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Stable demand for prime retail space in tough climate
SINGAPORE'S retail scene showed signs of increasing strains over the past year under the pressure of a manpower crunch and the influx of new retail spaces island-wide. 2015 saw a mixed bag of results in terms of occupancy and rental performance for the retail property market.
The URA Retail Rental Index for the Central Region fell by 4.1 per cent year on year in the fourth quarter 2015, while Knight Frank's island-wide prime rents remained fairly stable at an average S$32.30 per square foot per month (psf pm) for the whole year.
Overall occupancy remained healthy at 92.8 per cent in Q4 2015, notwithstanding an influx of close to one million square feet (sq ft) of net new retail space in 2015. Prime retail spaces in popular shopping malls with captive catchment size continued to see fairly healthy demand.
The tourism sector, a key demand driver for retail, also experienced sputtering growth last year. Total visitor arrivals grew 0.9 per cent to 15.2 million but tourism receipts fell 6.8 per cent to S$22 billion, translating into lower average spending per visitor to Singapore in 2015.
Fortunately, total retail sales (including motor vehicles) and catering trade value scaled to a 10-year high of about S$50 billion, supported by steady consumer spending by the local populace.
Yet, with stronger headwinds this year from an anticipated slower global economic growth, higher number of job losses, rising regional competition for tourism market share and continuing threat from e-commerce on traditional retailers, consumers could well turn more cost-conscious in the next few months. Given these concerns, Singapore retailers are bracing themselves to experience another tough year ahead.
Amid the challenges, what are the prevailing concerns and possible steps our retailers can deploy to counter them? Knight Frank conducted its annual survey to understand the sentiments of Singapore-based retailers and their broad business plans for 2016.
A total of 36 retailers from various trades such as food & beverage (F&B), beauty & wellness and fashion & accessories participated in the survey.
When asked about business profitability this year, 55.6 per cent of respondents dealing with restaurants and cafés, and 65 per cent of non-F&B respondents anticipate lower profits ahead.
Overall, the retailers' key business concerns remained largely similar to those observed in 2015, with concerns over cost of rental, sales performance and hiring and retaining of staff topping the list for 2016.
To tackle these challenges, more retailers are looking to adopt multi-pronged strategies such as improvements to labour productivity (63.9 per cent), consolidation of retail outlets to key selected locations (50 per cent), increasing exposure on website and social media platforms (41.7 per cent), and downsizing and shifting to cheaper locations (41.7 per cent).
The government's labour productivity drive through tighter foreign workforce employment has pushed more retailers towards lower reliance on workers, albeit with much inertia as operational and rental cost pressures continue to exert a strain on retailers. In Budget 2016, the government announced plans to raise foreign worker levies for basic skilled R2 workers for all tiers in the services sector, adding tension on the already-tight labour situation.
On whether retailers are cognisant of customers' needs, about 88.9 per cent of the respondents opined that shoppers are looking for good customer service.
This means there will be greater emphasis on better customer service; however, many retailers continue to face an uphill task of skills upgrading and staff retention, given labour constraints, high work volume and demands.
How would the government's shift of emphasis towards higher labour productivity help to improve customer service? One example would be deploying self-service checkout counters at supermarket outlets to reduce reliance on cashiers and possibly shorten waiting time for shoppers.
USE OF BIG DATA
With evolving consumption patterns, big data analytics is rising in importance to uncover unknown correlations that translate into useful market trends and consumer preferences.
More than 70 per cent of respondents desire to acquire consumer insights especially in areas such as shoppers' interest, patronage patterns in shopping malls and household income of catchment population, with 69.4 per cent of the respondents still seeing a strong need to maintain a physical store.
Such information can be efficiently harnessed from Big Data analytics, which deploys large data-sets to reveal granular insights, and deduce associations to consumer preferences. Over 97.2 per cent of the respondents may adopt Big Data in their business decisions.
The process of Big Data collection, analysis and interpretation involves dedicated resources and effective applications, and the initial outlay could deter some enterprises from investing in Big Data. One encouraging case study is that of DBS Bank (DBS), which managed to recover its original investment within 18 months. DBS relied on Big Data analytics to reduce the number of trips required to reload automated teller machines (ATMs) when they ran out of cash, and to identify highly frequented locations for the placement of ATMs.
In another example, Goodvine Group, the company behind brands such as Tocco Toscano, previously relied on qualitative feedback from its customer-facing staff to deduce consumer preferences of their products. Taking advantage of the SPRING Singapore's Capability Development Grant, Goodvine Group developed a more sophisticated management system to track its inventory.
By combining inventory data with sales statistics, the company hopes to obtain in-depth data to help it determine popular product features, and forecast demand for its products.
Such data analytics can help retailers streamline their operations efficiently and identify key target markets, all of which translate into potentially higher labour productivity and cost savings.
Other than the usual footfall statistics, retail landlords can use Big Data analytics to discover shoppers' profile in their malls, helping with precise execution of their advertisement and promotions (A&P) initiatives.
As the retail property market is expected to remain choppy this year with the persisting manpower crunch in Singapore coupled with the lacklustre economic outlook, devising strategies to overcome challenges is the prime agenda for retailers. Although the potential of Big Data analytics to support the retail industry is exciting, its application is currently at an infancy stage given its complexity and capital outlay.
In the short term, retailers are expected to continue the process of improving operational efficiency and consolidating their operations, while mall owners are constantly exploring ways to reinvent their concept and positioning.
As such, the role of retail consultants and brokers to bridge the needs of retailers and landlords becomes ever more essential, to create ideas and solutions for a more exciting retail landscape in Singapore.
- Alice Tan is director and head of consultancy and research; Wong Shanting is senior analyst, consultancy and research, at Knight Frank.