Seeking highs in the retail lows
Retailers, already struggling with e-commerce competition, have been hurt even more by the pandemic. The picture is bleak and there have been casualties. Will the year-end festive season bring some cheer?
Orchard Road is bustling again, as shoppers return with the new habit of whipping out their phones to scan SafeEntry QR codes before entering stores. However, the economic fallout from the Covid-19 pandemic has left a huge casualty in its wake.
After 162 years of storied history — bombs, fire, and economic downturns — the Great Robinsons Sale is no longer. Arguably Singapore’s most famous department store chain, Robinsons will be winding up after six consecutive years of losses and grappling with competition from e-commerce ventures and shifting consumers’ preferences.
“While the pandemic has made several businesses insolvent, Robinsons is a heritage brand that one would have thought could ride out the pandemic. That it can’t, probably suggests that there are some underlying management issues prior to the pandemic,” says associate professor Ang Swee Hoon of National University of Singapore.
In contrast, the annual Nov 11 online shopping fiesta made popular and global by Alibaba Group Holding has broken more records this year. The 11.11 Global Shopping Festival generated RMB498.2 billion ($101.6 billion) in gross merchandise volume during the 11-day campaign from Nov 1 to 11, an increase of 26% compared to the same timeframe in 2019. At its peak, the platform saw a record performance of 583,000 orders per second. Meanwhile, it took only 35 minutes from midnight of Nov 11 for Lazada, the e-commerce giant’s operations in Southeast Asia, to surpass last year’s first two-hour sales, with around three times more participating brands and sellers.
James Chang, CEO of Lazada Singapore, said: “We continue to raise the bar every year and have surpassed last year’s 11.11 sales as of 5pm today. The phenomenal results reflect the excitement in the lead-up to our annual flagship event and the joy that 11.11 has brought consumers, especially in this current climate.”
Are physical retailers then doomed to structural decline?
The damage is done
When Phase Two started, there were some initial monthly improvements. However, as negative headlines of the economy continued to stream in, consumers have remained cautious. Retail sales numbers for September, released on Nov 5, did not paint an upbeat picture. From a 5.7% y-o-y for August, retail sales dropped by 10.8% y-o-y the following month.
“The data reinforced our call that the initial domestic pent-up demand since the start of Phase Two has dissipated,” says UOB economist Barnabas Gan. “Unlike the period between June and August where most key clusters saw robust m-o-m growth on a seasonally-adjusted basis, m-o-m, September’s data disappointed with a broad m-o-m fall across almost every cluster.”
Local retailers are dealing with the challenges in their different ways, but for many, the struggle is real. Before Covid-19 struck, things were looking up for FJ Benjamin (FJB), as it reversed out of the red with earnings of $177,000 for FY2019 after it ditched loss-making businesses. And it also seemed that FJB was able to finally get out of the Singapore Exchange (SGX) watchlist after being on the list since December 2016.
But with Covid-19, things turned south again. For FY2020 ended June 30, FJB was back in the red with a loss of $15.0 million, as revenue declined by 29% y-o-y to $92.9 million. “The coronavirus outbreak in late January 2020 took a heavy toll on the retail industry across Southeast Asia as governments imposed lockdowns and safe distancing measures that drastically reduced consumer spending at retail malls,” notes FJB.
Instead of sticking to fashion and lifestyle brands, FJB is diversifying into the health and wellness sector by adding purifiers and sterilisers to its portfolio, as consumers pay more attention to personal hygiene. The company plans to constantly bring in new and complementary products, as it bets on wellness and hygiene as a growth driver.
However, the issue of exiting the watchlist remains and FJB is not able to meet the requirements in earnings or market value. “Had it not been for the negative impact of Covid-19, the group’s financial results would likely have continued to improve,” the company states.
To this end, FJB plans to transfer its listing from the Mainboard to Catalist, which it believes is a more flexible platform for the shares to trade and to raise funds via placements. “This will also allow the company to explore opportunities for potential mergers and acquisitions to enlarge its current business base and increase profitability.”
Wing Tai Holdings, meanwhile, generated $91.5 million in revenue from its retail business for the year ended June 30, down 38.1% from $134.5 million in the preceding year. Earnings before interest and tax was $6.9 million, down from $40.2 million in the year earlier.
