Service sector continues to adapt amid uncertainty

Nationwide events such as the Affordable Art Fair played a part in lifting the mood in the retail sector, says Singapore Retailers Association president R. Dhinakaran.
Nationwide events such as the Affordable Art Fair played a part in lifting the mood in the retail sector, says Singapore Retailers Association president R. Dhinakaran.PHOTO: AFFORDABLE ART FAIR SINGAPORE

The outlook for the service sector - a crucial powerhouse of the local economy - remains uncertain in the second half of the year.

The downbeat mood detected in interviews with various services firms is in line with bearish sentiment among retailers, food and beverage (F&B), and transport and storage services firms in a Singapore Department of Statistics survey in April.

In response to the challenging times, companies say they will have to stay nimble by adapting to changing circumstances.

That might mean adopting technological innovations to add value or raise productivity, or turning challenges such as Britain's looming departure from the European Union into growth opportunities.

Last year, about three-quarters of Singapore's economic output came from the overall service sector in the wholesale and retail trade, finance and insurance, business services, and transport and storage industries.

Segments aimed at private consumption face uneven growth and pressure on several fronts, according to industry players. Meanwhile, firms that provide services to other businesses are also reporting a mixed bag.

TOUGH TIMES AHEAD

Landlords are converting more lettable area from retail use to F&B. Unfortunately, as consumer numbers are unchanged, the average revenue per F&B outlet drops. At the present marginal level of profitability, this will likely push many businesses to being loss-making. For the rest of the year, we see a major consolidation of the local F&B market.

MR STEEN PUGGAARD, 4Fingers chief executive, on the challenges that F&B firms will face in the second half of this year.

RETAIL LOOKS BRIGHTER BUT F&B FIRMS STRUGGLE

The retail sector here has seen an uptrend over the first half-year, as tourist arrivals from Asia continue to increase, said Singapore Retailers Association president R. Dhinakaran.

"The slight upbeat mood is also likely due to strategies adopted by retailers unveiling their spring and summer collections as early as late March via closed-door events, offering exclusive privileges to drive sales," Mr Dhinakaran said.

He added that nationwide events such as the Affordable Art Fair could have played a part as well.

But F&B firms noted a quieter scene for the first half of this year, with similar prospects for the second half. Many F&B brands highlighted a manpower crunch as a key challenge to operations.

Foreign worker levies push up manpower costs, making it challenging to hire employees, said Mr Anthony Chan, founder of the 11-outlet Coffee Hive.

Local fast-food chain 4Fingers' chief executive Steen Puggaard noted: "Landlords are converting more lettable area from retail use to F&B. Unfortunately, as consumer numbers are unchanged, the average revenue per F&B outlet drops.

"At the present marginal level of profitability, this will likely push many businesses to being loss-making. For the rest of the year, we see a major consolidation of the local F&B market."

Mr Puggaard also highlighted that home delivery services are growing rapidly, but "delivery companies are fighting for market share by passing only a small part of the cost to consumers while charging the restaurant a steep commission".

FIRMS LOOK TO INNOVATIVE TECHNOLOGY TO STAY AHEAD

But there is also a silver lining as companies seek to adopt innovative business models and productive formats to remain competitive.

"We have developed a 4Fingers mobile application allowing customers to order and pay online. Their phones replace in-store buzzers. People can order before reaching our stores and arrive to pick up their orders," Mr Puggaard said.

"Thus, we can redeploy our cashiers to spend more time interacting with customers."

Mr Chan offers an optimistic view: "Rental fees at shopping malls are dropping as retail space is increasingly being occupied by F&B. This actually benefits F&B firms."

He expects a 30 per cent increase in revenue this year compared with last year, and intends to open three new outlets this year.

MIXED PICTURE FOR HOTELS

In the accommodation sector, while larger hotels appear to have healthier growth, the picture is less rosy for smaller players.

Compared with last year, demand for four-star and 41/2-star hotels has grown steadily this year, aided by quality offerings at such hotels, according to Ms Valerie Loy, marketing communications director at Hotel Vagabond Singapore, a luxury boutique hotel.

However, capsule hotel Wink Hostel's director Allan Lee pointed to problems that smaller firms face.

