WHAT’S IN STORE?
The retail sector’s response to prolonged business slowdown during the circuit breaker period points to new developments that may solidify in the future.
The crowds are back. With the gradual lifting of restrictions covering public places, weekends at local malls resemble the pre-pandemic scenario where foot traffic is concerned. While reports indicate that sales at physical stores remain slow for most retail categories, it may not take long for the crowd to stop looking and start shopping. The temporary closure of shops during the circuit breaker has accelerated migration to digital shops, particularly e-commerce – a development that has served those who already have a presence in such platforms well. However, the said shutdown has seen the end for some brands, raising the question about the future of brick and mortar shops and their future function or retail function. Although the redevelopment of retail buildings into mixed-use hubs does not constitute a market trend, Angelia Phua, Director for Research & Consultancy at JLL Singapore, notices a trend towards the “development of greenfield sites into mixed-use projects with retail components”. In this interview, Phua shares with Portfolio other developments that may provide a clue to what retail will look like in the years to come.
SECTORAL PERFORMANCE
Portfolio: How has the retail sector performed since the circuit breaker was imposed in March 2020 until today? Angelia Phua: Following a subdued 2Q20, investment sales activities picked up in 3Q20 as the economy gradually reopened following the circuit breaker period. Leasing activity also picked up, albeit rather slowly. Generally, retailer sentiment remained weak. Many retailers stayed cautious about committing to leases given sustainability concerns arising from weak consumer confidence amid rising unemployment, uncertainty about the resumption of mass leisure travel and tourism demand, operational capacity constraints, and the possibility of a second COVID-19 wave. However, opportunistic businesses with a long-term perspective capitalized on the availability of choice locations and landlords’ lower rent expectations during this period and committed to spaces.
What were some of the major transactions completed within the sector during the period? How do they compare to year-ago transactions in terms of volume and value? GOVERNMENT SUPPORT Are government measures such as temporary rent relief adequate in unburdening retailers? What more do you think should be done to help both landlords and tenants recover losses?
The government could extend property tax rebates to help landlords proactively working with tenants in supporting them, via the incorporation of more flexible and equitable lease terms, such as the incorporation of turnover rents in the lease structure, during this challenging period. Some of the major transactions include the sale of the remaining 63.11 per cent interest in AsiaRetail Fund by Frasers Property Investments Ltd to FCT Holdings (Sigma) Pte Ltd for close to SGD 1.8 billion. The fund owns retail malls Tiong Bahru Plaza, White Sands, Hougang Mall, Century Square, and Tampines 1. Another notable transaction was the sale of a 50 per cent interest in North Gem Trust, which owns Northpoint City (South Wing), by Frasers Property North Gem Trustee Pte Ltd and FCLAmber Pte Ltd to Bright Bloom Capital Limited for SGD 550.0 million. The government could extend the relief period under the COVID-19 (Temporary Measures) Act beyond the recent one month to help tenants. Following the recent extension under the Act, under the repayment scheme for rental arrears, eligible tenant-occupiers now have until 19 November 2020 to serve written notice to their landlords if they plan to take up the scheme. Tenant-occupiers also have one more month to make their first installment payment, that is, by 1 December 2020. By end-2020, retail businesses will no longer be protected against deferred liabilities, although many are still suffering from dismal retail sales. In 3Q20, transaction volume fell 15.4 per cent YOY, but transaction value rose 98.5per cent YOY, mainly due to the abovementioned major transactions.
DIGITAL VS. PHYSICAL Do you think the mass migration of retailers to online platforms such as e-commerce will continue, or do you foresee it being a short term solution to attract shoppers?
The government measures will alleviate retailers’ cash flow constraints. However, they will not be adequate in fully unburdening retailers, as retail sales for many retailers are generally still weak and below preCOVID-19 levels. Cautious consumer spending due to rising unemployment, a slow recovery in tourism demand, and the ongoing operational capacity constraints, albeit gradually relaxed, continued to impact business earnings. The mass migration of retailers to the online platforms will continue as retailers have experienced the risk of purely physical retail in their business during the circuit breaker period – when physical shops closed temporarily, and they received no revenue – while retailers with an omni channel strategy continued to reap retail sales. Purely physical retailers have also been under pressure to cater to changing customer preferences towards online purchasing.
Government support/grants will further facilitate retailers’ migration to digitalization. If the trend continues, how do you think brick and mortar shops will respond and transform?
Physical retail will digitalize their businesses, adopt an omni-channel retail strategy and/or incorporate delivery services to meet changing consumer preferences, and capture a share in the online sales pie. Businesses could tap on existing programs/grants by the government to facilitate the digitalization process.