Asia Inc May 93

BUSINESS: Singapore's retail glut

May 1993

Blood On Orchard Poad
Brutal Competition From Japan, Malaysia and Indonesia is Hurting Singapore’s Famed Shopping District


Singapore. The stores are still crowded on Orchard Road. Tourists walk about proudly carrying their first video cameras, assured they will not get mugged. Most everything imaginable is on display and for sale. Singapore’s image as the shopping paradise of Southeast Asia remains strong: The Singapore Tourist Promotion Board (STPB) is happy to tell everyone that 87 percent of overseas visitors engaged in shopping last year, and that more than 93 percent rated the variety of products as excellent or good. But the hustle and bustle along the streets of Singapore’s famed shopping district hide what is happening inside the newly refurbished Palais Renaissance shopping center. Its owner, Yamasin Enterprises, was banking on a steady clientele of the super-rich and well-heeled. Only 34 exclusive labels (Dunhill, Gucci, Chanel, Versus and others) were to occupy the five-story property. But today the shoppers are scarce. The air is sepulchral. Salesgirls spend more time polishing their nails than their accents. Yamasin is reportedly trying to unload its white elephant for $79 million. At least two other Orchard Road properties are also rumored to be up for sale. Teh Ban Lian, managing director of retail and restaurant giant Emporium Holdings (Singapore) Ltd., admits, The market is saturated, and 1993 will be lackluster for retailers. The undercurrent of fear on Orchard Road is palpable. From increased competition to changing tourism demographics to higher wages, store owners in one of Asia’s best-known shopping havens are finding the going increasingly tough. With retailers from Japan muscling in and new stores in Malaysia and Indonesia siphoning off customers, Singapore’s $10 billion retail industry is facing one of its most critical moments.

As historians look back at the 1990s, they may attribute the decline of the Orchard Road shopping district to the confluence of six long-term trends: Mega Malls: Singapore’s brand-new, 66,000-square-meter Takashimaya Shopping Centre, billed as the largest department store in Southeast Asia, is the latest part of a Japanese retail invasion launched by the likes of Sogo, Tokyu, Daimaru, Yaohan and Isetan. The store expects revenues of $185 million in its first year. There will be blood on Orchard Road. The Japanese are going to kill everybody, says an influential retailer unwilling to be named. Close on Takashimaya’s heels, Hong Kong’s Lane Crawford Holdings Ltd. will pitch in with a stand-alone pyramid-topped store of 19,800 square meters which will certainly entomb some smaller players. Isetan of Japan Ltd. has opened a second major Singapore store opposite Lane Crawford. Further south, the Suntec City shopping mall project will add another 60,000 square meters of retail space between 1994 and 1996. Collectively Singapore’s retail space will increase by 690,000 square meters over the next four years a 57 percent increase. Glut is a mild way to describe the oncoming slack: Demand for retail space has risen about 7 percent annually in Singapore in the past few years, but supply is going to jump 10 percent annually, according to Knight Frank Cheong Hock Chye and Baillieu Property Consultants Pte. Ltd. Suburban Flight: Hedging their bets, some alarmed retailers are fleeing to the suburbs. Most prominent is Northpoint, a $62 million joint development of Centrepoint Properties Ltd. and Goodman Fielder Asia Holdings Ltd. in Singapore’s farthest suburb, Yishun, where the gleaming, squeaky-clean Mass Rapid Transit ends. On Northpoint’s heels, First Capital Corp. is setting up Kovan Centre in the suburb of Upper Serangoon. Bishan, a northern suburb, will have Junction 8, another massive complex. Changing Demographics: Steven Goh, managing director of Singapore department store Metro Pte. Ltd., grows wistful as he recalls the boisterous days when the streets of the city were littered with superyen. Japanese tourists would begin pounding Orchard Road from early morning, queuing up in front of Metro to buy Louis Vuitton bags. In the afternoon they’d devour sushi and teppanyaki; in the evening take a cycle rickshaw down Serangoon Road for a sanitized feel of India; at night flood the karaoke bars. But now the yen has fallen and recession-hit Japanese tourists are scouting around for cheap bargains. Chee Wai Ping, general manager of Scott’s Shopping Centre on Orchard Road, says Japanese visitors now spend $308 per visit to shopping centers, down from $924 just a few years ago. That is, if they come at all. Recently released statistics from the STPB show six consecutive months of decline in Japanese arrivals, a month-on-month drop of 12 percent. Says a manager at a high-fashion boutique: There was a time when the Japanese bus would arrive, and they’d buy the whole store. Now they look around and buy a couple of small items, if at all. With the Japanese economy on the ropes, new growth markets for Singapore lie in such apparently unlikely big-spenders as mainland Chinese, Russians, Burmese, South Africans and visitors from ASEAN. Significantly, ASEAN visitors spend per capita $646, higher than Germans, Australians, British, American, Hong Kong Chinese and Taiwanese. Says an analyst with a brokerage firm: That’s not the profile Singapore wants, but it is an adjustment the industry has to make. Neighborly Competition: The glut in retail space is spreading beyond the border: Jakarta, Kuala Lumpur and even Johor Bahru now boast their own swanky malls. In Kuala Lumpur, the existing space of 511,000 square meters will swell another 696,000 square meters by 1995. Sogo is building a 10-story department store, the tallest in Southeast Asia. Further transforming Kuala Lumpur will be the City Centre project and the Pernas Sogo complex, both scheduled to open 1995. Johor Bahru, once dismissed as a hick town, now plays host to two Singapore-style malls Plaza Kotaraya and Plaza Pelangi which compete with prices 30 percent to 40 percent lower than in Singapore. Even after factoring in Malaysia’s tariffs, the strong Singapore dollar makes shopping in Johor Bahru a bargain for Singaporeans. (Though not an easy bargain. Try driving back to Singapore on a Sunday evening.) Jakarta, too, competes with Singapore on price. A Canon bubblejet printer is cheaper in Jakarta, as is a Panasonic video camera, according to Jakarta retailers. And a pair of Levi’s which costs $55 in Singapore sells for $18.50 in Jakarta. ASEAN tourists may find fewer reasons to come to Singapore, some Indonesian analysts say. On the upscale side, Jakarta now boasts Plaza Indonesia, a joint venture of leading Indonesian groups including Bimantara (in which President Suharto’s children have an interest) and Sinar Mas. The plaza has more than 100 brand-name shops in an area of 17,000 square meters, with the biggest draw being Sogo. It attracts as many as 60,000 visitors a day, swelling to 100,000 over the weekends. Some Singaporean analysts discount the Indonesian challenge, pointing out that wealthy Indonesians continue to flock to Orchard Road. Indeed, expenditures by ASEAN tourists in Singapore remains high. But Indonesia, with 182 million people and an expanding middle class (estimated at 5 percent of the population), has numbers on its side. With as few as 200 department stores, 275 supermarkets, 40 plazas and 150 traditional markets, Jakarta is underserved for a city of 8.5 million. Says Plaza Indonesia’s former general manager, Diane Byrnes: It is true that for years Singapore was the shopping center for wealthy Indonesians, and still is to a lesser degree. But since the inception of Plaza Indonesia, the outspend to Singapore has decreased significantly. Higher Costs: The steady surge of the Singapore dollar has hurt, but what worries retailers most is the Singapore government’s decision to levy a 3 percent goods and services tax (GST) on most transactions starting next April. Says Gwenda Loong, business development manager at C.K. Tang Ltd., the famed Orchard Road department store: The amount is not important; the idea is. Singapore has been known to be duty free, and the tax hurts. What also hurts is an estimate that some 25 percent of GST revenue will come from tourists. The Singapore Retailers’ Association (SRA) has been active: It has asked the government to consider refunding the GST to bona fide tourists and appealed for the removal of the 5 percent import duty on luxury items. And while increased retail space has helped to depress rents (down 25 percent in 1992), staff poaching by the big Japanese department stores is drastically increasing salaries. Takashimaya alone has lured hundreds of staffers from Orchard Road stores. A salesgirl who once took home $432 a month can now command at least $525, and in some cases $740. Regional Diversification: As conditions within Singapore tighten, store owners are hedging their bets by expanding from their traditional retail base. Says Scott’s Chee: Competition for getting Asian franchises is strong. There is a mad scramble to get designer names. And the population base in Singapore is not growing, so everyone is trying to get regional franchises. While Scott’s hasn’t gone regional yet, it sank $3.1 million into redesigning the store as a haven for yuppies, with Guess, Chomel and The Body Shop inviting the young professionals. Upmarket watch retailer Hour Glass Limited has invested in Malaysia, Indonesia and Australia. Explains Managing Director Jannie Tay: We saw this coming. Competition within Singapore was hotting up, and the dollar kept rising. The local market was getting highly saturated, and we are dependent on tourist trade. So we decided to move out that was the only way to survive or to grow. F.J. Benjamin & Sons Pte. Ltd., which owns franchises for Guess, Lanvin, Gucci and Fendi, is expanding throughout the region. C.K. Tang is investing about $58 million to set up a 14,900-square-meter store in Kuala Lumpur.

