When 162-year-old departmental store operator Robinson, weighed down with a net deficit of $186.3 million, shuttered the doors of all its stores across Singapore one last time, the retail industry could only watch helplessly at the demise of yet another of its own. Not long after that, Metro Holdings, another long-time operator in the local departmental store scene, publicly mulled if it should close its last two outlets here and concentrate on its property business instead.
The bleak outlook of Singapore-listed department stores can be seen in their share prices. As at March 2, Metro is trading at 72 cents, down 44.3% from its September 2017 peak of $1.13 while Isetan (Singapore), which closed at $4.27 on March 2, once traded as high as $6.95 back in 2007.
However, Robinsons’ downfall could very much be due to its lack of competitive spirit and will to innovate and upgrade. On the other hand, Metro had expanded into property long ago, and even while it mulls the exit as a retailer, it recently took up hefty stakes in students’ accommodations as well as industrial and logistics properties.
For the other retailers, even if they did not undergo similar big changes, at the very least, they are trying to maintain their relevance with new ways of retailing. Afterall, consumers are still buying things. It is a question of where and when.
“Departmental stores offer a curated experience that remains relevant for in-store shoppers,” says Warren Hayashi, Asia Pacific president for global payments platform Adyen, referring to his company’s 2020 Agility Report that found that 59% of Singaporeans prefer to shop in an actual physical store.
“However, shopper expectations are continually evolving, and all retail stores need to adapt. The stakes are higher in today’s retail market with the accelerated shift to online. This means departmental stores in Singapore must rethink their overall brand experience, ensuring they are present and offering consistent seamless experiences across online and offline channels,” he adds.
To be sure, Amazon Singapore’s country manager Henry Low says, “Consumers will continue to expect a wide selection to choose from, great prices, and ease of shopping convenience. The past year of safe distancing has resulted in fewer people heading to physical stores to avoid crowded spaces and many consumers have tried online shopping for more of their shopping needs. This has led to customers realising that online shopping is not just a safer, but also a more convenient option with greater selection and the ability to quickly compare prices to meet the variety of their needs.”
Uplifting experience
Although the Covid-19 pandemic has hurt footfalls and revenues of the overall retail scene in Singapore, it is also a catalyst for retailers to try harder to stay relevant in the market.
According to Amazon’s Low, the demand for e-commerce is expected to accelerate, but online retail sales remain to be a small proportion of the total retail sales in Singapore, indicating that physical retail sales and spaces still play a significant role in the retail industry in Singapore.
Indeed, when Robinsons vacated its two large stores in Heeren and Raffles City, it did not take long for retailers BHG and Courts to swoop in and fill the spaces.
However, for bricks-and-mortar retailers to stay relevant and rise above the competition, digitalisation efforts must also be implemented in physical stores to improve consumer experience.
For example, traditionally, Hayashi says the sales staff of departmental stores would write up vouchers for products, which the shopper would have to bring to designated cashiers to complete the transaction. Once payment is made, the consumer would then have to go back to the staff with the receipt to collect the purchased product. “This whole process goes against the seamless purchase journey and convenience that consumers are after today,” he says.
Before the pandemic hit, BHG was a rather traditional departmental store relying heavily on its loyal heartland regulars. BHG’s CFO Jheeva Subramaniam tells The Edge Singapore the company is still committed to serving these existing customers.
However, times have changed. “We’ve recognised the need to cater to a new, younger, more digitally savvy audience whose shopping habits and needs are vastly different from the older generation. These shoppers may be price sensitive but they are also sensible shoppers looking out for quality and branding as well,” says Subramaniam.
In June 2020, BHG launched its e-commerce store as part of its wider three-year-long “reinvention” plan. “Experiential offerings, curated products, and emphasis on offering international, designer quality products and brands at affordable prices straight to customers doorsteps are just some of the ways we keep ourselves relevant in the changing retail landscape,” says Subramaniam.
And, as BHG started to see an increase in younger shoppers and sales figures, it opened a new departmental store concept One Assembly, which took over part of space vacated by Robinsons at Raffles City.
“One Assembly is a creative collaboration between us and our long-time partner CapitaLand to reinvent and innovate retail experiences. We hope to be able to become a destination for customers to indulge, discover and engage in retail therapy,” says Subramaniam, who adds that shoppers will be able to enjoy experiential in-store offerings and a wide range of products at the new outlet.
