This year is the year of the e-commerce boom.
Last year, during the beginning and the height of the Covid-19 pandemic, the retail industry struggled as stores were forced to close to control the virus outbreak in Singapore. Several brands struggled to stay relevant as physical shopping activities ground to a halt.
One casualty was the 162-year-old Robinsons department store chain. Robinsons shut its physical doors after six consecutive years of losses, as it struggled with intense competition from other department stores and e-commerce ventures.
While this was happening, several stores rushed to pivot online and are now reaping the fruits of their efforts.
Robinsons perhaps realised the importance of e-commerce a little too late, but it was e-commerce that allowed it to reopen once again. Now, Robinsons has gone fully online, allowing the brand to stay alive and running.
It is time for these companies to do more to grow their online presence, such as pushing online marketing and offering omnichannel solutions to consumers.
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Additionally, with social distancing measures recently further relaxed, Singapore’s shopping district, Orchard Road is once again bustling. And with the current sales and festive season, retailers are getting a boost from shoppers. Traditionally, the year-end period is good for retailers, as consumers spend more in anticipation of their year-end bonuses and for festive gifting.
As it is, according to latest data from the Department of Statistics Singapore (SingStat), the total retail sales in October grew by 7.5% y-o-y and 0.7% m-o-m to $3.6 billion, of which 15.2% represented online sales.
This shows that physical shopping is still very much the preferred mode of shopping, but online sales numbers are growing. In August, the online sales proportion was at 14.1%, which increased to 15.2% in September and remained the same in October. Based on the SingStat data, 15.2% of the online sales proportion were for grocery purchases at supermarkets and hypermarkets, while 51.6% were consumers shopping for computer and telecommunications equipment and 30%, for furniture and household equipment.
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The grand sale
It seems that consumers have now taken to monthly sales occurring on double-digit dates to do their shopping, such as 8.8 on Aug 8 and 11.11 on Nov 11. These sale volumes seem to have surpassed those during local sale campaigns such as the Great Singapore Sale.
The annual Nov 11 online shopping fiesta made popular and global by Alibaba Group Holding has broken more records this year, as it does every year since it started. This year, the 11.11 Global Shopping Festival generated RMB540.3 billion ($115.5 billion) in gross merchandise volume during the 11-day campaign, higher than RMB498.2 billion achieved in the previous year.
A record 290,000 brands participated in the online sale event this year, of which 65% are small- and medium-sized businesses, manufacturers from industrial belts and new brands.
Lazada, the Alibaba-owned e-commerce marketplace in Southeast Asia, also achieved record sales figures, and it took just nine minutes for the platform to cross $11 million in sales. In the first hour alone, over 800,000 products were sold on the platform. This year, the number of LazMall brands and local sellers that took part is 40% more than last year’s.
“The sales and traffic we saw demonstrates Singaporeans’ love for shopping and appetite for e-commerce. We are humbled by the milestones achieved so far, including surpassing last year’s sales by the afternoon,” says James Chang, CEO of Lazada Singapore.
“Our early approach towards working with our delivery partners even ensured that some midnight orders were delivered in the morning. We are glad to see our efforts as a matchmaker for sellers and buyers pay off, as well as the support from our sellers and logistics partners to make this day [Nov 11] a success,” he adds.
Analysts, citing industry data, note that consumers still prefer physical shopping means. E-commerce, while definitely here to stay, will play a complementary role even after the pandemic subsides, they say.
“Many buyers who have grown accustomed to online shopping are likely to stay. Although some of the supernormal growth seen for the sector over the last one year is expected to normalise, we expect the sector to continue seeing a double-digit growth over next few years,” says RHB Research Group analyst Vijay Natarajan.
“Retail industry has been evolving even before Covid-19 but last year has accelerated a lot of structural changes. Omnichannel strategy has now become the key focus of all retailers to increase sales and embrace digitalisation trends,” adds Natarajan.
Prior to the pandemic, Changi Airport’s retail outlets were a non-stop buzz of activity from passengers picking up last-minute gifts on their way home, or loading up on duty-free items upon disembarking. The Changi Airport Group (CAG) has made use of the downtime during the pandemic to “accelerate” its bid to reach out to non-travelling buyers via online means.
“Our business has always focused on serving our customers’ evolving needs, and when the pandemic came about, the same iShopChangi customers who were travelling before, were now non-travelling shoppers. This meant re-evaluating some of our value propositions and building up our competencies to meet this new demand,” says Nicole Foo, CAG’s vice president, online retail.
