SINGAPORE: It’s been more than a month since Robinsons called it quits.
Its stores at Raffles City and The Heeren are almost empty, as bargain hunters cleared out shelves of discounted products in recent weeks.
For decades, this up-market departmental store has provided millions with good memories, as parents, with children in tow, shopped through a whole range of items from homeware, fashion, children’s clothes, bed and linen, electronic items and luxury products.
And as the holiday season draws close, nostalgia is particularly strong. Robinsons had been a go-to place for last-minute gift shopping during festive seasons.
REFLECTING THE UPS AND DOWNS OF THE RETAIL INDUSTRY
In so many ways, Robinsons' journey mirrors closely the up-and-down of the retail industry.
During its heydays in the 1980s and 1990s, Robinsons' flagship store at Orchard Road was brimming with families, where its creative, lively window displays caught the attention of passers-by.
Shoppers and tourists never missed a photo opportunity with the bright, interactive Christmas decorations of its shop frontage and the building facade of Centrepoint during the festive seasons.
Competition was aplenty but there was enough business to go around. Peers like Oriental Emporium, Yaohan, Daimaru, Sogo and John Little boomed.
But as Singapore prospered, with more iconic shopping malls added to the shopping district, and individual brands setting up their own stores, giving people the luxury of choice and novel, trendy options, department stores came under pressure.
The departmental store business in Singapore has undergone several rounds of transformation, with many old names closing for good.
This will not be the last, though few titans like Marks & Spencer, Isetan and Takashimaya remain.
READ: The Big Read: As Robinsons goes the way of Yaohan and Emporium, the end may not be nigh for dept stores
COVID-19 EXPOSED STRUCTURAL WEAKNESSES
The latest disruption that accelerated Robinson’s foreclosure is undoubtedly COVID-19.
While the Government has cushioned the bulk of the impact by granting rental relief and more to eligible retailers through the passage of the COVID-19 Temporary Measures Act, close to 2,500 companies in the retail sector called it a day from April to October.
These include home-grown, 37-year-old Sportslink as well as the Singapore operations of Esprit, Topshop/Topman, with many moving online.
This was a trend that impacted a range of industries. Bookstores, like beloved Books Actually, were not spared.
But retail has been acutely affected. From plunges in tourist arrivals to local consumption (particularly during the circuit breaker), COVID-19 brought retail to its knees.
Average monthly retail sales, which hovered at S$3.7 billion pre-coronavirus, plummeted by at least 28 per cent from April to June.
Departmental stores, apparel and footwear, were the two categories that suffered the biggest drops of 48 per cent and 44 per cent year-on-year on average respectively from January to September, the same time many fashion brands started thinking about closing down.
But COVID-19 has helped other categories of shopping mall tenants, especially supermarkets, convenience stores, watches and jewellery, which saw a growth in sales. Supermarkets reported the strongest performance, at an average year-on-year revenue growth of 34 per cent during this period.
So was this merely a short-term disruption? Will we see department stores bounce back once we return to normalcy?
Or might it be that inherent structural weaknesses were at the heart of such? Is the department store outdated?
Did Singapore just have too much retail space and the cull was only a matter of time?
RETAIL DOESN’T TAKE UP THAT MUCH SPACE IN SINGAPORE
The available gross private sector retail space as of 3Q of 2020 stands at 5.76 million sq m, according to the Urban Redevelopment Authority, with 40 per cent and 26 per cent concentrated in the central and city fringe areas respectively.
The balance one-third, serving primarily residents in the heartlands, is distributed across Singapore.
By international standards, benchmarked by the International Council of Shopping Centres (ICSC) and retail consultancy Cistri, the shopping centre floor space per capita in Singapore is estimated at 6.4 (2019), a quarter of the US number of 23.1.
Compared to Hong Kong (10.1) and Kuala Lumpur (9.9), Singapore’s shopping centre floor space does not seem excessive, though it is a higher number compared to mature countries like UK (4.6), Japan (4.5) and Germany (2.3).
The available private sector space has also grown at a slow average quarterly rate of 0.4 per cent since 2011.
New private retail spaces under construction and in the pipeline have also declined since 2014.
But the next five years will see more retail spaces as Woodleigh Mall (expected TOP in 2022), Sengkang Grand Mall (expected TOP in 2023), and The Ryse Residences (expected TOP in 2024) will supply a combined gross retail space of approximately 56,000 sq m.
Another 40,800 sq m of new retail spaces will come from refurbished projects, such as 112 Katong and Shaw Plaza at Balestier Road, scheduled to reopen in 2021, and IMall, a new retail development connected to the Marine Parade MRT station slated for completion in 2023.
While average vacancy rates rose to above 11 per cent during the second and third quarters, our research shows inherent weakness in the retail sector, especially in strata-titled malls, since 2015, where the islandwide vacancy rate has hovered above 7.8 per cent.
Yet Robinsons' outlets in The Heeren, Raffles City and Jem should have little problems with finding tenants given the popularity of their locations, assuming some reconfiguration. Already 85,000 sq ft of retail space in Jem will be reconfigured to house the new concept store of Ikea next year.
Rental prices have also been coming down for the past five years. Rentals of private retail spaces in the central and fringe area declined at an average quarter-on-quarter rate of 1 per cent since 2015.
Meanwhile, private retail space prices in the central area declined even more at an average quarter-on-quarter rate of 1.2 per cent. This figure was 0.3 per cent for the city fringe area.
E-COMMERCE ISN’T THE BAD GUY
If not too much retail space, might e-commerce have been the bad guy that stole consumers during these coronavirus months where more people stayed home?
After all, the high-profile rise of e-commerce portals, such as Lazada, Shopee and others have significantly influenced shopping behaviour and preferences of consumers for some time.
