Under threat: No end to retailers’ woes in 2015, analysts caution

Are traditional brick-and-mortar shops still viable?

Singaporean retailers looking for a reprieve from the country’s muted retail climate will have to wait for quite some time before their woes come to an end. Retailers are already struggling with escalating costs and manpower dearth, a trend which DBS warns will continue well into the next year.

According to DBS, further foreign labour restrictions coming in July next year will add to retailers’ cost pressures and will further push retailers to consolidate and downsize operations to better-performing stores in order to remain profitable.

The report adds that retail REITs will weather the storm considerably well, while suburban malls will face tougher headwinds.

“The push towards increased productivity by the Singapore government has raised operating costs, eating into retailers’ margins. In addition, changing consumer patterns – increased propensity to travel and the growth of popularity of online shopping (e-commerce) has also turned a portion of the consumer dollar away from the traditional “brick and mortar” shops. These factors have led us to question the sustainability of traditional retail, and whether landlords’ existing leasing strategies (high fixed rent component, 3+3 year leases) can still be maintained in this more muted retail climate,” stated DBS.

 Here's more from DBS:

Given current trends of (a) labour shortages, (b) rising labour costs, and (c)  future labour reductions, it appears that retailers will need to  consolidate their operations in order to maximise their own profitability.

As retailers seek to selectively close underperforming stores and shift workers into better performing stores, we reckon that they will choose to remain in malls that are (i) sufficiently diverse to facilitate trip-chaining or cater to a variety of interests, (ii) large enough to attract higher levels of shopper traffic, and (iii) located close to transport hubs, thereby making them more accessible to shoppers.

Furthermore, we expect the consolidation process to intensify over the next year, as retailers seek to comply with
reduced foreign worker quotas by July 2015.