Singapore Retail Bulletin Q4 2016
2017 HEADWINDS TO DRIVE RETAILERS TOWARD ‘SMART’ RETAILING, increased business efficiency and THE adoption OF MULTI-LIFESTYLE CONCEPTS
The Singapore retail market continued to be weighed down by the soft global and local economic conditions, weak retail spending, rising business cost and labour crunch in 2016. As retailers continued to consolidate, demand for retail space remained soft, imposing downward pressure on retail rents. Moving forward, landlords and retailers are expected to drive greater innovation and creativity in their business strategies to attract shoppers in 2017.
This report also expounds on three rising retail trends in 2017.
“Both landlords and retailers have to brace themselves for a bumpy ride in 2017. Given the tough market competition, it is important for both parties to take on collaborative efforts in advertisement and promotion initiatives to reach out to a wider pool of shoppers” Wendy Low, Executive Director and Head, Retail
Notwithstanding improvement in retail sales amid the festive season, the retail market continued to remain weak
- The overall Retail Sales Index (excluding motor vehicles; non-seasonally adjusted, at constant prices) fell for the tenth consecutive month by 3.1% year-on-year (y-o-y) in November 2016. Of the 13 retail trade categories, only two expanded on a y-o-y basis, namely Medical Goods & Toiletries (4.4% y-o-y) and Recreation Goods (0.1% y-o-y). All other trade categories contracted, with Telecommunications Apparatus & Computers suffering the largest decline (-12.1% y-o-y), followed by Watches & Jewellery (-11.0% y-o-y) and Wearing Apparel & Footwear (-4.8% y-o-y).
- Employment in the wholesale and retail trade fell for the third consecutive quarter in Q3 2016 by 900 headcounts, a smaller margin of decline compared to the preceding year which saw 2,300 cutbacks in the sector. This could be attributed to the weak retail sales which caused retailers to be cautious in their undertaking of manpower deployment.
- Total visitor arrivals for the period of January to October 2016 increased by 8.3%, compared to the same period last year, to reach 13.7 million. While visitors from China and Indonesia rose by 37.3% y-oy and 5.5% y-o-y respectively in the first ten months of 2016 compared to the same period in 2015, visitors from Malaysia declined by 1.5% y-o-y, possibly a result of weakened Ringgit against Singapore Dollar.
Island-wide prime retail rents continue to moderate in Q4 2016
- On a quarter-on-quarter (q-o-q) basis, prime rents for all locations, except City Fringe, fell in Q4 2016.
- Rents of prime spaces across the island remain weaker than a year ago. This was largely due to the softened global and local economic performance which contributed to the weakened retail spending among shoppers and consequently, caution in expansionary plans among retailers
- Notwithstanding the challenging retail scene, drop in prime rents for retail space along Orchard Road was marginal as the prime shopping district remains highly valued by international retailers to establish the presence of their brand, products and services.
- Average rents of prime space in suburban malls saw the largest decline among the various locations tracked. With a significant supply of suburban mall space, there is an increasing division between the wellestablished and well-managed malls from the weaker and less welllocated ones, leading to a divergence in the performance. While the strong malls continue to see rent hold firm, weaker malls weighed on the overall performance of the basket.
Overall, the retail market proved to be challenging for both retailers and landlords in 2016
- Retailers continued to face strong headwinds in 2016 with growing competition from the e-commerce sector and regional markets, increasing business cost, downsides arising from weak economy, and labour crunch. Technological disruption, in particular those which offer delivery services, gained further traction in the year, with those not latching on finding themselves losing market share.
- In view of economic uncertainty, retailers took on a cautious stance towards business expansion, and leaned towards consolidation strategies to focus their resources on key outlets.
- Both landlords and retailers face continuous pressure to inject creativity and innovation in their business strategies, product and service offerings, and shopping experiences to attract customers amid the intense competition from the market.
- Several interesting concepts are expected to become key trends in 2017, as they are adopted by more landlords and retailers in the coming year.
THREE RISING RETAIL TRENDS IN 2017
TREND ONE: Given the fast-pace adoption of technology in Singapore, more retailers will go ‘smart’ in 2017 to meet consumers’ expectations
- According to a 2015 survey by Deloitte’s Global Technology, Media and Telecommunications, Singapore has the highest smartphone penetration globally, indicating their high reliance on technology and mobile convenience.
