Singapore Retail Market – regeneration in the making

By Chua Yang Liang

/ JLL, The Edge Property |

June 4, 2015 9:00 AM SGT

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Sluggish retail sales, declining international visitor arrivals, retailers’ consolidation with some brands exiting the market…these are all signs of a softening retail market, which started surfacing some quarters back. Yet, the softening of prime retail rents only started in the beginning of this year, as the higher cost of labour coupled with weak tourist arrivals weighed on Orchard Road retailers.

Currently, local and international headwinds are limiting the growth in Singapore’s retail sales. Locally, we have the Dependency Ratio Ceiling (DRC) that restricts the recruitment of foreign labour, directly weighing down on the sales performance of labour intensive service sectors such as the food & beverages segment. On the international front, the notable softening in inbound tourist arrivals has adversely affected Singapore’s retail industry. This shrinking tourism numbers from key markets, including Indonesia, China, Australia and Malaysia, is partly responsible for the muted growth in retail sales since the beginning of 2014. The relatively strong Singapore dollar, the spate of aviation accidents in 2014 around the region, alongside the Chinese Government’s strictly enforced anti-corruption measures and clampdown on “zero-dollar-tours (low-priced, low quality tours with coercive shopping)” were accountable for the declining visitor numbers.

Vacancy levels in smaller retail complexes with less accessible locations and less prestigious trade mix have been rising gradually. Also, new malls are taking longer to lease, partially due to the weaker business and consumer sentiments. Some anchor tenants in major malls are reviewing their leases with a number of them downsizing their operations in the Singapore market. Also, a couple of fashion brands and fast food retailers have decided to leave Singapore. The tight labour market was predominantly the factor driving this trend as it directly affects retailers’ sales turnover.

Nevertheless, there are still some bright spots as the retail market undergoes a natural regeneration where older, less relevant brands make way for new-to-market/flagship retailers, reflecting the underlying changes in market tastes and preferences.

In the Orchard-Somerset shopping belt, there are a few new players. For instance, Pretty Ballerinas, an upmarket Spanish footwear brand that was previously exclusively sold at Robinsons, opened its first standalone shop in Paragon in February 2015. That same month, Gieves & Hawkes, one of London’s most famous brands specialising in high quality men’s tailoring and accessories, opened its first store in Singapore, taking up some 1,500 sq ft of prime retail space in Paragon.

The recently completed medium-sized Capitol Piazza mall in the secondary shopping area houses several new-to-market high-end retailers, including Max Tan and Napapijri, for their flagship stores in the South East Asia region. This highly-anticipated mall has also attracted several other retailers such as new-to-market lifestyle fashion brand Manifesto, Finnish homeware brand Marimekko for its first standalone store in Singapore, as well as one of the world’s best known chocolate brands, Teuscher, from Switzerland. Recently, a Japanese fund announced their plan to bring a Japanese bar concept (Asahi Super Dry Extra Cold Bar) to Singapore by end 2015. New dining concepts are also appearing in newly completed malls, including Dazzling Café in Capitol Piazza. These new-to-market / flagship retailers are expected to drive sustainable footfall to the mall.

Surprisingly, Department Stores continued to outperform expectations, registering a positive but slower growth of 0.3% y-o-y in March 2015 compared to the 3.6% y-o-y that was registered a month ago. This affirms the recent announcement by the Al-Futtaim Group on sweeping plans that include store closure, revamps and openings, to their group of department stores such as John Little, Marks & Spencer and Robinsons across the island. It is also the only retail segment other than Watches and Jewellery and Motor Vehicles, that saw positive y-o-y growth in seasonally adjusted monthly Retail Sales Index over the past 12 months. This is attributable to the relatively affordable pricing strategy by department stores, providing widespread cost savings for shoppers.

Going forward, we expect retail sales to stabilise, supported by large regional events such as the upcoming SEA Games as well the joint promotional efforts by STB and Changi Airport Group (CAG) across Asia Pacific markets that are expected to boost tourist arrivals in Singapore. The tie-up involves a SGD 35 million investment to roll out joint marketing campaigns both globally and within key markets such as China, Indonesia, India and Australia, and targeting a sustainable annual growth in visitors of 3 to 4% in the medium term. On top of this, the CAG and the STB are also planning to work with Singapore Airlines, travel agents and cruise line operators to create special packages for tourists. With these efforts, the downside risks of weak tourist arrivals and retail sales are likely to be contained in 2015, and should help boost retailers’ sales in the short to medium term. Overall, Singapore continues to remain attractive to international brands, given its status as a commercial gateway to ASEAN and its large middle income population with higher spending power.

This article appeared in The Edge Property Pullout of Issue 679 (June 1) of The Edge Singapore.

Chua Yan Liang is head of research & consultancy, Singapore, for JLL.

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