Retail sector to see slow, steady growth in 2021

Singapore

INCREMENTAL growth is on the cards for the retail sector in 2021, as Singapore cautiously reopens its borders to stimulate the economy while containing the risks of a Covid-19 resurgence.

According to Singstat data, retail sales recovery has moderated in the second half of 2020, improving 0.2 per cent month-on-month in October though the index was still down 11.2 per cent year-on-year.

Ali Potia, partner at McKinsey & Company and co-lead for its consumer packaged goods and retail practices in South-east Asia, noted that recovery has not been consistent across all sub-sectors, and those dependent on tourist dollars are still struggling. If tourism remains suspended, he expects 2021's overall retail sales to still track lower than 2019's.

Mr Potia said: "Barring any further external shocks (e.g. resurgence, sudden easing of travel restrictions), we are entering a period of slow but stable growth."

While Phase 3 of reopening has allowed mall traffic to increase, economic uncertainties pose a continued threat to job security and will likely keep a lid on domestic spending, said Jeya Poh Wan Suppiah, partner and head of consumer and tourism at KPMG in Singapore.

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As a result, most of the consultants The Business Times spoke to do not expect retail sales to experience a surge like the one seen at the start of Phase 2 in June, when retail sales jumped 51.1 per cent month-on-month.

The exits of several major brands including Robinsons, Topshop and Esprit also may not be the last, due to the prolonged drain on retailers' resources in the ongoing crisis, added Ethan Hsu, head of retail at Knight Frank Singapore.

However, he expects those that transform their businesses to have a better chance of surviving and thriving in the new operating environment. "There will also be opportunities for growth in 2021 as people learn to adapt to the post-Covid world and form business decisions around the new parameters," Mr Hsu said.

The pandemic has taught valuable lessons about the importance of an online presence and effective online marketing strategy, which industry players say retailers would do well to continue building on in 2021.

Said Joel Leong, co-founder of e-commerce rewards site ShopBack: "We believe that this unprecedented rate of technological adoption, and the fact that no one can know for certain how long this will last, will effect some really fundamental changes in how we live our lives in the long haul."

Retailers need to continuously improve their e-commerce strategy and remain adaptable and nimble to seize opportunities, Mr Leong said. Analysing data on shopping behaviour and consumer preferences must also become part of the game plan to identify and leverage trends early.

As the e-commerce landscape has become more crowded, social media will play a bigger role in capturing consumers' attention. Quiron Aguiar, senior strategy director at fashion e-tailer Zalora, expects social commerce, influencer marketing and live-streaming to continue expanding, given the popularity of platforms like YouTube and TikTok and the ease of building a following on them.

"With Generation Z constantly connected online, especially on social channels, and on track to become the largest consumer generation on the planet, the importance of social commerce is obvious for forward-thinking e-commerce brands," he said.

The pandemic has also magnified the need for omnichannel strategies that keep the customer's perspective in mind. Mr Potia of McKinsey listed digitisation, customer experience and personalisation as three key themes needed in the recovery process.

"Design-led retailers that truly look at every aspect of customer experience outperform those that do not," he said. "This includes everything from having a unique assortment, to substantially improving in-store experience, to rethinking the end-to-end customer journey and to offering seamless online-offline experiences."

Rather than trying to do everything on their own, retailers should outsource strategically, said Akul Dewan, director of merchant growth at fintech firm hoolah. "They'll likely need to own two to three areas where they are better than anyone else, and work with the right partners who can help them consistently provide a best-in-class service for everything else."

Knight Frank's Mr Hsu urged retailers to shift their focus from making the transaction to curating memorable experiences. "It is not about competing with e-commerce but more of finding a sweet spot that complements both online and offline shopping with their own unique features."

The recovery of brick-and-mortar retail is more uncertain, especially since it was already struggling before Covid-19 struck. Consultants said landlords will need to curate a strong retail mix to attract shoppers to their malls, while working out a more sustainable rent model, such as charging rents based on gross turnover (GTO).

"Successful retailers will gravitate towards landlords who offer sustainable rents, allowing both parties to benefit together when the market picks up," said Sulian Tan-Wijaya, executive director and head of retail and lifestyle at Savills Singapore.

Malls may have to take an initial hit to their finances to secure tenants with exciting and creative concepts, but such concepts and experiences, which cannot be replicated online, will be crucial to their sustainability and growth, said Mr Hsu of Knight Frank.

McKinsey's Mr Potia expects retail and food and beverage (F&B) outlets in business districts and transit nodes to recover as more people return to the workplace in Phase 3, but Alan Cheong, executive director for research and consultancy at Savills Singapore, noted that increased revenue alone may not be sufficient for survival.

He expects a "lagged effect" on any turnaround for retail and F&B, because shops that survived with the help of rent relief in 2020 may be forced to close in 2021.

According to Knight Frank Singapore, retail rents were projected to drop 10 to 15 per cent in 2020 compared to the previous year. With recent improvements in the pandemic situation, rents could achieve a slower rate of decline at -5 to -10 per cent year-on-year in 2021.

Trends that would be interesting to watch for in 2021 include the possibility of smaller niche malls performing better than large ones, and traditional F&B concepts such as Chinese restaurants and local fare falling out of favour and being replaced by more novel ideas and services, said Mr Cheong of Savills.

Gen Y and Gen Z shoppers are also emerging as a major customer segment across all retail sectors, and retailers that understand and engage with these new generations of consumers will be more likely to survive and thrive beyond the pandemic, said Savills' Ms Tan-Wijaya.

"(Gen Y and Z shoppers) are savvy and discerning and drive trends in retail," she said. "Contrary to popular belief, they would happily shop offline and even queue to spend thousands of dollars given the right experience and brand story."

Changes wrought by the pandemic itself include behavioural shifts like an added sense of caution due to worries about job security.

KPMG's Mr Suppiah noted: "The way we work, and the pattern and method of consumer spending on retail have evolved. In fact, we see consumers wanting to spend on areas such as health, fitness and lifestyle experiences, as Covid-19 has caused individuals to focus more on their health and well-being."

Retail will have a better showing in 2021 if Singapore can achieve a quick return to full employment, employers reinstate salaries to pre-Covid levels, more landlords show flexibility in charging more rents based on GTO, and the global economy avoids any more "exogenous shocks", said Savills' Mr Cheong.

He added that retailers, F&B operators and landlords will also need to better understand who their customers are and what they want, so they can keep them engaged both online and offline.

Mr Hsu of Knight Frank said effective containment of the pandemic, successful mass vaccination, geopolitical factors and robust fiscal policies will all be needed to put the industry on the path to recovery.

"Until our borders are reopened to allow tourists and business travellers to enter, our retail sector is likely to continue trading under pressure and will have to rely on digital platforms to extend their marketing reach beyond the domestic market," he said.