Staying ahead of the retail curve

Source : Straits Times – 4 Jul 2009

WHILE shoppers can flex their muscles by choosing where to spend their hard-earned cash, shareholders are showing that they can force mall managers to stay ahead of the retail curve.

It is no coincidence that among the first malls to embark on renovations were those backed by listed companies or real estate investment trusts (Reits) – in other words, entities with investors demanding a return on their money.

The need to meet dividend payments and distribution targets for their unit holders and investors have driven managers to smarten up their malls, improve the store mix – and raise rents.

Wisma Atria, built in 1986, was first to undergo an extensive revamp in 2004 to keep it up to speed with the fast-changing retail mix on Orchard Road.

The mall is 74.23 per cent owned by Starhill Global Reit of Malaysia’s YTL Group.

It was the first mall to take advantage of an Urban Redevelopment Authority (URA) scheme that allowed it to have a ‘pop-out’ glass facade, as well as external escalators taking shoppers directly to Food Republic on the fourth floor.

Mr Kevin Chee, senior vice-president of asset management at YTL Pacific Star, told The Straits Times: ‘Wisma Atria boasts 123m of prime Orchard Road street frontage, and we are actively exploring ways to heighten the visibility of the stores to derive maximum mileage for our tenants.’

In fact, Starhill announced last week it was looking into raising $337.3 million via a rights issue and using some of the money to add up to 40,000 sq ft of retail space to Wisma Atria. It plans to push the frontage even further out towards Orchard Road and convert some carpark space into retail space.

Ngee Ann City next door, which is 27.3 per cent owned by Starhill, has also had a finger on the retail pulse since it opened in 1993.

Long before the latest round of rejuvenation started, it had duplexes for jewellery brands Tiffany, Bulgari and Cartier.

In December 2007, it announced that another two of its luxury tenants – Louis Vuitton and Chanel – were going to double the size of their Orchard Road-facing flagship stores at the Takashimaya Shopping Centre.

A spokesman for Toshin Development Company, a Takashimaya subsidiary that manages speciality shops at the mall, said: ‘Duplexes are not new for us, but an ongoing development according to tenants’ needs and desires for expansion.’

And Paragon Shopping Centre, owned by Orchard 290, a subsidiary of Singapore Press Holdings, is no laggard either.

The mall, which was merged with the old Promenade in 1996, is prized as a hot spot for international designer brands such as Gucci, Bottega Veneta, Tod’s, Prada and Ermenegildo Zegna.

In October, it will unveil duplex stores for five luxury labels, including a five-storey facade for Gucci.

While brands with deep pockets are splashing out at these malls, other retailers struggling to maintain their bottom line in the recession have accused mall managers of ’squeezing them for higher rents, even though they cannot afford to pay them’.

YTL’s Mr Chee, however, retorted: ‘Like any other business concern, we have a duty to our owners to deliver returns.’

Reits collect rental income from mall tenants and distribute it to unit-holders.

Frasers Centrepoint Trust said: ‘While we have a responsibility to ensure adequate returns to shareholders, it is certainly not in our interest to see our tenants fail. Rental increases are by no means unduly onerous, as they usually work out to annual increases of 2 per cent to 3 per cent, well in line with the national inflation rate for the past three years.’

Mr Gabriel Yap, senior dealing director at DMG & Partners Securities, said: ‘Reits are no different from normal property developers as landlords. If a Reit consistently underperforms as a landlord, other Reits will be very happy to swallow it.’

Clearly, no one wants to be left behind.

As Mrs Sng Ngoi May, director of Orchard 290, which manages Paragon, put it: ‘We are just moving with the times. We don’t take our customers for granted and have to tell them we’re not dated.’