An INTERESTING phenomenon that surfaced during the Covid pandemic was the sudden spike in local private enterprise in the retail and food and beverage (F&B) sectors. Between 2020 and 2021, there were 23,433 new business registrations and 14,275 business cessations recorded, making for a net increase of 9,158 new startups during those two difficult years.

Subsequently, in the recovery years from 2022 up to November 2023, there were only 17,460 new business set-ups and 16,521 cessations for the retail and F&B trades.

What was surprising, was that in what was supposed to be a period of normalisation, fewer startups and more business closures were registered, with only a net increase of 939 new retail business formations.

In the 1980s and 1990s, it was not uncommon to hear laments about the lack of entrepreneurial spirit among Singaporeans, who appeared to be risk-averse, seeking stability with a full-time job rather than venturing into uncharted territory to start a business.

While Singaporeans have grown more enterprising, it was ironic that it took a global pandemic to spur the retail sector to that level of entrepreneurship in one of its darkest periods. Some attributed this to survival instinct kicking in when conditions turned bleak.

The government also provided extensive assistance and support in the form of grants, subsidies and loans. Support schemes for retail and F&B businesses included the Enterprise Development Grant and Small Business Recovery Grant.

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The Singapore brand today is associated with a high degree of quality and is well recognised at regional, and in some instances, global levels. Some successful local brands include BreadTalk, Charles & Keith, Janice Wong, Love, Bonito, Old Chang Kee, Osim, Razer, Secretlab, TWG Tea and Ya Kun Kaya Toast.

These home-grown trailblazers are what we call “Merchlions”, a term coined from the name of our mascot – the Merlion – as a reference to the Singaporean merchants forging bravely beyond our local shores into international waters. It would be naïve to think that their success came easy with clever marketing or pure fortuity.

As a small country without natural resources, the odds are against Singapore, which lacks the scalability afforded to businesses in larger environments where the availability of diverse resources, cost efficiencies and talent can become key advantages.

But if private enterprise could experience sustained growth spurts organically during a two-year period of global hardship and uncertainty, it is conceivable that much more could be achieved if institutional support is in place.

Carving out safe spaces in a high-rent market 

The retail environment continues to be very unforgiving post-pandemic, notwithstanding the removal of movement and border controls, alongside healthy tourist arrivals. In what could be described as a Darwinian landscape, only the financially strongest have a chance at survival and sustainable growth.

One of the biggest cost concerns is rent. Real estate in Singapore does not come cheap, and rents in our malls are high compared to other cities in Asia.

Now that the pandemic is all but over, retail rents have resumed an upward trajectory. Aspiring Merchlions may not have the financial muscle to rent space in a retail mall, let alone one that is popular and enjoys high foot traffic.

A public good is defined as products or services available to every individual within a community with unrestricted access. These tend to be necessities but there is often no profit in providing them. The task of providing such goods is typically the responsibility of governments, rather than private enterprise. Street lamps, traffic lights or sewage channels are examples of public goods.

If the lessons of the pandemic taught us that the spirit of enterprise is a good thing for business and for Brand Singapore, then perhaps the definition of a public good should be extended to incubating promising Merchlions. Young businesses without the benefit of the deep pockets of venture investors can be saved from premature demise, especially if all the concept needs is a little gestation time and space for germination.

One way that the government can help is through the provision of rent-assisted incubator space. Housing and Development Board (HDB) neighbourhood centres can incorporate spaces that are let out to new enterprises with new-to-market concepts that appeal to the mass market in the residential heartlands of Singapore. Government facilities that house all manner of public goods for sports, recreation, arts and cultural use could potentially create incubator spaces for fledgling brands.

It would be more challenging to convince the private sector to set aside precious income-generating space for rent-assisted commercial concepts. Especially when there are demands from shareholders and directors with expectations of highest-and-best use returns.

Thus far, the closest the private sector has come to incubator facilities are pop-up stores, events, trade fairs and exhibitions. An exception worthy of mention is Far East Organization’s project Baker X @ Orchard Central. This space, fully equipped with a baking studio and café, was set up to give home bakers the chance to trial and sell their bakes to the public in a brick-and-mortar setup at no cost for up to six weeks.

Shoppers are also able to benefit from the constant stream of new concepts and products, which in turn drives footfall to an upper floor within the mall. This model can and should be expanded to a magnitude that would be meaningful for the retail sector as a whole, instead of niche-interest segments of society.

The government already has in place a bonus Gross Floor Area (GFA) scheme for Community and Sports Facilities (CSFS), where additional development area is given to developers who house community and/or sports uses that include public libraries and non-profit community service providers like eldercare, childcare and other social services.

In the same spirit, the government could provide bonus GFA to malls that dedicate a portion of their retail space for young brands. Thus, the private sector would provide the space – a breeding ground for young Merchlions – backed by public policy.

Naturally, conditions must be put in place for these initiatives to make sense. They should provide sufficient runway for new concepts to develop, for young entrepreneurs to learn the ropes, and lighten the cost burden for public and private landlords. These qualifying conditions could be:

• A maximum two-year lease term under an assisted rent structure to allow the business to reach some level of maturity and independence;

• A subsidised rent structure comprising total service charge plus 10 per cent of the gross turnover sales (GTO) per month;

• The incubator space should be leased by a Singapore Accounting and Corporate Regulatory Authority-registered business entity for the purpose of operating a new business concept, subject to evaluation by an evaluation committee which could comprise the landlord, representatives from the community as well as independent professional consultants or academics;

• The incorporation of a mentorship programme where an assigned mentor from a related field could provide guidance on business operations without breaching boundaries of business confidentiality and trade secrets;

• Where possible, the new startup could also explore a reciprocal learning exchange programme or internship for local business students and promote inclusive hiring practices.

It is important to have controls in place to ensure that the incubator scheme is not taken advantage of, and that genuinely sustainable businesses are nurtured.

First, the new concept proposed should appeal to the mass market. Second, this concept should not be available or found in the particular mall where incubator space is being offered. Third, it should fit and harmonise with the overall retail theme of the mall and complement the current trade- and tenant-mix. The new concepts should also enhance local communities, with potential to trend and make an impact in the whole country.

Finally, selection panels should be kept small so as to be objective, nimble, and not bogged down with complex bureaucracy and selection matrices.

The incubator environment has worked well for several industries, such as life sciences, technology, fintech, manufacturing and healthcare. Singapore is known to be one of the most stable and business-friendly environments in the world. It is timely to consider investing more in our creative minds within the retail and F&B sectors.

Having a government-led retail-incubator framework with widespread adoption by the private sector would benefit the overall retail industry in the Republic. Stakeholders can access a wider collaborative network, build new communities and leverage synergies to enhance the overall incubator ecosystem.

And with supportive structures in place to cushion the weight of business running costs, our promising Merchcubs have a fighting chance to make it to adulthood and become the next big thing in the retail world.

Ethan Hsu is the head of Retail, Leonard Tay is the head of Research and Sim Li Wei is an analyst at Knight Frank Singapore