Word in the new$: Retail

by Ryan Ong

RETAIL is a big deal to Singapore, considering we’re the only shopping mall with a seat in the UN. Not only is it about tourism dollars, it’s about our status quo. How will we tell success, if not for Prada bags versus Jansport bags, or Manolo Blahnik shoes versus Bata shoes? So it’s with deep dread that we watch our retail industry sink deeper into the pits:

 

What’s happening to our retail?

News broke this week that Al-Futtaim, a Dubai based retail business group, will close 10 or more stores in Singapore. This comes on the heels of several notable closures last year, such as Marks & Spencer’s (M&S) at Centrepoint Mall.

In addition, rent in Orchard Road has declined for the seventh consecutive quarter. Retail accounted for the steepest drop, despite tourism increasing by around 3 to 4 per cent. It’s raised worries that this 2.2 kilometre stretch of retail therapy is on its way out.

It isn’t helped by the dispute between Japanese mega store Takashimaya, and its landlord Ngee Ann City. Ngee Ann’s valuation of the property leads it to conclude it should be getting $19.83 per square foot, which is double the current rent of $8.78 per square foot.

Given the already difficult environment for retail, the significant rise in rent may well drive Takashimaya away. It’s also a ballsy move by Ngee Ann, given that it wants to double rent despite the rest of Orchard Road going in the opposite direction.

Ngee Ann might do well to remember what happened to The Heeren after anchor tenant HMV vanished, or how much foot traffic decreased at Wheelock Place after Borders closed down. It’s a strange time to get greedy.

Why is this happening?

Fear, currency issues, and the growth of online shopping are making life difficult for retailers.

Fear

Singapore’s job market has faced a spate of layoffs, the highest since 2009, which may lower our confidence when it comes to spending. About 51 per cent of the 15,000+ layoffs  also happened to highly paid PMETs, who made up a consumer base with significant spending power. This is bad news for high-end brands that cater to this demographic.

I think it’s not a coincidence that Orchard Road, which is home to the more expensive retail brands, is also suffering at this time.

Currency issues

The yuan is currently at its weakest since February 2011. This makes Singaporean goods more expensive to Chinese buyers. This might be why, despite STB bringing in increased numbers of Chinese tourists, the amount spent by those tourists have been decreasing.

There is also a worry that the devaluing yuan could spark off a currency war. The last time the yuan fell significantly (around August 2015), countries like Vietnam devalued their own currencies to match this fall. This was to make their exports remain competitive in the face of cheaper Chinese goods.

The Singapore dollar has remained fairly strong, compared to other currencies in the region.

This can be bad news for Singaporean retailers, because tourists – and even locals – could take their money elsewhere. Case in point: hordes of Singaporeans now shop for groceries in Malaysia, since the ringgit plummeted.

The danger is that tourists may find Indonesia, Malaysia, Vietnam, etc. cheaper, and take their money there instead.

Online shopping

Online shopping was slow to catch on in Singapore, compared to countries like the United States. But now that it’s taking root, it’s growing fast – in 2014, Singaporeans topped South East Asia as the most prolific online shoppers. With 26 per cent of Singaporeans shopping online at least once a week, traditional brick and mortar shops are facing a serious challenge.

Online shops have lower operating costs, as they don’t have to deal with the hassle of rent, and tend to require fewer staff. Many pass on these savings to consumers, which makes them cheaper than their physical counterparts.

In addition, online shopping carries the added convenience of not having to cart your stuff to and from the store.

Is this the death of retail?

There will always be some room in the economy for retail. But the way things are shaping up, it’s clear 2016 and the next two to three years will be rough. While there are calls for retailers to adapt, the solution may ironically lie in their past:

Remember the old days when there were personal customer relationships? Where sales assistants knew the names of regulars, and didn’t just eyeball you from the corner while you shop? Bringing back that level of customer service may be a good place to start.

 

Featured image Orchard Road, Singapore 2012 by Flickr user Michael Gwyther-Jones. CC BY 2.0.

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The post Word in the new$: Retail appeared first on The Middle Ground.

- Ryan Ong