electronics retail chain Harvey Norman opened a three-storey flagship outlet at Millenia Walk in December, and Japanese electronics chain Best Denki announced plans to open two more outlets this year, taking its foothold in Singapore to 13 stores.

Cost-conscious

However, retailers were generally cost-conscious during the quarter, and landlords were showing greater propensity to consider offers, putting a lid on rental growth. Despite demand for prime retail space still being driven by overseas retailers, in addition to selective expansion by domestic groups, the market continues to show signs of slowing.

More dependent on tourist traffic, the Orchard Rd micro-market had the steepest fall in rents for the quarter, entering its seventh consecutive quarter of decline despite a recovery in visitor numbers. During the quarter, the average monthly gross rent for ground-floor shop space on Orchard Road dropped another 1.2 per cent quarter-on-quarter to S$34.40 (US$24.78) per square foot. This was the same rate of decline seen in the third quarter.

For the whole of last year, rents were down by 4.9 per cent – steeper than 2014’s 0.8 per cent fall. In contrast, the average monthly gross rent of ground-floor space in the regional centres with their ready population catchment held steady for the third consecutive quarter at $33.94. For the whole year, rents were up by just 0.3 per cent year-on-year, albeit at a slower pace of rental growth compared to 2014’s 1.1 per cent improvement.

With rents on Orchard Rd on a downward trend and those in the regional centre holding constant, the rental premium that prime space on Orchard Rd commands over similar space in the regional centres narrowed further to 1.4 per cent for the fourth quarter, from 2.6 per cent in the preceding quarter and 14.9 per cent in 2010.

Meanwhile, landlords have continued major refurbishments, redevelopments and/or repositioning exercises, particularly for aging assets. As an example, the report cites a major asset enhancement for Tiong Bahru Plaza, scheduled to be completed in the final quarter of this year. Key tenants secured include FairPrice Finest supermarket, Golden Village Cineplex and Kopitiam food court. Also, CapitaLand Mall Trust (CMT) announced plans in December to redevelop Funan DigitaLife Mall into an integrated development.

“Indeed, the retail scene is evolving and eCommerce is having a dramatic impact on consumption patterns in Singapore,” says the report. “As the internet continues to account for an increasing proportion of overall retail spending, retailers will need to adapt to ongoing changes and develop multiple channels.”

Omni-channel strategies

Both landlords and retailers, reconsidering the divide between offline and online, are venturing into omni-channel retail strategies, a trend the report says is expected to persist as the strategy mitigates the labour crunch situation and trims occupancy costs.

As an example, Singapore Post (SingPost) announced in October the development of a mall at the concourse in front of the Singapore Post Centre. Major tenants include an eight-hall Golden Village cineplex, SingPost’s flagship post office, retail shops, a Kopitiam food court and other F&B outlets. The venture is scheduled for completion next year and will house both online e-merchants and onground shops.

Meanwhile, Frasers Centrepoint Trust and Suntec City are following in the footsteps of CapitaLand Mall Asia by introducing a rewards program through mobile applications. However, having a physical retail space is still a key part of retailers’ multi-channel strategy and will continue to be an integral part of any balanced real-estate portfolio.

Some retailers are offering customers new experiences such as free Wi-Fi, F&B concepts and multi-label products to their stores. While not an entirely new concept for Singapore, it seems to be rising in popularity, says the report. Lifestyle elements are being recognised as a key ingredient in increasing dwell time in shops and shopping centres.

For instance, says the report, home-grown womenswear brand In Good Company at ION Orchard, Singapore designer collective W.E.+ at Suntec City and the multi-label boutique Kapok at the National Design Centre have all added F&B offerings. Muji also opened its first Cafe & Meal outlet in its flagship store at Paragon in October, and plans to open another in the second half of this year.

Pedder On Scotts has also introduced a cafe run by the Hong Kong coffee specialty store The Coffee Academics. The 70-seat cafe serves coffee and brunch and also features a custom blend bar and a training area with coffee classes.

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