Besides investing in properties, Wing Tai runs retail outlets under brands such as Adidas, Topshop and Cath Kidson in Singapore. According to chairman Cheung Wai Keung in its annual report, Wing Tai’s retail business continued to face headwinds due to weakened sentiments which have been exacerbated by the pandemic. The company is consolidating the retail business to stay relevant and focus on brands that “yield positive returns”. It has launched individual e-commerce sites for the portfolio brands. Cheung did single out a bright spot though: “Uniqlo, our joint venture with Fast Retailing, continues to experience healthy sales.”
Departmental woes
At a glance, departmental store operators have also taken a heavy beating from Covid-19, and Robinsons was not the only one hurting. As it is, before Covid-19 struck, other departmental store players, such as Isetan (Singapore) have been struggling with the highly competitive landscape in Singapore’s retail industry.
“Retailers have seen some respite since June with the start of Phase Two as consumers returned to physical stores, and sales of some discretionary items such as watches, jewellery and recreational goods nearly returned to pre-pandemic levels due to pent-up demand,” notes Maybank Kim Eng’s economist Lee Ju Ye.
“However, department store sales (–35% in August), which also rely on tourist spending, remain significantly below last year’s levels,” Lee adds.
For FY2019 and FY2018, Isetan registered losses of $27.2 million and $13.7 million respectively. And FY2020 could very well be its third consecutive year in the red. Already, it registered a loss of $317,000 for 1HFY2020, compared to earnings of $1.6 million the same period a year ago.
In its 1HFY2020 earnings commentary, Isetan calls the retail environment “very challenging” because of Covid-19 and that the duration is difficult to predict for now. It will aim for better operational performance that includes expanding its product offerings via its online platform. “We will also continue to explore other potential opportunities for growth,” it adds.
Another big name listed retailer is Metro
Holdings, although the company has steadily transformed to become more of a property player on top of being a department store operator. Last year, it sold off all its 50% interest in a chain of Indonesian stores and closed its Centrepoint store in Singapore, leaving it with just two locations: Woodlands and Paragon.
On Nov 12, Metro reported that revenue of its retail division for 1HFY2021 ended Sept 30 was $25.2 million, down from $61.7 million in the year-earlier period. The drop was mainly because of the absence of contribution from its Centrepoint store, which closed last October, and also due to lower sales in the remaining two outlets during the lockdown. There was some support in wage subsidies and rental rebate but overall Metro’s retail business made a loss of $0.8 million for the six months. For the earlier full year ended March 30, 2020, its retail business was $0.2 million in the red.
Year-end holidays
So, the bigger part of the year has been disrupted by the pandemic. As 2020 draws to a close, will the traditional year-end festive season remain the catalyst for a spike in retail activities?
Some analysts are hopeful. “Tenant sales have outperformed shopper traffic so far due to pent-up demand. We expect shopper traffic to continue to improve towards year-end, driven by the holiday season. As the border remains closed, consumers are likely to channel their spending locally,” says CGS-CIMB Research analyst Eing Kar Mei in an email interview with The Edge Singapore.
“Spending from the locals would help to buffer some of the sales vacuum created by tourists but for retailers which rely more on tourists would see more gradual recovery as compared to retailers which target the local markets,” she adds.
PhillipCapital analyst Terence Chua expects a weak recovery as long as Singapore’s borders remain closed. A full-fledged recovery to the pre-Covid-19 numbers might take three, or even four years, warns Maybank Kim Eng’s economist Lee.
However, there might be some light at the end of the tunnel, starting from the year-end. With Singapore increasingly relaxing its borders, the city-state could slowly see some of its tourists coming back. Already, visitors from China are exempted from the Stay Home Notice if they test negative upon arrival. “This is a huge step, given that China accounts for a substantial 19% of total visitor arrivals in 2019,” she says.
But the relaxing of borders is still expected to be very gradual, hence, Singaporeans are likely to spend the holiday season in Singapore. Plus, with some vouchers to be handed out to Singaporeans to boost domestic tourism, the local retail scene is expected to capture a good amount of local spending.
Meanwhile, pandemic, or not, retailers have to keep their game up and ride with the changes, and bring in products in demand and at the right price point — if they are to avoid the same fate as Robinsons. “Tastes and trends will change faster. Competition moves faster too. Therefore, brands have to be agile and be quick to adapt,” says NUS’s Ang.