Despite surging store prices amid high consumer demand and inflation, shoppers are on a retail therapy binge, revitalising Orchard Road’s vibrancy. Singapore’s retail sales are showing a y-o-y improvement, with May witnessing a 1.8% increase to $4 billion in total retail sales and a similar 1.8% increase to $3.6 billion in retail sales, excluding motor vehicles. The city-state’s Department of Statistics reports that most retail trade industries experienced a y-o-y sales boost in May.
In May, the food and alcohol industries saw a sales growth of 24.9%, while cosmetics and toiletries grew by 13.1%, mainly due to increased demand for alcoholic products and duty-free cosmetics and toiletries. Petrol service stations experienced an 18.2% decline in sales, partly due to lower petrol prices. Additionally, sales of recreational goods, supermarkets, and hypermarkets fell by 6.9% and 2.2%, respectively.
Bricks-and-mortar stores are experiencing a rebound from last year’s pandemic slump, as online sales only contribute 11.8% of total retail sales and 13.3% excluding motor vehicles. With international borders gradually reopening, Orchard Road reflects this change — bustling crowds are back, and new shops are emerging.
For example, mainboard-listed fashion retailer FJ Benjamin has launched its latest retail concept, Avenue on 3, at Paragon. The 8,000 sq ft space on Paragon’s third floor takes advantage of the return of foot traffic to physical stores and caters to high-end customers, offering innovative retail experiences, luxury footwear, skincare products, beauty treatments and F&B options.
“The luxury market in Singapore has been remarkably resilient, outpacing the broader market. The population of high-net-worth individuals (HNWIs) in Singapore has increased significantly in recent years, and with rising wealth comes a corresponding increase in demand for luxury goods and services, which bodes well for Avenue on 3’s success in Singapore,” says FJ Benjamin’s CEO Douglas Benjamin.
The retailer’s earnings are already rebounding, with 1HFY2023 ending in December showing earnings of $1.7 million, a significant improvement from the $1.3 million loss the previous year. The positive change was driven by a 26% y-o-y increase in turnover.
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Julius Baer’s Global Wealth and Lifestyle Report 2023 supports FJ Benjamin’s statement, indicating that the city-state might be the most expensive due to rising real estate and car prices, but HNWIs are spending. “Long considered liveable, stable, and cosmopolitan, Singapore is now vying to become a leading global centre for the wealthy. Determined efforts in financial regulation and government policy to attract HNWIs are paying off with a doubling of family offices by the end of 2022 compared to the previous year,” says Mark Matthews, head of research Asia Pacific at Julius Baer.
Avenue on 3 is bringing new life to Paragon, owned by Paragon REIT. The mall is undergoing an impressive transformation, as evident from the 1QFY2023 gross revenue of $42.7 million, marking a significant $2.5 million increase compared to the $39.6 million recorded in 1QFY2022. Paragon is thriving with a net leasable area (NLA) of 718,000 sq ft and a full occupancy rate as of the end of March. During this period, the mall also achieved a 16% y-o-y increase in tenant sales and a 17% y-o-y growth in footfall.
See also: Singapore's headline inflation rebounds to 3.7% y-o-y; core inflation up to 3.3% y-o-y in December
Jaylyn Ong, general manager at Straits Retail Property Management Services — the property manager for Paragon REIT — says Paragon has enjoyed a robust increase in overall retail sales and double-digit y-o-y growth in footfall for 1Q2023. “To attract tourists, Paragon has a Tourist Programme featuring exclusive mall privileges and a specially curated shopping guide showcasing tenants’ offerings,” says Ong, who added that there are also reward programmes for engaging local shoppers via loyalty points and exclusive perks.
Yet, CGS-CIMB Research analysts have a “neutral” stance on Paragon REIT with a target price of $1.01. They believe that the REIT’s distribution per unit (DPU) downside is likely limited in the future. The potential upside from returning tourist spending may be offset by higher debt costs and negative to flattish reversion.
Orchard Road rejuvenation
The Singapore government has been rejuvenating Orchard Road since 2019 with pedestrianisation, enhancing street activities, and improving pedestrian connectivity. Design Orchard provides a space for local fashion designers to showcase their work on Orchard Road, and there are ongoing redevelopments at The Cathay and Grange Road open-air car park, among other initiatives.
In an e-mail interview with The Edge Singapore, a spokesperson from the Orchard Road Business Association (ORBA) shares that the association is upbeat about STB’s efforts to rejuvenate the district. “We are confident that [the] projects… and the launch of new hotels and shopping malls will increase the attractions of Orchard Road for locals and tourists in the coming years,” ORBA says, adding that the upgrading works will likely be progressively completed from 2025.
“Shoppers, diners and other visitors to any areas of interest are always looking for new retail, dining and entertaining experiences. Orchard Road is no exception. We must be on our feet constantly to keep ourselves relevant to the changing times,” the spokesperson adds.
With retail sales trending upwards, ORBA remains cautiously optimistic about the outlook for the retail sector. “We are still seeing positive momentum for tourist arrivals, and we believe that Chinese tourists will return in larger numbers in the coming months as China continues to ease travel restrictions,” says the ORBA spokesperson, who does not expect to return to a pre-Covid-19 high this year.
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In recent years, ORBA has observed a notable trend of strong purchasing by Singaporeans and an increasing influx of wealthy individuals worldwide. This is excellent news for Orchard Road, as it continues to solidify its standing as a top-notch shopping and lifestyle destination.
Retail synergy
As the driving force behind Orchard Road, ORBA advocates for the interests and welfare of businesses in the area: They host events and activities to attract crowds, including marquee events like the annual Christmas light-up, known this year as Christmas on A Great Street. The association is optimistic about Singapore’s tourism industry, stating that its resilience and effective response to the pandemic position the country to recover faster than neighbouring tourist destinations.
ORBA observes a trend of tourists valuing experiences over material items. To cater to this shift, they aim to incorporate more experiential offerings like food, cooking classes and walking tours in the retail options. Ongoing developments, like experiential pop-up stores and cultural events, are also being implemented to enhance Orchard Road’s appeal.
Omnichannel spending
During the pandemic, online shopping thrived with physical shopping restrictions. This led to the evolution of a popular omnichannel retail experience, seamlessly integrating both online and physical spaces.
Research by GlobalData, commissioned by e-commerce giant Amazon, reveals that Singapore is a leader in omnichannel spending, contributing to 57.6% of retail spending last year. It adds: “Despite Singapore being a small and densely-populated city with many physical stores within walking distance, consumers browse online to get details on new and unusual products, feel inspired, and for fun.”
However, local shoppers prioritise their in-store experience and are less inclined to use mobile devices while shopping compared to other Southeast Asian shoppers. Still, ORBA identifies omnichannel as a major retail trend facilitated by technological advancements. Retailers can now deliver a consistent and coordinated experience across all customer channels, utilising data for effective outreach and maximising share of wallet. According to an ORBA spokesperson, retailers leverage technology to cater to customers’ preferred shopping locations and timing.
The GlobalData research forecasts a 21.2% growth in Singaporean omnichannel spending from 2022 to 2026. The report attributes this trend to the easy accessibility of online and offline channels in Singapore, high internet penetration, and a concentrated urban population. The report also anticipates a 13.1% growth in the Republic’s retail sector from 2022 to 2026. This growth is attributed to the country’s robust economic development, which bolsters the stability of the retail sector.
