Retailers become creative in face of competitive retail environment

Singapore: Demand for retail spaces stayed strong in Q4 2014, with occupancy rates for malls in Orchard/Scotts Road, other city areas and suburban areas staying above 90%. As at 2014, net absorption recorded a 7.1% increase to 1.67 million sq ft from 2013 indicating a healthy demand.

In 2015, some 1.2 million sq ft of NLA will be injected into the market. Of the 1.2 million sq ft of NLA to be injected, 99% will be concentrated in the other city areas and suburban areas. In Orchard/Scotts Road, approximately 8,000 sq ft of NLA will be released in 2015 as compared to 407,000 sq ft in 2014. Projected supply of retail spaces within Orchard/Scotts Road is expected to be limited at 24,000 sq ft of NLA over the next five years.

The market dynamics is reflected in the rents observed in this quarter. Islandwide, average rents largely remained the same q-o-q at $25.39 per sq ft in Q1 2015. Rents in the other city and suburban areas remained flat q-o-q at $17.98 per sq ft and $28.05 per sq ft respectively. The rents in the above areas are expected to stabilise due to the large proportion (99%) of retail supply in the coming year as well as the maturing e-commerce sector. Reflecting the limited supply of retail spaces in the Orchard/Scotts Road area, average rents inched up marginally by 0.3% q-o-q to $30.13 per sq ft in Q1 2015, which further contributed to the strong resilience in rents.

According to CapitaMall Trust’s latest financial results for 2014, portfolio shopper traffic decreased by 0.9% y-o-y, while overall tenants’ sales per sq ft declined by 1.9% y-o-y. The findings further noted that the brick-and-mortar Fashion retailers’ y-o-y sales declined by 1.3% and the Shoes and Bags retailers’ sales declined by 0.8% y-o-y in 2014. Declines in both sectors’ sales are a reversal from the 1.3% and 9.4% increase reported in CapitaMall Trust’s 2013 financial results.

The fall in their tenants’ sales has largely been attributed to the maturing e-commerce sector. Joint ventures between the e-commerce companies and logistics companies are likely to further lower the shipping and delivery costs, boosting the attractiveness of online shopping. In 2014, Alibaba Group took a stake in SingPost to increase its penetration for its Consumer-to-Consumer business. As a result, e-commerce giant Taobao Marketplace South East Asia entered into a partnership with Singpost’s POPStation in October last year. With more than 70 POPStations islandwide, shoppers are able to conveniently pick up their parcels at their own preferred time and location with no extra costs.

Dr Lee Nai Jia, DTZ’s Associate Director of Research, noted, “The e-retailers are able to offer goods at prices lower than what the traditional retailers can offer by circumventing the high labour costs, payments to middle-men and rent for retail space. As consumers become comfortable transacting online, more shoppers will be drawn to the virtual shops to make their purchases.”

With growing competition, online fashion retailers are coming up with creative ideas to differentiate themselves. Zalora and Love Bonito for instance, experimented with physical pop-up stores on short term leases to close the gap between online and offline retailing. The aim was to increase brand awareness and to acquire new customers by “filling the trust gap” some consumers have towards online shopping. The digital platform had been incorporated into the pop-up stores, allowing shoppers to browse and make the purchases online. The differentiating factor is that the shoppers are now able to experience the products in the physical stores before committing to a purchase.

On a broader scale, online and offline fashion retailers are reinventing their business models to counter the competitive operating environment. Retailers are launching mobile apps to tap on the high smartphone penetration rate. In the most recent research paper released by Maybank Kim Eng, Singapore’s smartphone penetration rate is at 90%, with 45% of smartphone users making online purchases with their mobile devices. H&M launched its first mobile app in 2010, with Zara following suit in 2012 and subsequently Zalora in 2013. More recently, Myntra, a major Indian clothing e-store, announced the closure of its online store from May to focus on its mobile app.

Ms Anna Lee, DTZ’s Director of Retail, noted, “As the talk about the threat of e-commerce and reduction in foreign labour dependency ratio start to dwindle, retailers are reinventing their business models to differentiate themselves from their competitors. These issues have pushed them to come up with creative solutions such as the exploration of shorter term leases and tapping on the advantages of the mobile market to increase their market share. In the longer-term, we expect to see a positive transformation of how retailers conduct their businesses.”


Source: DTZ

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