Despite these gloomy indicators, not all the news on Orchard Road is bad. Pidemco Land Pte. Ltd., a subsidiary of the Singapore government’s investment authority, has spent more than $17 million to upgrade and reposition Orchard Point shopping mall, and is devoting about $25 million to retrofitting Funan Center, Singapore’s most popular computer center. SRA Executive Director Penelope Phoon is upbeat: The presence of the big boys in international retail will make Singapore even more attractive and sharpen our competitiveness. F.J. Benjamin Managing Director Frank Benjamin is equally optimistic. The only real competition Singapore has is Hong Kong, he says. The question of saturation point for Orchard Road has been discussed for 10 years. With more affluence, shopping opportunity has increased and the expenditure per head continues to rise. What are we worried about? The STPB remains bullish, projecting 4 percent to 6 percent growth in tourism for 1993. Singapore expects 6.8 million visitors by 1995, up from the present 5.9 million annually. Its tourist receipts continue to show no signs of abating, estimated at $5.23 billion for 1992 and $7 billion by 1995. To keep interest in Singapore high, the government plans to market the island-state as a tropical paradise with a multi- racial culture. A major focus will be on ethnic enclaves like Arab Street, Little India, Malay Village and Chinatown. In addition, the quays, with their distinct riverside ambience of pubs and outdoor entertainment, will be developed at a cost of $34 million. Cynics feel that as with other redevelopment projects in Singapore, these too will have a sanitized air of contrived cheerfulness. But the plans address some of the points raised by the SRA, whose own task force found that Singapore’s markets had a clinical image and lacked variety. While a major shakeout in Singapore’s retail sector is inevitable, reports of Orchard Road’s death remain exaggerated. Says Benjamin: Nothing can replace Orchard Road for at least another 10 years. Wang Look Tsui, director of Jones Lang Wootton Property Consultants Pte. Ltd., says the competition will be good for the industry it will change the way shopping centers are managed and marketed in the region. There will be niche marketing, positioning of the product and greater attention paid to the needs of the customers. Says Phoon: We are used to adapting to the dynamics of change. The arrival of new players does not mean that the locals will lose out. Singaporean businessmen, who have made a fetish of their competitive economy, should be the last to cry wolf when real competition comes in. And with greater competition, the real winner will be the consumer.