Retail crunch: no need to panic … yet?

Source : Today - 6 Mar 2009

ARE retailers on the verge of crisis or not? As their representative body cries out for help, shoppers who rub shoulders in crowded malls on weekends may be wondering.

And at least one major landlord insists, there is no reason to panic, and no justification for an across-the-board cut in rentals.

Last week, the Singapore Retailers Association sounded the alarm bells Sales have dropped 20 to 30 per cent and some 20,000 jobs could be lost, if rents weren’t slashed.

The odd pocket of distressed tenants appears to bear this out - at Far East Plaza, as many as 20 shops have been in arrears since the start of the year, and a bunch have petitioned landlord Far East Organization for a cut in rent.

But the bigger picture could be more complex, and in an interview with Today, CapitaLand Retail chief executive officer Lim Beng Chee called for “a measured way of handling the crisis rather than sending panic (signals)”.

Citing statistics from the Monetary Authority of Singapore, Mr Lim pointed out that Singaporean households, who are traditionally conservative spenders, retain considerable buying power. “I’m not saying things will be rosy. Yes, there will be difficult times, but we must also ask what are the fundamentals.”

CapitaLand, the largest retail landlord here, owns 14 shopping malls under its real estate investment trust (Reit).

Ahead of its first-quarter results next month, the listed company could not reveal its tenants‚ average takings this year, which it tracks on a monthly basis.

But a spokesperson said levels were similar to those of previous months, in which most tenants did well in spite of lower discretionary spending, because when people get cautious about spending, they tend to buy “things you are familiar with” and “look at value”, Mr Lim said.

For whom the cash registers ring

Indeed, in past recessions, the earnings of supermarkets and fast food restaurants have actually increased as consumers “downgrade their spending”, business don Catherine Yeung pointed out. “It‚s not that they have no money at all. They can still make discretionary consumption, but they give it a more deliberate consideration,” said the National University of Singapore associate professor.

In the last three months of last year, spending at CapitaLand’s malls on jewellery and telecommunication equipment fell by 16.3 per cent and 23.6 per cent respectively, compared to the corresponding period in the previous year.

Yet, sales takings of the supermarkets and leisure and entertainment outlets grew by 15.9 per cent and 13 per cent respectively.

With 80 per cent of CapitaLand’s shopping malls catering to necessity shopping, Mr Lim stressed the need to ensure its investors enjoy “steady returns during difficult times”. “Reducing rentals when tenants are doing very well is not the right thing to do.”

Disagreeing, SRA executive director Lau Chuen Wei said the landlords were not looking “at the full picture”.

Alluding to the plethora of sales and promotions in which retailers are “slashing their prices like never before”, Ms Lau said: “That may drive customers to their stores and increase their takings, but it does not translate to better margins because sometimes they are even selling below costs.”

Small-timers FLOUNDER at Far East Plaza

While Mr Lim noted that “experienced and seasoned” tenants have the know-how to cope with the latest downturn, the same could not be said for some tenants at Far East Plaza, known for its smorgasbord of start-ups selling fashion apparels and accessories.

Far East Organization owns the first level of the strata-titled mall; other shops are leased out by individual investors. Tenants said takings have dropped by more than half.

Twenty stores have defaulted on rents, compared to five for the whole of last year, said Mr Charles Yue, a retail shop specialist for Ginza Real Estate who acts as the middleman for the various landlords and tenants.

When Today visited Far East Plaza yesterday at lunchtime, shutters were down at several shops. Some that were open had put up posters to advertise for new lessees.

One tenant, who wanted to be known only as Ms Lim, said she was in rental arrears of about $12,000 for her two apparel shops.

“If this goes on, we can only last another 1.5 months. But if I close my shops, I would have to pay a penalty for terminating my contract earlier,” said the 27-year-old.

One landlord, a retiree, said he had already reduced his rentals by 5 per cent. But he was not willing to trim further, simply because there is “still demand”. His previous tenant left just last month, but he has already found a new one.

Meanwhile, 35 tenants have petitioned Far East Organization. The petition, a copy of which was obtained by Today, did not state how much they hope rentals could be cut by. But Mr Goh Dung Kiang, who has incurred losses on his two shops after the Chinese New Year, hopes for “at least 30 per cent”.

When contacted, an FEO spokesperson said it would pass on the property tax rebate and work with the tenants on the issue of rentals, “as (the tenants) are key to the viability of our malls”.

So is this an isolated spike in the number of small-time retailers going belly-up?

Having heard enough pleas from SRA’s members, Ms Lau said: “These are retailers which have been in existence for more than 10 years, well-established brands with multiple stores … and they are all struggling.”