Not All Retail Is Dying But Rental Costs Are Killing Bizs
“Our revenues grew at an average rate of 20 percent in the first few years, but when Covid-19 hit, they went south,” says Alan Lee, founder of local gift brand Klosh.
Launched in 2016, Klosh is a multi-brand gift shop created to provide a “total lifestyle experience”. It offers a wide range of products that give that extra touch.
“My co-founder Shermaine Wee and I wanted to create a brand… where there is a story that is woven into everything we offer.
Klosh has a department specializing in personalized items and sells everything from personalized LED neon lights to “handwritten” cards created by a KLOSH robot.
The brand employs a lean team and works with local designers to create original products.
In one of the most expensive cities in the world, Klosh was able to open six outlets in just four years.
The franchise gained ground among younger demographic groups and was approached by overseas retailers with opportunities for expansion.
“(But) these countries are now in a dire situation due to Covid-19 and owners are not reacting enough in these difficult times,” notes Alan.
Retail brands bite the dust
It is common knowledge that the retail industry was in crisis, even before Covid-19.
International brands like Forever 21 and Barneys New York have filed for bankruptcy and closed hundreds of stores, heralding fears of a “retail apocalypse.”
Singaporean multi-brand retailer Naiise withdrew from commitments such as the Design Orchard storefront to recoup their losses.
The brand has reportedly been late in payments to its suppliers and has closed three points of sale since January 2020.
Covid-19 catalyzed the decline. In Singapore, retail sales, down for more than 16 months, hit a record high in May.
The decline in revenues continued well into the second phase of Singapore’s reopening.
All sectors continued to record declines in income in June, according to data from the Singapore Department of Statistics.
Discretionary goods were the hardest hit, and the leisure goods sector fell 40.7%.
Integrate retail and e-commerce
While it looks like the retail business is dying, it isn’t. In fact, that is changing.
Businesses can bring wet markets to e-commerce platforms and even automate kopi brewing.
However, the jury is still out on how far digitization can replace the in-store shopping experience.
Online brands are creating physical stores to attract consumers. This includes brands like Nike and Zalora, which run pop-up stores to engage customers and “re-energize” physical retail.
Businesses are learning that both online and offline presence is optimal. “We want KLOSH to be successful in both (spaces),” says Alan.
The key is to integrate the two while providing the audience with innovative retail experiences. This includes upgrading the store, implementing technology in the form of integrated marketing channels, and delivering new digital payment options.
Reduce retail losses
Instead of a retail death, what is happening is more like a massive downturn in retail.
The Covid-19 pandemic has resulted in a record vacancy rate of 8.0-9.6% as tenants pull out of major shopping centers.
Covid-19 has made it almost mandatory for any business to have an online presence if it is to survive the retail drought. Yet it takes time for retail businesses to make the leap.
Currently, Klosh’s main source of income continues to come from its physical outlets.
At the same time, it is accelerating its pivot towards omnichannel marketing strategies, through platforms such as Shopify.
Like most businesses that are adapting to Covid-19, Klosh has turned to e-commerce. The brand has extended its digital presence, training its employees in digital marketing strategies.
During the initial outbreak of the pandemic, point-of-sale sales fell by 80%, and Klosh outlets now have only three stores. However, the brand managed to pull out when the lease expired to reduce its losses.
“Covid-19 is waking me up,” says Alan. “With God’s blessing, we have adapted well to the pandemic.”
Tenants Argue With Landlords During Covid-19
“Our experiences with homeowners during this pandemic made me think about our retail strategy of having more stores in Singapore,” notes Alan.
Prior to Covid-19, Alan said he faced ‘ever-increasing rent’ from landlords. The malls are said to have asked for rent increases of up to 40 percent when the contract is renewed.
Covid-19 has not prompted landlords to lower rental prices. The Singapore Tenants United For Fairness group and the Singapore Restaurant Association were among the groups that expressed their displeasure with the owners’ “pied-à-terre” for rent relief in early 2020.
In February, the Singapore government released a budget of S $ 4 billion giving homeowners a 15 percent reduction in property tax. The hope was that the discount would translate into lower rents for businesses – but it didn’t work.
In April, the government later waived property taxes up to 100 percent for qualifying properties, and new law was passed to require landlords to pass discounts on to their tenants.
However, landlords dragged their feet and social media was teeming with complaints from tenants about the delay in rent relief.
A long-standing battle
Observers have pointed out that the brawl between landlords and tenants is not specific to a Covid-19 economy.
Asymmetric power dynamics have been going on for a long time. By nature, landlords tend to have more power over tenants. Practices like Real Estate Investment Trusts (REITS) encourage landlords to focus on rental extraction rather than the welfare of tenants.
“Aggressive rent-seeking behavior” is understandable in shopping centers that invest heavily in the maintenance and modernization of their properties. But the behavior has been picked up by other owners.
Retailers pay exorbitant amounts of money under popular gross rent models, which extract a percentage of in-store sales.
Rent has risen to S $ 36,000 for a store along Orchard Road. More than a fifth of the commentator’s total sales went to its owner in 2018, up from 15% in 2015.
The overall power imbalance between landlords and tenants extends to everything from contract terms and conditions, to asymmetric access to information on shopping center profits versus tenant rents, according to an article by CNA.
Rallying against their owners, the newly formed Fair Rental Framework Industry Committee (FTFIC) released a 64-page article to the government on May 21, outlining 15 recommendations for fair rental laws.
At the end of June, the housing assistance framework was put in place to help SMEs. Qualifying SMEs can receive up to four months exemption from base rent for qualifying commercial properties.
What is the fate of retail?
Digitization tends to be used as a blanket statement, presented as the answer to the problems of retailing in an economy stricken by a pandemic.
But the answer is not so clear.
While retail remains essential for businesses, it is not possible to suggest wholesale adoption of “digitization” as a balm for all our problems.
“In my opinion, it’s always important to maintain a brick and mortar retail presence,” says Alan.
“(But) I believe when the dust settles the retail landscape will change drastically and irreversibly, customer behavior will change and there will be a whole new world. I am preparing for this.
Featured Image Credit: Klosh
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