Coupled with the wholesale migration of shoppers online during the circuit breaker months, consumer preferences might have shifted towards online shopping for good.
About 6.9 per cent of all purchases were made online in September 2019. This number surged to 11.2 per cent (or S$355.7 million) in September 2020, with telecommunications equipment, furniture and household equipment leading sales during the circuit breaker.
This was the same story with F&B, as online sales surged to 44 per cent of total sales in May.
We have found, however, that the overall changes in consumer behaviour have been more nuanced.
In the past, consumers searched online to find product-related information, but completed purchases at a physical store given how long fulfilment of an online purchase took.
But the gradual improvements in supply chain management of e-commerce operators resulting in faster delivery times has triggered a shift. Consumers now find out about products from physical stores and make their purchases on online platforms with the most competitive deals.
COVID-19 has not only hastened but has also shaken up the substitution effects between offline fand online sales.
In this scenario, however, there is a role for brick-and-mortar stores. Cistri’s survey in July showed 66 per cent of shoppers expect online expenditures post-COVID-19 to remain roughly the same.
Those likely to spend more online are male, between 25 and 39, and in the low or high income groups (as opposed to the middle-income group).
HOW RELEVANT ARE DEPARTMENT STORES?
Department stores in Singapore, such as Takashimaya, Tangs, Isetan and BHG, have adopted strategies to distinguish themselves from other online operators that compete mostly on prices.
Isetan and Takashimaya have carved a niche in providing Japanese food offerings in their supermarket, to draw shoppers where touch, smell and taste are experiences that cannot be replicated digitally.
They also have a strong emphasis on the mall’s place-making efforts, where they organise ad hoc events from Japanese food fairs to routine festive sales such as Chinese New Year, Christmas and Mid-Autumn mooncake fairs to form strong associations with shoppers when those periods come around.
While crowd-pulling events are out of the question if they risk flouting safe distancing rules, perhaps the solution lies in how department stores can create attractive digital experiences that allow consumers to browse online and try offline, where the chase is less for footfall per se and more for convenience, mindshare and stickiness.
Leaders in this field have proven omni-channel strategies. Alibaba’s Hema Xiansheng supermarket allows online shoppers to order fresh gourmet seafood, have it cooked and ready to be collected piping hot from a physical store, along with their groceries.
Similarly, IKEA’s store concept, which offers new home decoration ideas to customers, inspires and attracts homeowners and allows IKEA to cross-sell products.
NORDSTROM, NIKE AND ADIDAS LEAD THE WAY
Physical retail space really needs to be better rethought.
Nordstrom in the US, upheld as a shining example of a retail giant’s digital transformation, has created concept stores that resonate with shoppers, while strengthening its digital footprint.
Customers can buy products directly after viewing them on Instagram.
They can also pick up online orders at merchandise-free Nordstrom Local Stores, which offer alteration, styling, gift-wrapping and other lifestyle services. Since testing the concept in Los Angeles, Nordstrom has pushed into New York with two Local Stores.
Nordstrom’s pick-up orders doubled in the fourth quarter of 2019, comprising half of all of its e-commerce full-price sales.
Nordstrom is also disintermediating its offerings and has opened a store targeting men in New York City and another for women only in 2019.
Customers can also find slow-moving, off-season and discounted products at its off-price Nordstrom Rack stores, which lease smaller spaces and is differentiated from the full-price main brand. These act as outlet spaces that extend sale seasons beyond their traditional periods.
Similarly, sports brands like Nike and Adidas have outlet stores in Changi City Point where products are sold at cheaper prices and sales are more frequent, giving shoppers a reason to visit and allowing retailers to clear stocks faster, in time for the next season’s line-up.
With stores designed to allow people to try out discounted products comfortably and service staff with strong product knowledge, the good experience can entice bargain hunters to return.
DO LANDLORDS HAVE THE APPETITE FOR INNOVATIVE NEW RENTAL MODELS?
But how much retailers can transform is also a function of whether landlords have the appetite to embrace and push for such omni-channel approaches to shopping.
We would urge them to help tenants find new ways to increase sales, as future retail rental revenue will rely heavily on whether retail can find a new way to bring people back to physical stores.
Perhaps for that reason, CapitaLand, the largest landlord of retail malls, has stepped up to create e-commerce platforms to drive online sales for their tenants. Launched in June, their retail and food e-commerce platform eCapitaMall and Capita3Eats extends reach for their tenants to more than 1 million CapitaStar members in Singapore.
Frasers Property Retail is also targeting to launch an e-commerce site for tenants by the end of this year. Landlords are investing in ways to help their tenants to increase sales.
We would also encourage landlords to consider rental models that incentivise retail to go digital and orientate rents towards an omni-channel model.
UK retail landlord Hammerson recently introduced a new leasing structure, based on flexible terms. They rebased rents on an index reflecting broader economic conditions (co-sharing these risks) and allowed tenants to switch to a turnover-based lease if they included omni-channel metrics that consider online sales.
The lines between online and physical retail stores have been blurred. When the COVID-19 dust settles, where and how consumers shop might come into sharper focus.
But what is clear is that if malls, department stores and retailers fail to lure back shoppers who have gotten used to buying everything online from giant e-commerce sites, and arrest dwindling footfall, they risk following the fate of Robinson’s.
Listen also to one of the authors discuss the outlook for the Singapore residential market and why it seems to be holding up exceptionally well this COVID-19 recession:
Professor Sing Tien Foo is Director at the Institute of Real Estate and Urban Studies (IREUS) and Head of Department of Real Estate, National University of Singapore. Lau Li Min is Research Assistant at the same institute. The views and opinions expressed herein are those of the authors and do not represent the views and opinions of the National University of Singapore or any of its subsidiaries or affiliates.