Knight Frank Retail Bulletin Q3 2016

Against the softer global and local economic conditions and persistently weak retail spending, competition for the spending dollar has intensified.
As retailers continue to consolidate outlets in order to streamline costs, demand for space has continued to soften and weighed down on retail rents in Q3 2016.
Overall retail scene remained muted in Q3 2016
– Singapore’s consumer confidence entered the pessimistic range. According to the Mastercard Index of Consumer Confidence, Singapore saw a significant decline of 10.7 points in H1 2016 from H2 2015. The degree of decline lagged behind only Indonesia (-14.7 points) and Hong Kong (-12.4 points), of the 17 countries within the Asia Pacific region tracked by Mastercard.
– The overall Retail Sales Index (excluding motor vehicles)(seasonally adjusted, at constant prices) improved by 3.5% m-o-m in July 2016
compared to the preceding month. All retail trades saw improvement with the exception of Food & Beverages, which declined by 1.5% monthon-month (m-o-m) over the same period. However on a year-on-year (yo-y) basis, the overall retail sales (at constant prices) declined by 3.7% in July 2016, with Computer & Telecommunication Equipment (-18.7% y-oy), Watches & Jewellery (-16.6% y-o-y) and Food & Beverages (-9.7% yo-y) trades seeing the steepest falls.
– Employment in the wholesale and retail trade declined by 1.8% in H1 2016 compared to H2 2015. This could be attributed to the weaker retail sales and greater caution in manpower deployment by retailers.
– Total visitor arrivals for the period of January to July 2016 increased by 11.5%, compared to the same period last year, to reach 9.8 million. While visitors from China and Indonesia rose by 49.2% y-o-y and 6.8% y-o-y respectively in the first seven months of 2016 compared to the same period in 2015, visitors from Malaysia dropped by 1.6% y-o-y.
Average island-wide prime retail rents moderated in Q3 2016
– Average Orchard Road prime rents fell for the first time since Q2 2015 on the back of the tougher retail climate.
– Suburban prime rents improved marginally, largely supported by the stable demand from the surrounding residential catchment.
– Prime rents within Marina Centre, City Hall, Bugis, and City Fringe areas held steady compared to the previous quarter.
– On a y-o-y basis, prime rents across all locations declined. This was largely weighed down by the weaker retail spending amid the softened global and local economic performance, which resulted in more tenants working towards downsizing and consolidation of their businesses.
Similar positioning and retail-mix calls for cutting-edge innovations for retail malls
– It is important that landlords perform a critical review of their mall positioning and tenant mixes, in face of rising competition from the ecommerce market, and pressure from more discerning shoppers.
– Landlords have to be willing to think out-of-the-box and break through traditional norms. The similar positioning and retail-mix among shopping malls today mandates for new and refreshing concepts to drive excitement among consumers. Landlords should look at incorporating multi-concepts. For example, a single retail unit could have more than one trade mix, while F&B operators could consider having one concept which operates up to lunch or dinner and introduce another concept thereafter.
– Retail malls have to offer a differentiated and experiential shopping experience in order to attract shoppers. Examples of such efforts needed include the exploration of innovative advertising and promotional (A&P) initiatives, and in-store concepts, to enhance engagement with shoppers.
Growing emphasis on customer service to earn shoppers’ loyalty 
– There is growing emphasis on the quality of customer service to engage and maintain customer loyalty amid the competitive business climate.
– To achieve service excellence, a strong and committed culture has to be established, and echoed with pride in the services delivered by the salespersons standing at the frontline, that goes beyond adherence to the mottos and polices, The effort of fostering and propagating service excellence ought to be closely implemented by the management team of retailers, and supported by both business associations and government agencies
– The unrivalled services of Hai Di Lao Hot Pot, the crowd-drawing restaurant chain, stood out in the highly competitive F&B industry. Since its entry into Singapore in 2012, the well-aligned business and operation model provides superior dining experience to its customers where they are willing to queue for hours.
– Amore Pacific, a South Korea’s cosmetic company that manages popular brands such as Laneige, Etude House and Innisfree, runs on consumer-centered principles. It acquired ‘Consumer Centered Management Certificate’ from Fair Trade Commission in 2012, and strategised to bridge the interaction between consumers and the brands by educating staff on ways to engage and manage their customers, such as to treat their dissatisfaction and complaints seriously
Market Outlook
Challenging retail landscape to moderate rents further
– Average rents in the Central Region are envisaged to fall by 6.0% to 8.0% y-o-y by Q4 2016, while the more resilient prime rents to moderate downwards by up to 3.0% y-o-y in the same period.
– The expected fall in rents takes into account not only the projected weakened demand from retailers, but also the likelihood of landlords readjusting the rental structures to help their tenants tide over down cycles of the market in order to maintain healthy occupancy status.
– An estimated 1,072,000 sq ft of net lettable major retail space is slated for completion in the whole of 2016. Out of this, 38.2% (409,000 sq ft) was ready in the first half of 2016, with the remaining 663,000 sq ft to be completed in H2 2016. In addition to this is the cautious stance taken by retailers towards business expansion, and island-wide occupancy is likely to fall from 92.8% in Q4 2015 to between 90.0% and 92.0% in Q4 2016.