With Singapore slowly opening up its borders and establishing vaccinated travel lanes (VTL) with several countries, the airport’s retailers can look forward to some reprieve, although it will be some time before business volumes return to pre-pandemic levels, especially with the emergence of the Omicron variant.
Foo says that CAG is readying itself for a larger customer base and hence is preparing its retailers for the upcoming growth. In anticipation of that, CAG launched iShopChangi Seller University: a suite of bite-sized lessons on seller tools, policies and selling tips to help merchants sell better and smarter.
“As we serve a range of customers from travellers, non-travellers and even our own retailers, we will continue to explore ways we can keep providing the same reliable, seamless experience Changi is known for, including safely reintroducing the collection of purchases on arrival — an option that has not been available since Covid-19 hit,” Foo adds.
Stocking up on stocks
While the retail industry as a whole starts to gain back its momentum, investors could take a look at retail REITs to ride this wave of recovery.
For DBS Group Research, this year has been a “year to forget” for retail REITs, as constantly-changing social distancing measures have dampened retail businesses.
Although the Singapore government has on Nov 22 slightly relaxed social distancing measures by raising dining-in and gathering group size up to five, the recent emergence of a new Omicron variant has once again brought about uncertainties in Singapore’s timeline towards an endemic. On Nov 30, the Singapore government announced additional border tightening measures and halted further easing of social measures over Omicron variant fears.
However, potential rental rebates and waivers will be kicking in. The government will be extending an additional half-month of rental waivers for qualifying tenants, bringing the total quantum of rental waivers year to date to two months. Qualifying tenants have stricter terms, requiring a 20% drop in average monthly revenue for those granted a rebate of an additional 0.5 months from landlords.
“We understand that most landlords have at least received the minimum rental waiver quantum, which we estimate to be about one month or up to 1.5 months of waivers on a blended basis prior to this announced extension,” says analysts Geraldine Wong and Derek Tan.
In an Oct 25 note, Wong and Tan prefer Frasers Centrepoint Trust (FCT) and Lendlease Global Commercial REIT (LREIT) among the retail-focused S-REITs; and Mapletree Commercial Trust (MCT) for its “dominant mall positioning”.
Phillip Securities Research’s head of research Paul Chew sees Singapore’s gradual reopening of the borders as an added upside for the retail REITs, especially for the MICE-reliant malls (MICE refers to meetings, incentives, conferences and exhibitions) such as Suntec REIT.
Overall, Chew’s top retail REIT pick is FCT, which the research house has a “buy” call on with a target price of $2.83. The research house believes that suburban malls will remain relevant and resilient due to their proximity to household catchments and the resilience of necessity-driven spending.
Meanwhile, the demand for space in dominant malls remains healthy while sustained reopening visibility should support leasing and rental growth. FCT’s portfolio of well-located suburban malls are expected to draw a disproportionate share of leasing demand.
RHB’s Natarajan believes that the worst is likely over for the retail industry, but the path ahead is not expected to be smooth, especially with some of the support from the government and landlords tapering off. Additionally manpower constraints are getting more pronounced. Hence, he believes that the outlook remains challenging despite gradual easing of restrictions.
“We are currently ‘underweight’ on retail REITs. Our pick would still be FCT for its defensive suburban malls and Starhill Global REIT (SG REIT) on valuation grounds,” says Natarajan, who has a “hold” call on FCT with a target price of $2.45 and a “buy” call on SG REIT with a target price of 68 cents.
On the other hand, Maybank Kim Eng senior analyst Chua Su Tye noted that tenants’ sales in the September quarter recovered ahead of footfall, which were at 55%–60% of 2019 levels, given the retightened safety measures, with fundamentals better for suburban versus downtown malls.
To that end, FCT saw portfolio occupancy improve to 97.3% (from 96.4% in June), with tenants’ sales at 93%–98% of 2019 levels, ahead of CapitaLand Integrated Commercial Trust’s 92.4% for its suburban malls, MCT’s 75%, and Suntec REIT’s 67%.
“We see both metrics being on a positive trajectory in FY2022. Occupancy cost for FCT improved y-o-y to 17.5% in FY2021 (from 19.2%), and while we expect rental reversions will likely be flattish in 1HFY2022, it should improve with further easing of capacities, and as tenants’ sales gain traction,” says Chua.
Photo: Bloomberg
