The retail scene in post-pandemic Singapore

THE retail sector is dynamic, constantly responding to varying needs and ever-evolving consumer behaviour. Transformed by the Internet, today's retail landscape is a different creature from what it was more than a decade ago, with the pace of change rapidly increasing.

The rise of online retail platforms, the increasing number of enterprises starting up from cyberspace and traditional brick-and-mortar retailers adopting these channels as an alternative point of sales, left those who were not prepared to move with the times struggling with falling revenues.

In addition to competition from e-commerce, retailers in Singapore's extremely challenging environment had to deal with rising occupancy costs and labour problems. And then came the Covid-19 pandemic.

Singapore went into a nationwide lockdown as the 2020 "circuit breaker" from Apr 7 to June 1 forced the closure of non-essential stores, when the government took decisive action to stem the spread of community infections.

Combined with travel bans that effectively curtailed tourist inflow, retailers scrambled for ways to keep their businesses afloat. Many relied on government fiscal support to keep their heads above water, but there were others that decided to close in the face of the pandemic.

As business attrition rippled across the retail market, major retail brands were not spared and faltered in the onslaught wrought by the pandemic. Robinsons, a household name among Singaporeans for over 160 years, shuttered all its stores and exited the retail market in 2020. Notable brands such as Topshop, Esprit and Sportslink were among others that wound down operations to permanently close in the same year.

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From the implementation of social distancing measures to prevent crowds and large gatherings, to restrictive entrances and exits to limit shopper traffic in shopping malls, physical retailing became inconvenient for many, even after Singapore re-opened in phases post-circuit breaker.

BATTERED RENTS, OCCUPANCY LEVELS FOR MUCH OF 2020

While retail rents were fairly stable in the two years prior to the Covid-19 outbreak, the disruptions to local shopper and foreign tourist flows caused the average gross rent of prime retail spaces to fall 11.5 per cent, from S$30.50 per square foot per month (psf pm) in Q1 2020 to S$27.00 psf pm by end-2020.

In tandem, the Urban Redevelopment Authority (URA) Retail Rental Index started to slide from Q1 2020, falling with gathering pace to end the year with an overall 14.7 per cent contraction year on year (yoy).

Prime retail shops within the Orchard region experienced greater impact on their rentals, as these retailers were more reliant on a tourist dollar which had dwindled to a minuscule fraction of pre-Covid levels.

Island-wide retail occupancy levels also came under pressure, decreasing 2.1 percentage points (pp) from

92.5 per cent at end-2019 to a trough of 90.4 per cent in Q3 2020.

However, it was not all doom and gloom even in these most trying of trading conditions. Despite many retailers pulling down shutters, newcomers as well as existing brands set up shop or expanded in the middle of the pandemic.

Net new demand for retail spaces grew by some 258,000 square feet (sq ft) in Q4 2020, while net new supply declined by about 280,000 sq ft. This resulted in a slight uptick of 0.8 pp quarter on quarter (qoq) in the occupancy levels to 91.2 per cent.

ONLINE BECKONS

Even with the growing presence of online retailers, digitalisation was never a first priority for many traditional retailers. Covid-19 threw a harsh spotlight on the importance of integrating digital sales avenues into retail operations, and creating multiple points of sale to continue drawing shopper flow when faced with physical restrictions.

Over the course of 2020, retailers were compelled to migrate online and conventional brick-and-mortar stores such as Isetan and Metro began selling their products on e-commerce platforms such as Lazada, Shopee and Qoo10. Others, such as BHG, set up their own online shopping site.

During the circuit breaker, the proportion of online retail sales naturally increased. Many thought that the virus had sealed the fate of physical retail stores.

Surprisingly, as Singapore opened up in phases from June 2020, physical retail trade grew from July. With the exception of a slight fall in September 2020, retail sales continued on the road to recovery till the end of the year.

Shopper spending at brick-and-mortar stores resulted in the proportion of online sales falling from above 25 per cent of total retail sales at the peak of the circuit breaker to 12.6 per cent in July. The death knell for physical shops had been sounded prematurely, as shoppers returned to the malls when circuit breaker measures were lifted.

The reopening of the economy and physical stores saw increased footfall in shopping centres, despite social distancing measures still in place.

In the two years before Covid-19, when the proportion of online retail sales generally ranged between

5-10 per cent, many brick-and-mortar retailers were already concerned with the erosion of their revenue streams by virtual stores.

In the six months after the circuit breaker, retail sales have broadly normalised to 10-15 per cent of all sales, with the exception being November 2020, when annual international sales events such as 11.11 and Black Friday created a surge in e-commerce traffic.

THE FUTURE: MULTI-DIMENSIONAL IMMERSIVE RETAIL

The lessons borne out of the pandemic suggest that e-commerce and traditional brick-and-mortar stores need not be opposing competing forces. Being different sides of the same coin, the way forward is a symbiosis of both platforms for the technology-savvy shopper.

To stay afloat, it is imperative that retailers adapt to the rapidly evolving, multi-platform retail scene - by establishing an online presence while retaining existing shopper footfall in their physical stores.

Retailers and retail landlords should explore other ways of ensuring their businesses remain relevant and progress with the changing dynamics in consumer lifestyles and behaviours.

With e-commerce trending towards maturation, it will not be sufficient for retailers to have an online presence purely for transactional functions. Retailers not only need to adopt the omni-channel strategy, but should also embrace the all-important fourth dimension of customer engagement in their business model.

Technology can be an enabler in creating a multi-dimensional, immersive retail experience that can excite, educate and inspire shoppers in their consumer journey.

Malls also have to evolve in tandem by activating all possible touch points to create a multi-sensory shopper experience. This will complement what shoppers cannot access from online platforms and make a compelling pull factor away from their electronic gadgets and into the malls. Placemaking strategies that focus on bringing people together, evoking emotional responses and creating memorable moments would be advantageous in drawing visitors.

This may entail providing certain concessions or incentives to retailers that have aligned objectives; hybrid rent structures comprising reasonable base rents with a turnover rent component will be commonplace in the near future.

With today's digital connectivity, customers do not need to be told what to do or how to think, and instead rely on multiple sources of readily available information to validate their purchase decisions. Therefore, business owners must design the holistic brand experience as a key component driving customer behaviour when personal, lifestyle and aspirational needs converge.

With retailers and landlords teaming up on customer engagement, we may see a true transformation of the retail landscape that can bring about a much-needed lift to the sector.

• Ethan Hsu is the head of retail and Nor Adila Binti Rahim is a research analyst at Knight Frank Singapore.