"One issue is the decline in room rates due to an oversupply of hotel rooms. Three to four years ago, our room rates were about $50. Now, rates have decreased to $30 to $35," he said.

Singapore Tourism Board data shows a 4.8 per cent year-on-year increase in room stock last year, bringing the inventory to 63,850 rooms across 413 hotels.

Ms Loy noted an expected influx of new rooms this quarter and the next as well.

Overall, the accommodation sector is expected to keep growing for the rest of the year, especially with key seasonal events ahead such as the Formula One race and public holidays, noted Ms Loy and Mr Lee.

Mr Lee said: "As we are in the budget tourism industry, we expect business to continue to grow. When the economy is weak, budget hotels are the last to be hit.

"People still desire to travel, but they may opt for cost-saving options instead."

OIL PRICE SLUMP CONTINUES TO HIT LOGISTICS FIRMS

Those in the logistics sector are continuing to be hit by factors such as the oil price slump, but are looking for technology-based solutions to compensate.

Global supply chain logistics company Yang Kee Logistics' chief executive Jos Raaymakers said: "For 2017, we still expect marginal improvements, but we also expect the market to be more competitive and margins to be compressed."

He added that Yang Kee is turning to cloud-based technology to improve productivity and scalability.

"We have invested significantly in the past year, implementing new operational and finance (and) ERP (enterprise resource planning) systems, and will continue to do so in the coming year."

Mr Ken Ngan, managing director of CK Shipping, said: "All the while, it's been all about price wars, where everyone wants to get lower rates and lower costs. I think it's time to look at a new angle - how we can value-add on logistics services, instead of just trying to lower prices."

He added: "We could probably look at things like the IT platform, with which we could support customers and create a win-win situation, such as taking over supply chain inventories."

Similarly, Bok Seng Logistics has seen revenue in its project logistics division drop "by double digits" in the first six months of this year, compared with the same time last year.

"The most urgent (challenge) for our industry is to quickly adopt our national transformation map to make our business more efficient and productive," said group chief executive Dave Ng.

This could include ramping up reliance on automation, "even robotics such as robot pickers, (or) self-driving trucks", he added.

BRIGHT OUTLOOK FOR LEGAL AND ACCOUNTING SERVICES

The future is rosier in legal services and accounting, with industry players upbeat in their assessment of prospects across various sectors.

Lawyer Vincent Lim of Vincent Lim & Associates said the property market is perking up again and "for the first half of this year, the number of initial public offering (IPO) projects was better than last year".

Mrs Vivienne Chiang, founder and managing partner of accounting firm KYC Group, said that the volume of business now compares well with the same period last year.

"We've got a lot of small and medium-sized enterprises coming to us for consultancy, to look at how technology can help them," she said. "Start-up activity is quite vibrant."

Mr Robson Lee, a partner at global law firm Gibson, Dunn & Crutcher, echoed the sentiment, telling The Straits Times: "For myself, it's been a busy half-year. There have been a lot of restructuring, takeovers and mergers."

These involve not just Singapore companies, but the Singapore units of global firms as well, he said.

Mr Lee is excited about potential growth in novel sectors such as financial technology and e-commerce.

Ms Stefanie Yuen Thio, joint managing director of corporate law firm TSMP, summed up the situation: "While the Singapore market continues to be choppy, we have seen increased activity in a number of important segments."

Public mergers and acquisitions and equity-capital markets look upbeat, with more IPOs in the pipeline, she said. "The attractive stock price valuations mean that investors see value in quality listed companies."

But when it comes to the oil and gas sector, she pointed to an increase this year in corporate rescues and cross-border restructurings, thanks to the rout in oil prices.

Mr Robson Lee summed up the outlook as a positive one for the corporate sector, mainly because "last year, there was less certainty because we weren't sure whether Brexit was going to go through, or who would be president of the United States".

Now, he anticipates more Brexit-related business, as clients prepare to move offices or adjust to new regulatory frameworks.

A version of this article appeared in the print edition of The Straits Times on July 07, 2017, with the headline 'Service sector continues to adapt amid uncertainty'. Print Edition | Subscribe