Cautious consumers, falling retail sales, high cost and strong dollar leading to empty malls

Downtown malls face double whammy of too much shop space and too few shoppers

Empty shopfronts and hoardings are not what you would expect to see at newly renovated shopping complexes, and even less so along Singapore's premier shopping street. Yet that is what you will find when you walk into many of the malls in town.

From Orchard Road to the Marina Bay area, malls are struggling with too much retail space, as landlords scramble to attract and retain tenants.

Stretches of vacant units can be seen in Claymore Connect, the former Orchard Hotel Shopping Arcade. It reopened last October after a revamp and two F&B units have already opened and shuttered in the four-storey mall.

 

Over at Shaw Centre, which reopened in 2014 following a massive renovation, about half of the units in the five-storey mall are behind colourful hoardings displaying contact details for leasing inquiries.

Next door at Pacific Plaza - once home to Tower Records and fashion brands Miu Miu and Prada - the same dismal scene beckons. Save for an Adidas Originals store, all units on the ground floor are vacant.

Of course the lack of tenants affects business. Our sales have dropped more than 20 to 25 per cent since we moved here in January.

MR JEREMY LOW, director of Fox Salon in Shaw Centre

Hoardings promising "new exciting stores coming your way" front nine empty units in the five-storey mall. Apart from True Yoga and Bikram Original Hot Yoga on the top two floors which see a consistent stream of people, the entire mall is, ironically, an oasis of calm on most days.

Over at Suntec City, a $410- million redevelopment plan, which took three years to finish, does not seem to have attracted enough tenants to fill up the vast expanse of retail space. One section between Towers 2 and 3 on level three is almost a deadzone. Kiddy rides fill some of the empty spaces. Vacated shops have paper crudely pasted over their signboards and some tenants seem to have left hastily, leaving behind store furniture and display shelves.

A store assistant at a furniture shop on that level, who wants to be known only as Mr C. Ho, 38, says he has seen tenants come and go in just the six months that he has been working there.

"There used to be a spa on this level. It's gone now. There was a bookshop too, but that has also closed. And that toy store a few doors down? It's moving out after just four months," he says.

The Straits Times visited 19 malls on weekdays, in the day, in the Orchard Road and Marina Bay precincts earlier this month and found the same dismal scene of boarded-up shopfronts and dusty, empty units in many malls.

This dire retail pickle has made hoardings with stock phrases "Working to serve you better" and "A new shopping experience awaits" the default decor in many malls.

A handful of hoardings bear the names of confirmed tenants setting up shop, such as American fashion company Michael Kors and international lingerie brand Victoria's Secret at Mandarin Gallery, as well as Mandopop superstar Jay Chou's streetwear label, Phantaci, at Orchard Gateway.

But many hoardings do not tell shoppers what to expect in terms of new tenants.

When asked, the landlords say the hoardings are temporary.

The mall is undergoing a "lease renewal cycle"; they are in the midst of "curating" and "strengthening the tenant mix", they say.

Claymore Connect's management says: "In the current retail environment, newly opened malls are likely to go through a longer gestation period."

In spite of the many vacant units and stretches of hoardings, landlords contacted say their malls have a healthy occupancy rate: Mandarin Gallery says it is 94 per cent occupied while Orchard Gateway is 98 per cent occupied.

Millenia Walk's management says the mall has increased occupancy by more than 20 per cent in the last year and is on track to achieve its occupancy goal of more than 90 per cent by the end of the year.

But talk to the tenants and they tell a different story.

A tenant who wants to be known only as Mr Ho, 52, has a store in basement two in Orchard Gateway.

"We see fewer than 10 walk-ins a day. Some days, we don't even make any sales. We just sit here and pay rent. We are waiting for the contract to end so we can move out," he says. He has two years left of his three-year lease.

Next door at Orchard Central, tenant Michael Chen, 35, says: "From levels one to four, there're so many hoardings because of renovation, it's like a dead mall."