Later this year, BHG also plans to roll out a unified commerce solution to transform its front- and back-end systems to facilitate a more seamless and personalised shopping experience; an upgrade to its online channel to include virtual shopping experiences; and to include a more personalised, engaging and seamless shopping experience to reach a wider consumer base, says Subramaniam
DBS Group Research thinks BHG’s new concept store will put a futuristic spin on regular traditional departmental stores, enabling it to reimagine the shopper experience despite being late to the game.
So, will One Assembly capture the eyes, hearts and wallets of consumers and carve out a new path of survival for other stores to follow?
Meanwhile, Courts, which is a multi-brand consumer electronics and furniture retailer instead of a departmental store, will be taking over all six storeys of the mega space in The Heeren, which was previously Robinsons’ largest outlet in Singapore. When all 189,000 sq ft space is fully decked out around 1Q2022, the Heeren store will replace the Tampines megastore as the chain’s flagship outlet.
Due to its product mix of electronics and furniture, Matthew Hoang Duc Thanh, group COO of Courts Asia and country CEO of Courts Singapore, says that the demand for its products has remained robust through 2020, spurred by the rapid adoption of work-from-home as the pandemic prompted customers to revamp and refresh their home office. It saw especially strong demand for printers and computers. “As a result of the strong performance, we have the confidence to invest in the new Heeren store,” says Hoang, who adds that this new physical outlet will benefit the company’s overall omnichannel strategy.
Back in 2019, Courts was acquired by Nojima, a Japanese electronics retailing chain, in a deal that valued Courts at $106.1 million. The Tokyo-listed parent company is a household brand in Japan and known for being located in suburban areas, catering to the heartlands. But the location in Orchard Road was anything but suburban. “All our stores share a lot of synergy. We want to provide more options to our customers who can choose different concept stores to visit and whichever location is most convenient for them,” explains Hoang.
According to Hoang, when Courts started in Singapore back in 1974, its first outlet was at Orchard Road. Hence, Hoang looks forward to expanding the brand’s presence there, “going back to where it all began and raising the bar further”.
REIT-ail therapy
Singapore is now in Phase Three reopening of its economy, so social distancing and safe management measures have been relaxed. As such, the retail scene is likely to see a recovery this year, according to several analysts, although it will not fully return to pre-Covid times until international travelling is once again allowed.
One way for investors to play the recovery in retail is not to buy the retailers but the landlords. To that end, several retail S-REITs have garnered “buy” calls now that analysts are noticing an uptick in the market.
For example, DBS likes Lendlease Global Commercial REIT. “LREIT is well-placed as our top Orchard pick given its 39% exposure to the F&B sector where we see immediate upside to normalisation, future-positioned mall with a continuous effort to scale its omnichannel share a step ahead of Starhill Global REIT and SPH REIT, 30% stable revenue contribution from office asset Sky Complex, and forward yield of 6.6% that is attractive on a risk-to-reward perspective,” say the analysts.
For 1HFY2021 ended December, LREIT reported gross revenue of $41.6 million, up 3.2% y-o-y. Net property income was up 1.6% y-o-y $30.4 million. It declared a DPU of 2.34 cents, up 0.8% y-o-y. Portfolio occupancy remained high at 99.7% as at Dec 31, 2020, with a long weighted average lease expiry (WALE) of 9.3 years by NLA and 4.9 years by gross rental income (GRI). Approximately 2% and 6% of the portfolio’s NLA and GRI remain for renewal and review, respectively, in FY2021. Besides DBS, PhillipCapital and CGS-CIMB Research too have “buy” calls on this stock.
Another retail REIT favoured by analysts for its pure suburban portfolio is Frasers Centrepoint Trust (FCT). Although FCT’s Causeway Point in Woodlands may be affected if Metro decides to pull the plug, DBS does not see this as much of a threat. Keeping its “buy” recommendation on FCT, analyst Geraldine Wong says, “While we understand that Metro is an anchor at Causeway Point, we see income risk being further minimised with the contribution from the PGIM portfolio. Given that Metro occupies a relatively desirable part of Causeway Point (levels 1 to 3) with good frontage, we believe that if Metro does exit the mall, a new anchor can be easily found.”
CGS-CIMB Research, PhillipCapital, Maybank Kim Eng and UOB Kay Hian are recommending investors continue to accumulate units in FCT.
In its latest 1QFY2021 ended December2021 business update, FCT reported that 53.6% of its NLA has been allocated to essential services such as supermarkets and hypermarkets as well as beauty and health.
Shopper traffic remains between 60% to 70% of pre-Covid-19 levels amid safe distancing and mall capacity control measures. But total tenant sales remained stable at near pre-Covid-19 levels.
As at Mar 2, units in FCT are trading at $2.45, down 1.2% year to date.
