Singapore's retail sector is critical to making the island a major tourism hub and boosting its economy. With tourist arrivals down by over 7 per cent this year, Singapore's allure as one of Asia's best retail destinations is declining.
Ironically, some of the factors that made the Republic successful in the past are now hindering its retail growth.
Singapore used to be one of the few locations in Asia to offer a "house of international brands". Now, cities such as Shanghai, Beijing and Jakarta provide similar brand assortments to their local shoppers, who make up a large share of Singapore's tourists.
Instead of becoming brand builders, retailers have grown by signing up as many international brands as possible. Add to this a cookie-cutter approach to developing malls.
Singapore's malls currently offer similar types of stores, as landlords try to maximise walk-ins by offering something for everyone. As a tourist, you feel if you've seen Orchard Road, you've seen it all.
Improving productivity (and profitability) of retailers is critical for the success of Singapore's retail. Large Singapore retailers are 35 per cent less productive than similarly sized retailers in Hong Kong, partly due to structural factors that our retailers cannot control.
For example, Singapore does not have a true suburban area. This impacts the average rents retailers pay. In London and Hong Kong, the rent differential between prime locations and heartlands is 70-80 per cent. In Singapore, this is under 50 per cent, limiting retailers' margins and their ability to invest and price competitively.
Yet, productivity lags cannot be attributed to structural factors alone. Singapore's retailers haven't been able to evolve their business models to reap scale benefits.
For example, improving same-store sales is a proven way to drive productivity.
However, since 2009, 60 per cent of retail revenue growth in Singapore was from store expansion, not same-store sales. Turning scale gains into productivity gains has also proven challenging.
Singapore retailers improve productivity by only 1.5 to 2 times as they evolve from micro-SMEs (under $1 million revenue) to crossing the $10 million revenue mark, whereas Hong Kong retailers with similar growth can show three to eight times productivity growth.
Singapore's retail sector needs to take a fresh look at its strategy and implement moves that revitalise its unique value proposition.
MARKET SINGAPORE CULTURES
First, break away from the current "house of international brands" mentality and create a differentiated retail brand. For example, New York and London promote their cosmopolitan status while Delhi and Istanbul market the traditional shopping feel.
Singapore is uniquely placed at a confluence of multiple cultures. Bringing the Peranakan, Chinese, Malay and Indian cultural elements to the forefront of the shopping experience can make Singapore a unique retail destination again.
This will also help to "de-templatise" the shopping experience. Retail zones can be marketed to reflect distinct positioning and themes.
Manhattan is an example: SoHo has its arty, bohemian charm; 5th Avenue has its premium brands; and Columbus Circle, a young and chic ambience.
The impact of these differentiated zones is that tourist shoppers stay longer in New York, spending more per visit.
Successfully offering such differentiated experiences hinges on building Singaporean brands into internationally recognisable names and using them to expand overseas. Local brands such as Charles & Keith, Scanteak, and Kwanpen have successfully expanded abroad.
For more retailers to succeed, they must define what "made in Singapore" really stands for: Is it the stamp of quality, cutting-edge design, or multicultural fusion?
Retailers will need to recruit brand managers and build consumer insight as well as marketing capabilities.
Second, develop shopping clusters.
SME (small and medium enterprises) clusters provide small and micro businesses with scale economies at the local level. Hong Kong's jewellery cluster, for example, compensates for the absence of individual scale.
Each store in the cluster offers different products, as some specialise in jade, some in modern "office wear" designs and others in traditional gold jewellery.
The cluster's size drives footfall and makes store economics attractive, while each store's differentiated offering prevents cannibalisation within the cluster.
Third, retailers must improve operational efficiency and store productivity. For example, in France, fashion retailer Uniqlo reduced staff size by 10 to 15 per cent. Through rigorously mapping common in-store activities, such as sorting merchandise and applying price stickers, they scheduled every bit of employee time to perform tasks efficiently.
The Hong Kong retailer Mabelle uses its growing scale to develop consumer insight capabilities. Their store managers understand their shoppers' profiles (local vs mainland Chinese) and customise assortments and sales pitches to match customer needs. The result: smaller stores with higher sales success rates.
E-commerce is another way to drive productivity and expand internationally. In South Korea, one of the best-developed e-commerce markets in the world, e-commerce and mobile commerce, or m-commerce, retailers are two to four times more productive than bricks-and-mortar businesses. Building such a proposition requires an entire e-commerce ecosystem, from a workforce with the technical skills to develop viable e-commerce platforms, to a critical mass of SMEs and consumers willing to use them, to the logistics infrastructure to fulfil the customer's orders.
The Singapore Government can work with first-moving retailers and platform builders to support the development of an e-commerce ecosystem.
Spring Singapore has already taken a step in the right direction by initiating a programme jointly with SingPost to provide back-end warehousing and delivery infrastructure to SMEs looking to sell online.
Singapore retailers need to focus on differentiating themselves from other retail cities. Brand building, improving store productivity and using technological innovation can help create a thriving sector with international allure.
The Government can play a pivotal role to orchestrate new e-commerce ecosystems, seed retail clusters and build differentiated shopping zones.
Singapore can be a great retail destination again, for Singaporeans and tourists.
•Jeffrey Chua is Senior Partner and Managing Director, and Aparna Bharadwaj, Principal, of Boston Consulting Group, Singapore.