Yesterday, Isetan Singapore announced in an SGX filing that they will not be renewing their lease for its “loss making” store at Westgate Mall.
Widespread closures such as Crabtree and Evelyn have roiled the retail industry, but many more stores are likely to shut down in coming years to keep up with a shift to online shopping, triggering a “retail apocalypse”. In addition, you see shopping malls suffering, the latest to become a ghost is Big Box @ Jurong East. To make matters worse, the retail market is due to see an injection of retail supply in the coming months when the completion of mega infrastructure projects like Jewel Changi Airport (~576,000 sqft), Funan Mall redevelopment (~325,000 sqft) and Paya Lebar Quarter (PLQ) Mall (~340,000 sqft) in 2019 and many more are expected to come onstream.
On the back of a sluggish economy and stagnant wage growth, as well as the escalating US-China trade tensions, consumer sentiment weakened further. This will result in reduced overall spending by both locals and tourists and cause retail spending to shrink further. Rising labour costs and their inability to transform themselves to compensate for declining foreign worker numbers are also cause for concern.
Is this becoming an inevitable evolution? Companies that do not adapt to changing markets and trends of the customer is probably the main reason they are going under.
However, all is not lost. According to a report by Savills, mall owners are creating more compelling experiences for their shoppers. One of the ways to do so is to increase the choices for food and beverage (F&B). While retail sales are down, F&B continues to excel, led by strong sales posted by fast food chains (+6.8% YOY). F&B gives people a reason to visit malls and breathe life into the struggling sector. However, this is only a stopgap solution as it doesn’t actually solve the problem of competing against the mighty e-commerce sector.
Landlords and retailers are exploring new ways to engage customers with fresh social concepts and shopping experiences. F&B, fitness and fun – activities like indoor arcades and VR studios – continue to activate retail space. Retailers and mall owners are starting to use technology and data to integrate both online and physical point of sales. One such example is the upcoming Funan Mall, which will be the first “online and offline mall” in Singapore.
Looking beyond the short term, there are major changes proposed by the government to improve our retail landscape. Orchard Road malls are allowed to increase their plot ratio by 29 per cent. Urban Redevelopment Authority also recently announced a new draft master plan to provide a lifeline to the much older office buildings in the central business district (CBD) where they are offered incentives to be converted into homes and hotels. This will boost more retail traffic in the CBD area, especially during the weekends when it always looks deserted.
I feel that while retail apocalypse will go on for a few more years, strong retail concepts will continue to do well, specifically ones with high service components (e.g.: auto parts, home improvement), low standardization (e.g. groceries, plants, handcrafts, art), or unique business model characteristics. Differentiation really is the key word here, as well as the relationship between seller and buyer (Amazon knows much more about your spending habits than Cold Storage does). The threat of over supply will eventually correct itself, together with the government’s push to do a makeover of the city’s landscape, might actually bring excitement back to our retail landscape.