His cupcake shop in basement two has been shut since Chinese New Year even though he still pays rent on his three-year lease.

"We used to get maybe one or two customers a day and that is considered very good. It's a waste to open when there aren't sales. I'd rather close it and cut my losses."

The statistics bear out the gloomy sentiments. Urban Redevelopment Authority data shows that the vacancy rate in the Orchard Road area rose 1.2 percentage points to 8.8 per cent in the first quarter of the year, the highest in five years.

VICIOUS CIRCLE

It is a classic chicken-and-egg situation. Empty and boarded-up spaces give a poor first impression and attract few customers. Low footfall is bad news for existing tenants and fails to attract new ones.

National serviceman Leslie Tan, 18, says he no longer shops at Far East Plaza's first level, which used to be packed with small independent boutiques that appeal to the young and fashionable crowd.

"There are so many empty units that I'd rather go to another mall or go to the higher levels of Far East Plaza where it's more lively," he says.

Cautious consumer sentiments, flagging retail sales, high operation costs and the robust Singapore dollar have made it hard to attract new tenants and retain existing ones. They also cause many to shut, observe retail analysts.

Ms Christine Li, director of research at commercial real estate firm Cushman & Wakefield, says: "Retailers from luxury fashion to F&B are currently facing a triple whammy of muted tourism growth, manpower crunch and the growing popularity of e-commerce, which make it harder to start, operate and sustain a business."

Orchard Road has been especially hard-hit by a dip in tourism spending, which declined 6.8 per cent to $22 billion last year.

Retailers also point to high rentals. While Urban Redevelopment Authority data shows rents have fallen 1.9 per cent in the first quarter of this year, many retailers still feel there is room for rents to -street brands as those in the city .

Unlike in the past, city malls now cater primarily to tourists while the heartland malls service the residents in the immediate surroundings. The entry of Orchard Road-type brands such as Uniqlo and H&M into suburban malls has caused city malls to lose some of their cachet, he says.

His observation confirms an oft-heard comment by Singaporeans who live away from Orchard Road and say they find no reason to shop in town as they can find what they want in heartland malls.

Dr Seshan Ramaswami of Singapore Management University says city malls are suffering from "too much supply chasing too little demand".

The associate professor of marketing education adds that a similar tenant mix in many city malls exacerbates matters.

The oversupply is likely to worsen with more retail space expected to come onstream. This year, a total of 1.55 million sq ft of retail space will enter the market which is 8 per cent higher than last year, says Mr Sim of CBRE.

Cushman & Wakefield's Ms Li warns: "With a surplus of new supply and existing spaces which tenants have pre-terminated adding to rising vacancy level, there will be increased leasing competition and retailers will find it even harder in time to come."

POP-UPS AND FOOD ATTRACTIONS

Landlords are trying various ways to fill quiet aisles, from offering space to pop-up stores to cutting rentals.

Orchard Gateway and Orchard Central offer some tenants rental rebates of between 20 and 30 per cent a month, though many tenants say they had to ask for the rebates as landlords rarely volunteer.

A manager of a store in basement two of Orchard Central who declines to be named says: "From January to March, we got a 20 per cent discount on rent. We have asked for the discount this month as well, but the request is still pending."

Some tenants on the upper floors and basement levels of Orchard Central say that they have been offered makeshift booths on level one, which offer better visibility, as a way to attract customers and boost their takings. Each booth costs between $30 and $50 to rent a day.

A shop manager who declines to be named says that though the booth leads to a temporary increase in sales, it is not a long-term solution.

"We have the booth for a couple of weeks. Our store is in B2, so we want people to come here. We also need more manpower to run the booth and the store at the same time."

Mr Anthony Gan, the executive director of the Singapore Retailers Association, says that landlords must be prepared to offer concessions so that the market becomes more favourable to retailers and consumers again.

Given the nation's obsession with food, some malls have taken to expanding their food and beverage offerings to attract shoppers.

