Covid-19 spurs more brick-and-mortar retailers to go online
By Valerie Kor
/ EdgeProp Singapore |
SINGAPORE (EDGEPROP) - As part of “circuit breaker” measures implemented to combat further spread of Covid-19, it is now against the law to gather and loiter, visit another household and be outdoors without a mask. As such, footfall in shopping malls has reduced to a trickle. Safe distancing measures and work-from-home policies have caused many to turn to online shopping.
Based on the latest data on the retail sales index and food and beverage services index, online sales in proportion to overall retail sales is still low but it is growing steadily. In 2018, the percentage of online retail sales to overall retail sales was 5%. Last year, the percentage grew to 6.9%. In February this year, the percentage jumped to 7.4%.
The proportion is higher in specific industries (see table on the next page). For instance, 30.4% of computer and telecommunications equipment sales was made online in February. The second highest percentage of online to offline sales was furniture and household equipment, which stood at 14%. Meanwhile, online sales from supermarkets stood at 8.5%.
But regardless of the method of purchase, it is clear that discretionary spending has weakened as cautious shoppers are bracing for a recession. In a recent macroeconomic review, the Monetary Authority of Singapore (MAS) reported that the city-state’s economic growth could dip below the forecast range of –4% to –1% to record its “worst ever contraction”. The economy could be more adversely impacted by Covid-19 than during the Asian Financial Crisis in 1998, when the economy contracted by 2.2%.
(Source: Singapore Department of Statistics)
To make matters worse, the retail industry has already been suffering for a few years now. According to data by the Department of Statistics, retail sales value has been decreasing since 2018, which was when it dropped for the first time in nine years by 0.19%. In 2019, total retail sales value decreased again by 2.63% compared to the previous year.
Covid-19 has further exacerbated the situation. In January this year, total retail sales value stood at $4.1 billion — which is lower than the previous year by 5.3%. This figure is $3.1 billion in February, a drop of 8.6% y-o-y. Worse results can be expected for March and especially April due to stringent lockdown measures put in to curb the spread of the virus.
The lower sales also means that retail shops are facing cash flow constraints. The URA’s latest figures for 1Q2020 show that retail vacancy rates have inched upwards from 7.5% in 4Q2019 to 8.0% in 1Q2020. Across the board, consultants believe that more tenants will be giving up space than signing new leases in 2Q2020.
(Source: Singapore Department of Statistics)
Not all suffer evenly
The scenes of snaking queues outside supermarkets juxtaposed against that of empty shopping malls are a reflection of how consumers are spending differently in a pandemic. Data on retail sales for February reveals that the supermarkets and hypermarkets category grew by 15.5%, while other non-essential categories such as clothing and footwear, food and alcohol and department stores registered a sales decline of between 36.3% and 41.0%.
This means that sales are uneven online as well, as online shopping platforms and sites specialising in non-essential items are also struggling. Online retailer Lazada, which also owns the popular online groceries store RedMart, is seeing strong growth in different areas. A Lazada spokesperson says: “We have seen a corresponding increase in the number of weekly orders and customers during this period. People are buying more products that support a stay-at-home lifestyle, such as home entertainment, fitness equipment, games and not to forget groceries.”
However, going online is still the only way for retailers to stay visible for consumers who are staying home during the circuit breaker period. Recently, statutory board Enterprise Singapore (ESG) has launched an E-commerce Booster Package to offer subsidies on up to 90% of costs related to selling online, particularly in the areas of content development, product listing and online advertising. Retailers who are new to e-commerce can sign up with either Amazon, Lazada, Qoo10 or Shopee. The one-time support is capped at $9,000 and the programme is open to sign-ups until Sept 30.
This booster package will also support 90% of the salary costs of three of their employees for three months. The employees must be Singaporeans and permanent residents.
Going forward, consultants believe that e-commerce will become commonplace and retail real estate will have to reinvent themselves to stay relevant. Teh Seng Leong, global real estate, hospitality and construction M&A leader at EY, says: “Despite high online penetration, the proportion of online retail sales to overall retail sales at 5% to 7% is still quite little compared to China, where the figure is actually 30% to 40%. There is much more room to grow.”
He adds: “In the post-Covid-19 world, there needs to be more reinventing as consumer behaviour is changing. Fundamental assumptions such as: ‘We have a great space, tenants have no choice but to rent from us’ will have to change.”
Brick-and-mortar strategies must evolve to survive
More people may be turning to online shopping during the ongoing circuit breaker period, but consultants say e-commerce will not replace brick-and-mortar stores completely. Instead, physical stores will need to evolve to survive to meet the needs of customers going forward.
