The seasonally adjusted Retail Sales Index (RSI) revealed that total retail sales in Singapore ended 2023 with a drop of 1.5 per cent month-on-month in December, a reversal of the 0.5 per cent rise in November.

Similarly, total food and beverage sales recorded a fall of 1.9 per cent month-on-month.

With the economic shocks of the recent past over, and retail tenants reporting sales recovering to pre-pandemic levels, is Singapore’s retail market primed for better days ahead?

Shake The Disease

Despite the lockdowns, borders being shut and limited movement orders, domestic retail spending remained robust, providing resilience to overall retail sales performance.

The Food & Beverage Services Index has recorded overall improvement over the past two years. Dining out as a social activity has made a strong comeback, as friends and families flocked together after the deprivation of social gatherings following the pandemic limits on dining capacity.

Just Can’t Get Enough

Singaporeans cannot get enough of travelling, especially after borders fully reopened, and travel restrictions were lifted. Fuelled by a strong Singapore dollar, many embarked on “revenge travel” to destinations like Malaysia, Thailand and Japan, particularly in December 2022, when outbound departures outpaced visitor arrivals. It was reported that Singaporeans spent more overseas than the tourism dollars collected in pre-pandemic times.

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In 2023, Singapore experienced a 115 per cent increase in tourism arrivals, reaching 13.6 million visitors, with the highest number coming from Indonesia.

Notably, despite a 62 per cent decline in Chinese tourist arrivals from pre-pandemic levels in 2019, Chinese visitors still accounted for the highest total tourism spend, with the per capita spend at S$2,635.

The establishment of the 30-day mutual visa-free entry agreements between Singapore and China is expected to further boost tourism, bringing more Chinese visitors into Singapore.

The introduction of new attractions, a well curated pipeline of meetings and events, and a packed concert roster featuring a slew of big-name acts, are expected to boost Singapore’s tourism industry to the tune of around 15 to 16 million visitor arrivals, and tourism receipts of between S$26 billion and S$27.5 billion in 2024.

Everything Counts

In general, Singapore’s e-commerce market accounts for only about 12 to 13 per cent of total retail sales monthly. The biggest boost comes from year-end online shopping events such as Singles’ Day and Black Friday, when e-commerce sales make up a larger share of total retail sales, up to 15 per cent or more.

Singapore shoppers tend to seek shops online for convenience and value; for discretionary shopping, however, they often prefer a physical store experience, or buy when they are overseas.

In 2024, several key factors may dampen local shoppers’ propensity to spend.

Although overall inflation eased from 6.1 per cent in 2022 to 4.8 per cent in 2023, core inflation inched up from 4.1 per cent in 2022 to 4.2 per cent in 2023, likely reflecting the increase in the goods and services tax (GST) rate to 8 per cent.

Key risks remain, with uncertainties to global energy and supply-chain disruptions due to geopolitical conflicts and higher food commodity prices from harsh climate-affected events. Other key concerns include rising transportation costs, electricity charges and water tariffs.

The impact of the increase in GST to 9 per cent from Jan 1, 2024 is yet to be seen. Anecdotally, consumers have already experienced some opportunistic inflation, mainly in the food and beverage industry, where food prices have been observed to have risen by 10 to 20 per cent more than the general inflation rate.

Get The Balance Right

Consumers may be rebalancing their own non-discretionary and discretionary spending going forward.

Although personal disposable income reportedly grew by 8 per cent year on year in Q3 2023, income had, in fact, moderated from the 10.4 per cent growth in the previous quarter. This is on the back of weaker growth in employee compensation.

Personal savings expanded by 7.2 per cent year on year in Q3 2023, indicating that consumers had started exercising more prudence.

Landlords, at the same time, will have to focus on their mall positioning and trade-mix strategy to provide a right balance to enhance experiential shopping, and to appeal to a new generation of consumers.

Mall owners are expected to continue to maintain the right balance of tenants within their malls, catering to their catchment demographics, while also introducing pop-up stores and curated in-mall events.

Well managed and well located malls are expected to maintain high levels of occupancy and positive rental reversions through strategic tenant curation and in-mall events.

Policy of Truth

From Feb 1, 2024, both landlords and tenants will have to abide with the Lease Agreements for Retail Premises Act 2023. Under the new law, there will be a Code of Conduct that will mandate compliance with 13 leasing principles that set out guidelines for fairer and more balanced lease negotiations between tenants and landlords of qualifying retail leases. This will benefit the retail sector, and in the long run, enhance the interest of consumers.

It is a question of time when the retail market will regain its performance, to move beyond pre-pandemic levels.

Prime-floor retail rents are already showing steady growth, especially in the Orchard Road and suburban submarkets. According to Urban Redevelopment Authority data, islandwide vacancy rate of retail space corrected to 6.5 per cent in Q4 2023, from 7.2 per cent in Q3 2023.

The islandwide retail pipeline remains limited, with a mere 710,000 sq ft expected for 2024, which should lend support to rents.

Hence, prime retail rents are expected to continue to display growth of between 3 and 5 per cent, especially in the Orchard Road and suburban submarkets.

Landlords will continue to introduce new concepts and brands into their malls. Omni-channelling is expected to remain key to the retail industry, ultimately re-establishing our strange love for retail, despite the strange highs and strange lows.

Desmond Sim is chief executive officer (and a Depeche Mode fan), and Kenneth Wong is senior research analyst at Edmund Tie & Company (South-east Asia)