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Singapore needs to reinvent retail scene

It has to stay ahead of competition as other fast-developing retail cities in the region are catching up.

RECENT retail sales data in Singapore showed positive signs of recovery but weak retail sentiment is seen persisting. Though retail sales in July went up 1.8 per cent year on year, there were other lacklustre indicators in the first half of 2017.

The Retail Sales Index (RSI), which has been trending downwards since 2014, reported a fall of 4.2 per cent in Q2 2017 compared to end 2016. Island-wide occupancy depressed to 91.9 per cent in Q2 2017, while the Urban Redevelopment Authority's Retail Rental Index for the Central Region declined by 7.1 per cent year on year, in the same quarter. The weaker retail sentiment is expected to linger as local consumers continue to tighten their spending amid stronger headwinds brought on by global economic and political uncertainties.

In this challenging climate, one question that warrants our attention is whether Singapore is losing out to other key Asian cities in the retail scene. It is hence fitting to consider the significance of tourism in the retail scene and how Singapore fares vis-à-vis other cities through some concrete indicators.

Tourism's continued role

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Apart from local consumers, Singapore's tourism industry has been a key pillar supporting the retail sector, with the country widely regarded as one of the most popular retail destinations in Asia. In 2016, international visitor arrivals and tourism receipts scaled to a new high of 16.4 million and S$24.6 million respectively, a strong affirmation of Singapore's importance as one of Asia's leading retail destinations.

The city state's easy access to a wider array of both well-known and unique international brands that other cities in the region fail to offer presents an attractive entry market and launch-pad for other South-east Asian markets for retailers. The relatively high affluence of Singaporeans also attracts new retailers to set up their presence here in order to gain market share.

To understand the benefit of tourism on the Singapore retail scene, Knight Frank studied tourism receipts from shopping and food & beverage services (F&B), to determine its impact on retail sales value. Between 2007 and 2011, tourism receipts from shopping and F&B accounted for an annual average of 14.8 per cent of total retail sales (including motor vehicles), but the proportion subsequently declined to 14 per cent between 2012 and 2016. Consequentially, tourism receipts from shopping and F&B per capita trended downwards after 2008, but reported an improvement from 2016.

Since 2015, the government has pulled out more initiatives to shore up tourist arrivals and promote tourism receipts in Singapore. The initiative paid off as Chinese visitors to Singapore hit a new high in Q1 2017 to more than 850,000, a year-on- year growth of 13.7 per cent. Despite the weaker Malaysian ringgit against the Singapore dollar, data from STB showed a 50.4 per cent year-on-year increase in spending on shopping and F&B by visitors from Malaysia in Q1 2017. As a result, overall tourism receipts increased 4.4 per cent quarter on quarter in Q1 2017.

Hong Kong, Singapore top the region for retail tourism but others are catching up

To better evaluate and benchmark Singapore's position against other retail tourism hubs, Knight Frank developed a general matrix comprising eight pillars of assessment, namely air transport infrastructure, safety and security, prioritisation of travel and tourism, tourist service infrastructure, international openness, affordability of retail and F&B services, state and pace of digitisation, and ease of tax refund. For the purpose of this study, Knight Frank defines retail tourism hubs as cities with an established retail presence.

Hong Kong and Singapore emerged as the top two retail destinations when compared to other key Asian retail hubs (Chart 1). However, Singapore should not rest on its laurels as fast-developing retail cities like Kuala Lumpur, Beijing and Shanghai are catching up, with more affordable retail offerings and easier access to digital and mobile payments. Retail competition is intensifying as more Asian cities are vying for the same tourist dollars.

Some notable regional cities not tracked by Knight Frank include Bangkok and Seoul, which have been gaining ground through unique retail experiences and their plethora of local brands. Moving forward, Singapore will need to reinvent its retail scene to strengthen its position as one of the top Asian retail tourism hubs.

Singapore is still competitive as a retail hub for retailers

According to latest rankings from the World Bank in 2016 on the ease of doing business in the world, Singapore ranked second, followed closely by Hong Kong in fourth position. Meanwhile, Asian neighbours Malaysia and China still lag behind at 23rd and 78th position respectively. Having a more conducive regulatory environment to start and operate a business is key to attracting retailers to set up their presence in the region. With Singapore emerging top, there is stability and ease for retailers to enter the local market as compared to other key retail cities.

In terms of prime retail space rents analysed by Knight Frank Research, Beijing fared the best as an affordable market for retailers at US$16.90 per square foot per month as at Q1 2017 compared to Kuala Lumpur, Singapore and Shanghai, which stood at, US$18.90, US$25.10 and US$22.60 per square foot per month respectively. These are far lower than Hong Kong, which saw rents standing at US$47.70 per square foot per month in the same period (Chart 2). Prime retail space rents in Beijing and Shanghai have also trended upwards over the last few quarters and are forecast to rise further, allowing Singapore's prime retail space rents to remain competitive among its peers and further attract retailers into the market.

Capitalising on our strengths and uniqueness

STB assistant chief executive Lynette Pang once said: "In today's fast-changing tourism and consumer landscape, we cannot stay still." It is therefore crucial for landlords, retailers and relevant government agencies to think "out of the box" to allow new brands and exciting concepts to flourish and take shape.

Increasingly, the experiential factor is key in making a difference to Singapore's retail scene. Shopping malls can reinvent themselves with unique experiential retail spaces that set them apart from the mainstream. For example, the opening of Jewel Changi Airport in early 2019 will distinguish itself as home to Singapore's largest indoor garden and the world's largest indoor waterfall, featuring a light and sound show every night to enable visitors to shop, dine and play in one place. The new Funan DigitaLife Mall, set to open by end-2019, will be the first commercial building in Singapore to allow cycling through the building, and have rooftop farms that offer visitors a rest from the urban crowd. With such unique and activity-based retail zones, landlords are better able to make their retail spaces break out of the homogeneity among retail malls.

Another key element is to accentuate Singapore's identity through affordable local retail brands, as well as the unique Singaporean heritage and cultural blend. Since late 2015, popular local retailers such as Naiise, Benjamin Barker, Prints, and Love, Bonito have developed their presence alongside established international retailers on Orchard Road. Love, Bonito, for instance, opened its flagship store in 313@Somerset spanning 4,603 sq ft of retail space. By allowing local brands to thrive and create a "Singapore identity" that is appealing to tourists, retailers can better market and position themselves to shoppers, increasing the likelihood of an uptick in spending.

Retail spaces in Singapore have been seen as repetitive across the many shopping malls on the island, with competing brands employing similar modes of product display. A mindset change in how retail spaces could be utilised will go a long way in establishing a multitude of concepts to make the Singapore retail landscape an exciting one.

Meanwhile, the warehouse retail scheme introduced in 2004 that brought success to retailers like Ikea and Courts in Tampines could also work well for other giant retail players. With the upcoming development of the Jurong Innovation District and Punggol North, warehouse retail concepts could be revisited with better collaboration and flexibility among relevant government agencies, landlords, and retailers to allow for diverse and affordable retail offerings that are differentiated from the usual shopping malls.

The story of Singapore's growth as one of Asia's leading retail hubs is one that will be told for many years to come. With tourism dollars being significant to the retail industry, it is imperative that Singapore continues to flourish vis-a-vis its peers. Proactive collaboration among key stakeholders such as retailers, landlords, government agencies and consultants would be an important step for Singapore to strengthen its current status as a key retail destination in Asia.

  • Wendy Low is executive director and head of retail, and Caleb Hong is an analyst for consultancy and research at Knight Frank Singapore
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