The challenge is for mall landlords, retailers and operators to be innovative, bold and swiftly cater to consumer needs (Photo: Albert Chua/The Edge Singapore)
Desmond Sim, head of research at CBRE, believes that people shop online for cheaper prices but some might find the gratification too slow. “Buying something online is not the same as walking into a shop, getting an item and using it right away,” he explains. “Our city is quite dense too, so a supermarket or a shopping mall is never too far away. I think it is unlikely that online shopping will overtake brick-and-mortar shops unless we are able to improve our last-mile delivery industry to shorten waiting time significantly.”
Two trends have emerged in recent years in the brick-and-mortar retail industry recently are experiential shopping and omni-channel retailing. These strategies play up on what e-commerce cannot provide. A third trend that could emerge is incorporation of automation and artificial intelligence.
Experiential retailing involves creating attractions and including more F&B options so that shoppers dwell longer. For instance, Jewel Changi Airport — which launched in April last year — tapped an experiential shopping strategy that had proved to be wildly successful until the Covid-19 outbreak. After a successful preview period that saw 500,000 Singaporeans visiting over a six-day period, the mall continued to draw tremendous crowds. Visitors were attracted by the iconic 40m-high indoor waterfall called Rain Vortex and the attractions at the Canopy Park.
As CBRE’s Sim says: “Industries that offer service or products that invoke the five senses will be less disrupted. For example, when you buy a perfume, unless you already know what brand you want to buy, you still want to smell it. When buying a luxury watch, you’d still like to go down to the shop and have the staff serve you tea. In my view, e-commerce can only disrupt fast-moving goods and perishables.”
Tay Huey Ying, head of research and consultancy at JLL Singapore, concurs. “It has also become evident during this circuit breaker period that in spite of the availability of platforms to hold virtual meetings and parties, humans still yearn for face-to-face interaction and physical experiences that the digital world is yet to fulfil. The challenge is for mall landlords, retailers and operators to be innovative, bold and swift to cater to consumer needs,” adds Tay.
Omni-channel retailing is another strategy that could become more prevalent after this pandemic passes. Sim says: “For example, some malls and shops already offer ‘click-and-collect’. Basically, you do not have to shop physically and jostle with crowds. You can choose your item online, but drive to a drive-through or a carpark to collect it, so the speed of gratification is there. This is great for safe distancing too.”
Funan is one of the malls that offers omni-channel retailing, including "click and collect" options (Photo: Unsplash)
Teh also suggests omni-channel options for retailers going forward, adding: “Maybe retailers can explore using mixed spaces to fit fulfilment centres and showcases, or help their existing tenants set up a virtual shop online to reach more consumers.”
JLL’s Tay also points out that prior to 2019, online retailers were in fact opening brick-and-mortar stores to complement successful e-commerce platforms. Such retailers include Naiise and Love Bonito. She believes that this trend may continue after the outbreak: “In an increasingly crowded e-commerce world, online retailers are finding it necessary to set up physical stores to gain loyalty, following and increase market share.”
Yet another strategy that retailers and mall landlords can consider in the future is incorporating automation and artificial intelligence (AI). EY’s Teh says: “In industrial real estate, we are seeing more automation being used. I believe these trends will also be seen in retail and construction sectors, as we move away from manual and labour-intensive ways of doing things.”
CBRE’s Sim similarly foresees strides in warehousing made possible by automation and AI. He envisions RFID tags being placed on items so shops do not need to have a lot of inventory in the store. “AI can help to track what has been sold real-time, so the stock can be replenished by delivery men on scooters or autonomous vehicles. Then, shops will not need that much space anymore. Or, they can dedicate more space to creating experiences,” he adds.
But while larger corporations may survive the pandemic and take the downtime to reinvent their business models, smaller shops may not last long enough to pursue such strategies. Already in need of rental rebates, deferrals of rental payments and extra help to set up online capabilities, non-essential retail businesses with one or two months on their balance sheet are seriously suffering under two months of circuit breaker rules.
Read more: How tech is helping during the pandemic
Tricia Song of Colliers International predicts that the impact of the Covid-19 pandemic will be worse than SARS (Photo: Albert Chua/The Edge Singapore)
Tricia Song, head of research at Colliers International, predicts that the impact of the Covid-19 pandemic will be worse than SARS. She adds: “During SARS, retail rents fell 2.6% in 1H2003 and 3.4% for the full year in 2003. We believe the impact of Covid-19 could be more detrimental and forecast a 5% decline in average retail rents in 2020.”
On the bright side, Singapore is already easing measures gradually as cases among Singaporeans and permanent residents fall to single-digit numbers. Total new cases still hover between 400 and 700 daily — the majority being migrant workers — but home-based businesses, selected food retail outlets, hardware stores, optical shops and food manufacturing firms will be allowed to reopen on May 12. Suburban malls catering to locals may also see businesses reopen soon.
However, retailers that depend on tourists and office crowds — such as those in Orchard Road and the CBD area — will probably not see their businesses improve until people are allowed to work from offices and global travel is possible again. This might only happen when a vaccine for the virus is found, which is projected to happen in 12 to 18 months.
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