A recent CBRE report shows the proportion of F&B businesses in Singapore malls has risen to an average of between 25 and 30 per cent from 15 to 20 per cent about five to 10 years ago.

Orchard Gateway's chief executive Vincent Soh says F&B generate "greater buzz and foot traffic for the mall".

The mall recently enhanced its level one tenant mix to include new eateries such as Dazzling Cafe, a Taiwanese chain famous for its honey toast, 4 Fingers Crispy Chicken and Kanshoku Ramen Bar.

At Claymore Connect, a Spanish restaurant "with a strong following" will open later this year and the mall is at "contracting stage" with two other F&B players, says a spokesman.

The current tenant mix at the mall is made up of hair salons, spas, childcare services, a couple of cafes and a Cold Storage supermarket. The only retail shops are a tailor and a jewellery store.

Millenia Walk's management has also been courting F&B providers. Kith cafe, the popular brunch spot, opened its fourth outlet at the mall earlier this month.

Last September, chef Raymond Tan, former head chef of Sushi Jin under the Les Amis Group, opened Sushi Murasaki at the mall. The restaurant has been so well received that he will open a Japanese robatayaki and sake bar at the mall in June.

Millenia Walk also recently inked a deal for a 23,000 sq ft fitness and performance centre that will also retail sport performance activewear in the space formerly occupied by homeware chain Harvey Norman. It will open in October.

Other landlords have used pop-up stores to attract new tenants and shoppers. The Centrepoint, Orchard Central and Mandarin Gallery have all hosted various retail pop-up stores in the last year. The Centrepoint currently has at least two pop-up stores - multi-label online retailer Megafash and online womenswear label Dressabelle.

Mr Sim says: "Tenants use pop-ups to test the market. It gives them the flexibility to convert to a more permanent solution. Landlords can rent out vacant spaces and evaluate if a certain tenant type or concept works in their development to draw visitors and spending."

One such successful pairing is between Mandarin Gallery and Beyond The Vines, a home-grown women's fashion label.

The e-commerce label started as a pop-up tenant in December last year and did such good business that it is staying on until the end of May next year, says the label's co-founder Daniel Chew.

BETTER DIFFERENTIATION NEEDED

Dr Ramaswami adds that city malls can no longer be just destinations where transactions are made. They need to reposition themselves as experience providers, offering a spectrum of lifestyle and F&B options.

His suggestions: more differentiation and less cookie-cutter tenant mix.

"They need to be more defined in their offerings, targeting particular lifestyles or age segments, rather than trying to become one-stop mass-market malls. The suburban malls are better suited to that sort of positioning," he says.

On Orchard Road, Ngee Ann City and Paragon are excellent examples, says Ms Li.

"They have their regular client pools and, at the same time, their positioning is very clear and they know their target audience well. Their ability to bring in compelling tenants to add value to the existing portfolio gives them a competitive advantage," she adds.

Millenia Walk has brought in tenants with new-to-market concepts. Last year, it ushered in a new indoor snow sports centre, Urban Ski, which offers indoor skiing and snowboarding classes. The mall's management feels this would "attract Singaporean families who are well-travelled".

Since last December, Mandarin Gallery has introduced "immersive experiences" which include silent yoga and disco sessions, which have been over-subscribed each time, says Ms Patrina Tan, senior vice-president of retail, marketing and leasing of OUE Limited.

Ms Li also calls for a rethink of how retail space could be utilised given the rise of online shopping. "Retailers could migrate all transactions online, downsize their space and have just a check-out counter for customers to pick up their buys."

As Mr Sim puts it: "Consumers in general are fatigued. Shoppers are saturated with a deluge of brands. Retail is currently undergoing some challenges. It really is about the survival of the fittest."

A version of this article appeared in the print edition of The Straits Times on April 28, 2016, with the headline 'Retail in a pickle'. Print Edition | Subscribe