Singapore's SME recovery on track, but further resilience will be key

NEARLY 20 months into the pandemic, there is no need to belabour the damage the virus has caused. We are all familiar with the vast disruption caused to businesses in Singapore and around the world.

Something which is perhaps not discussed as much, however, is the way in which this disruption has created unexpected opportunities for small and medium businesses (SMBs).

In Mastercard's latest Recovery Insights report, we found that in the Asia-Pacific region, the number of small retailers being established grew 35 per cent in 2020 compared to the previous year, outperforming the global average of 32 per cent.

The report offers insight into how SMBs fared during the pandemic. While some findings may seem counterintuitive, they also illuminate what a sustainable path to recovery might look like for some of these businesses.

It is no secret that the pandemic drove many businesses online as they tried to recoup losses from reduced patronage.

However, our research found this was happening at a monthly rate of triple the pre-pandemic level. Additionally, we are seeing many new small businesses forgoing a physical presence altogether and minimising startup costs and risks by going "digital first".

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This trend will likely continue for these reasons, but also because location seems to matter less than before.

As people continue to work from home and companies increasingly adopt a hybrid work set-up, small businesses in commercial districts have and will continue to see sales suffer, while sales in more residential areas are expanding and will stay on an upward trajectory.

In 2020, spending at Singapore's non-CBD SMBs was at 104 per cent of the 2019 level - healthy growth, given the circumstances.

Similarly, with limited travel, the trend of "staying local" has gained momentum, benefitting small lodging businesses.

These smaller operators, often homestays or bed and breakfasts (BnBs), outperformed large hotels and resorts by a wide margin both last year and into 2021.

Restaurants saw a different trend, however, with smaller eateries globally underperforming large ones by 17 percentage points thus far in 2021.

With Singapore's small businesses seeing some unexpected tailwinds during a difficult period, the question is what can be done to ensure growth moving forward?

Some key issues faced by SMBs in Singapore during the pandemic related to working capital - in particular, when it came to payroll and rent.

Despite some easing of restrictions and strong government support, the capital issues will remain as businesses look to get back on their feet.

Greater access to low-interest loans or extended grace periods could make a big difference in ensuring longer-term viability of many businesses, while adding an additional safeguard for employees.

Even in markets that have opened up, we have seen businesses inside CBD areas struggle, which is likely the result of work-from-home arrangements giving way to hybrid approaches.

Our research has found that three-quarters of consumers in the Asia-Pacific want to shop at small businesses that now have an online presence.

For businesses in the middle of the city, a path forward could involve a more flexible online/offline approach, where they build rapport with in-store customers when they come into town to work, which can be converted to online sales when those customers are working remotely from the residential neighbourhoods.

Meanwhile, with Singapore opening green lanes for vaccinated travellers, now would be a good time for small lodgings that saw a boost in patronage during the pandemic to consider catering to the international market.

The needs of travellers have changed because of the pandemic, hence the investments these businesses make need to reflect these new demands.

In addition to ensuring that their online marketing is geared towards an international audience, they should work to offer touch-free options, such as digital menus via QR codes and a range of contactless payments, so that travellers can feel reassured in their personal safety.

The pandemic, with all its unexpected challenges, upended some of the conventional wisdom around business.

Who would have thought that locations outside the CBD would be better for foot traffic, or that the major hotel chains would be underperforming compared to mom-and-pop BnBs?

More than anything, the pandemic underlined the importance of being nimble and adaptable.

The way in which many local businesses moved online and adopted touchless payment methods during this time is a testament to how well Singaporean SMBs have done in digitisation efforts.

Businesses here have done exceptionally well given the tough circumstances visited upon them.

With the lessons learned from this crisis, SMBs now have to double down on the resilience they have already built and incorporate that into their future plans and business growth, so that - pandemic or not - they are able to look ahead to a more sustainable future.

• The writer is Chief Economist at Mastercard.