Cut shop rents, pleads retail chief

Source : Straits Times - 3 Sep 2008

Retailers are struggling as rent has skyrocketed despite downturn, says SRA president

High rental levels at shops must come down to allow retailers to survive, Singapore Retail Association (SRA) president Jannie Tay warned yesterday.

In a heart-felt plea, Dr Tay said the biggest challenge for local retailers today is the struggle to pay rent, which has ’skyrocketed despite the slower economy’.

She was speaking to about 100 retail heads at the Singapore Retail Industry Conference, which was jointly organised by SRA and enterprise agency Spring Singapore.

Dr Tay, who is also the vice-chairman of watch retail chain The Hour Glass, said: ‘Traders are worried that many of us could have over-extended ourselves by signing up pricey leases (in the past two years that) we were told by the landlord was the market rate.’

But some of those rental levels appear to now be 30 to 50 per cent above the prevailing market rate, she added, and ‘evidence is beginning to suggest that the retail economy cannot sustain such hikes’.

Spring Singapore’s director of retail, furniture, textile and apparel, Mrs Kee Ai Nah, said the rises are ‘just a function of supply and demand’.

But Dr Tay believes the increase is the result of a chain of costs being passed upwards - starting with rising land prices.

‘Basically, the Government keeps on increasing tender prices for land,’ she told The Straits Times.

A second factor was the influx of big, brassy brand names from overseas. These companies are paying top dollar for the most premium of prime spaces, she said.

They can afford these rents as they have ‘deep pockets and brand names, better margins and profit’ - but this simply drives up the prevailing rate for others.

Dr Tay also said sales in stores are now down 20 to 30 per cent, so rental levels ‘have to come down 20 to 30 per cent’ too. She was blunt when asked how many retailers have expressed anxiety over the issue to the SRA, saying: ‘Everyone.’

Dr Tay also cited Department of Statistics’ figures for June, which showed that overall retail sales for the month, excluding motor vehicles, fell 6.4 per cent year on year.

But would an easing of rental levels necessarily save the day for all struggling retailers?

Not everyone in the industry agrees that expensive spaces alone would spell a shop’s downfall in these tough times.

A director of a local fashion company, who declined to be named, said: ‘Of course, today, anything that lowers the cost of retail operations would help. But if we see that other outlets are performing reasonably well, we can’t go to the landlord (and demand action).’

He added: ‘The acid test is the next six months. If things are really bad by the end of this year, a lot of retailers will be scrambling. It’s going to be dicey.’

Dr Lynda Wee, a retail expert who has a doctorate in retail marketing, even questioned whether rent was the real reason behind falling profits.

She said: ‘I think we’re losing not just because of cost reasons. We’re losing because of competitiveness.’

The Government is urging all parties to talk these concerns through.

Senior Minister of State for Trade and Industry S. Iswaran, guest of honour at the conference, advised retailers, developers and landlords to all have ‘ongoing dialogue’ to sustain business performance and competitiveness.

This includes working to extend stores’ operating hours during the Formula One Grand Prix later this month, as visitors will want to shop and dine after the night race. This way, retailers can thrive ‘even as (they) face challenges from a less sanguine global economic outlook’.