Changing consumer habits are creating empty shopping malls across Singapore. With the arrival of more online market giants, old retailers must choose to modernise or face extinction.
By Oliver Ward
A walk through any of Singapore’s shopping malls nowadays, shows scores of empty shops as online retailers continue to kill off traditional retail outlets. This is what death looks like in Singapore; modern, newly renovated shopping complexes, with ominous and vacant boarded up shop fronts.
Developments like Suntec City, which recently underwent a US$410 million redevelopment plan have whole sections standing completely vacant and are littered with newspaper covered storefronts, as more than 70% of the Singaporean population now prefer to shop online.
A store assistant working in the complex, who wished to be identified as Mr. C. Ho. said “There used to be a spa on this level. It’s gone now. There was a bookshop too, but that has also closed. And that toy store a few doors down? It’s moving out after just four months.” Another shop owner said, “We see fewer than 10 walk-ins a day. Some days, we don’t even make any sales.”
Despite rental rates dropping by 1.5% in the third quarter of 2016, vacancy rates increased to 8.4%. Even reliable shopping areas like the lucrative Orchard Road are struggling to keep businesses afloat. It no longer pays to invest in a brick-and-mortar establishment to trade from. As a result, future development projects are allocating less and less space for retail outlets.
Projects already planned for completion in 2018 are offering more retail space to consumers. Unless consumer habits change, we can expect to see even more empty shop fronts and ghostly shopping malls in the coming years as developers plans realign to meet public consumer habits.
Even established retailers are suffering dents in profits
Established pillars of retail in Singapore are suffering crippling losses. Department store giant, Metro, recorded a net profit of US$1.15 million in the three closing months of the 2016 financial year, down by 84.8%. They were forced to close outlets in Metro Sengkang and Metro City Square. The company’s revenue in Singapore alone fell by 21.9% in the same period.
Singapore and Metro are not the only ones feeling the pinch. The same trend is occurring globally. Li and Fung, the Hong Kong based retail giant, recorded profit declines for the third year in a row. Net profit fell by 47% last year, with sales slipping by 11%. “This has been one of the toughest trading environments Li and Fung has ever seen,” according to Chief Executive, Spencer Fung.
Amazon’s arrival will spell disaster for old retailers
Amazon has been quietly preparing to make an entry into Southeast Asian markets through a launch in Singapore later this year. They have been acquiring assets, hiring personnel and buying trucks in Singapore in preparation for the anticipated launch. Details around the launch have been shrouded with mystery, initially planned for the first quarter of 2017, it has been delayed until “later this year.”
This is terrible news for Singapore’s old established retailers. With a net worth of US$356 billion, the online goliath is bigger than most brick-and-mortar retailers put together. Its arrival in Singapore could be the final nail in the coffin for traditional retailers.
In other parts of the globe, Amazon has already swallowed up established retailers. Borders, Circuit City, Tower Records and Musicland were all large established chains in 1995 when Amazon was founded. Amazon chewed them up by changing the way consumers shop and consume books and music.
It is not just the threat of Amazon that could ruin brick-and-mortar trading in Singapore. The online retailer, Lazada continues to expand across Southeast Asia. The e-commerce store exploded from just 1.4 million active customers in 2014, to 4.7 million in 2015. Similarly, profits rocketed from US$64.5 million to US$121 million in the same period. It’s partnerships with Alibaba, RedMart and Unilever have led to it being dubbed the “Amazon of Southeast Asia.”
Traditional retailers need to evolve to stay competitive
To stay relevant in today’s digital world, retailers need to evolve. Singaporean fashion retailer, Zalora has developed a hybrid strategy which incorporates the successes of brick-and-mortar outlets, with the popularity and ease-of-use of online commerce.
The bulk of Zalora’s sales are made online through their mobile app, but they use physical stores to drive marketing in new cities. They launched their flagship store at ION Orchard in 2014. “We saw that a majority of sales at our pop up stores, up to 60%, were new Zalora customers,” says Chief Marketing Officer, Tito Costa.
They have facilitated a transition across the two retail platforms. Using pop up stores to advertise to new customers and then the digital marketplace to conduct most of their sales.
Companies who want to be successful in the modern era need to embrace “omnipresence”, according to George Pepes, vertical solutions and marketing lead retail at Zebra Technologies.
If more companies adopted this approach, Singapore’s shopping districts could be reinvigorated with an explosion of pop-up stores driving advertising for online marketplaces. Chain stores would require fewer outlets leaving more space for independent boutiques and smaller, innovative outlets.
Globally, companies are looking for solutions
Li and Fung are looking to modernise and innovate in their new three-year plan. William Fung, Group Chairman said, “While geopolitical and economic realities are in a flux, this uncertain environment also presents opportunities for Li and Fung.”
The plan aims to improve efficiency and productivity through the adoption of technology and the creation of digital supply chains. The plan has been aptly named “Building the Supply Chain of the Future.”
Other traditional retailers would be wise to take note. Singaporean businesses need to look at the successes of Zalora domestically and the attempts of foreign companies like Li and Fung to modernise in response to shifting consumer patterns.
Singaporean retailers may have managed to limp by on declining profits over the last few years, but the arrival of the Amazon juggernaut into the Southeast Asian market will be an atomic bomb to ageing brick-and-mortar establishments. The warning signs are clear, digitalise or face destruction.