- In order to keep up with the consumers’ expectation, retailers are likely to offer a wide range of payment options that includes mobile wallet such as Apple, Samsung and Android Pay. This will expand retailers’ outreach and brand recognition to a wider group of consumers through digital loyalty programs via these ‘contactless’ payment platform. Such initiatives can serve to improve shoppers’ experiences by easing the payment process, and also a reduction in cashier queue times.
TREND TWO: Going ‘smart’ also ties in with omni-channel strategies, the continuing game-changer in the retail scene
- As consumers are getting more tech-savvy, it is important to enable access to multiple retailing channels for them to seek general product information, communicate with retailers, purchase, make payment, monitor the inventory stock and arrange delivery. This makes it imperative to have a well-integrated, consistent and seamless integration between physical store and online business mediums such as smartphone applications, online websites, and social media portals.
- While this appears to be a retailer-level business strategy, there may be rising mall-level implementations to combat the rising inadequacy of today’s brick-and-mortar retail market. For instance, CapitaLand will be launching the reinvented Funan DigitaLife Mall by 2019 to pioneer the new experiential retailing concept that merges both online and offline shopping thrills under one roof. Shoppers will be able to either pick up their purchases at Funan’s concierge after they are done with shopping, or to have it delivered to their doorsteps via the ‘drive through click-and-collect and hands-free shopping service provided by the mall. Although it remains to be seen how the new mall concept will fare, similar concepts are likely to be adopted by the other retail malls should this be well-received among shoppers.
- Amid the challenging retail scene, the omni-channel strategy will also be able to help retailers better manage labour and occupancy cost. This may be done through improved efficiency on their operational processes by reducing reliance on high manpower-operation model, and the amount of physical rental space required.
TREND THREE: Reinvention and redefinition of physical retail space is vital to make it fun and valuable for shoppers to enhance their shopping experiences.
- Consumers still crave for unique in-store experiences that online shopping is not able to provide them with. This revolves about multi-lifestyle, curated and personalised concepts in the form of product and service offerings.
- Multi-lifestyle retail concept could potentially be the next ‘big thing’ where retailers think ‘out of the box’ and fuse complementing retail products and/or services together, allowing shoppers to indulge in an ‘interesting-mix’ of enjoyment.
- While it may be possible for a single operator to take on multi-concepts, brand collaboration is increasingly being adopted. One example would be a synergistic collaboration between GastroSmiths and HomesToLife where consumers are able to shop for high quality furniture and dine. Other examples include Pact, SUPERSPACE and The Assembly Store where multiple brands come together to create an experiential concept space for shoppers.
Retail outlook in 2017 is likely to continue as ‘bumpy ride’ for both landlords and retailers
- Average rents in the Central Region are envisaged to fall by 5.0% to 8.0% by Q4 2017, while the more resilient prime rents to moderate downwards by up to 3.0% y-o-y in the same period.
- Landlords are likely to take on a more proactive role to initiate more advertisement and promotion activities in a bid to attract shoppers into the mall. On the same note, retailers are also expected to explore innovative concepts that integrate both offline and online retailing platforms to enhance consumer engagement.
- The occupancy performance is expected to hover between 90.0% and 92.0% in 2017, after maintaining an average of 92.2% over the first three three-quarters16. This is in consideration of the close to 2.0 million sq ft Gross Floor Area (GFA) of retail space slated for completion in 2017 amid the heightened level of caution among retailers towards their business strategies due to the uncertain global economic outlook.
About Knight Frank
Knight Frank LLP is the leading independent global property consultancy. Headquartered in London, Knight Frank has more than 13,000 people operating from over 400 offices across 58 countries. These figures include Newmark Grubb Knight Frank in the Americas, and Douglas Elliman Fine Homes in the USA. The Group advises clients ranging from individual owners and buyers to major developers, investors and corporate tenants.
Knight Frank has a strong presence in Singapore with a head office and three subsidiaries; Knight Frank Estate Management, Knight Frank Asset Management and KF Property Network. For further information about the Company, please visit www.knightfrank.com.sg.
© Knight Frank Singapore 2017