Stung by acute challenges in the last decade, the gloom pervading the retail sector may soon be lifting in several Asian cities.
The ubiquity of e-commerce has long been blamed for the doldrums, and there are some chilling figures underpinning it. Research from JLL and Singaporean authorities found that some 6.3 million sq. feet of retail space in the city-state might become redundant in 2020 due to online shopping.
There are other contributing factors adding to retail's poor performance, such as changing consumer expectations and spending patterns, automation and outdated strategies.
But things may be looking up.
In the first half of 2017, retail rents in Southeast Asia increased 1.3% year on year after a lackluster 2016. The improvement came mostly from slower rental declines in mature markets like Singapore and Kuala Lumpur. There is a sense of cautious optimism thanks to a slew of high-profile openings in the Lion City: Japanese lifestyle brand Muji opened its biggest outlet; Comme des Garcons' Dover Street Market caused much fanfare; and Harvey Norman opened a two-story outlet store.
In Bangkok, international and local retailers are still expanding, especially those in food and beverages. Leading downtown centers such as Siam Paragon and CentralWorld -- where some 50% to 60% of foot traffic comes from tourists -- are being buoyed by the influx of Chinese tourists, who spend 41% of their travel budget on shopping, according to the Tourism Authority of Thailand.
In efforts to cater to evolving consumer preferences, both local and foreign, these centers are embarking on large-scale renovations to bring new F&B brands and concepts to the market. As tastes change, local purveyors are ramping up supermarket offerings across the country. In Bangkok, The Mall Group has three high-end Gourmet Market supermarkets and is launching a fourth at the Lat Phrao subway station. Meanwhile, Central Group recently launched a new supermarket-anchored retail format known as Tops Plaza, targeting second- and third-tier provincial markets.
In Hong Kong, one of Asia's top shopping destinations, the retail sector is slowly emerging from a two-and-a-half-year slump, with retail sales falling just 0.6% year on year. Retailers are now looking to take advantage of lower rents, which had fallen by some 40% since peaking in 2014.
JLL did a survey that revealed 62% of international and local retailers plan to open new stores in Hong Kong next year. And half of the 50 retailers surveyed believe the worst is over and are confident Hong Kong's retail market would recover next year.
China's top-tier cities of Shanghai and Beijing are seeing more spending on luxury brands after a three-year decline following an anti-corruption drive. It was reported that some tenants in premium shopping mall Shanghai Plaza 66 saw a 50% growth in revenue, with the mall showing a 23% increase in rental revenue.
Adapting to change
Amid these silver linings, retailers are learning to navigate the waves of change by investing in pop-up shops, new concepts, savvier merchandising and omnichannel distribution as they realize the need to build a more robust and dynamic retail platform.
Landlords are also adjusting to this new landscape, offering more flexible and creative leasing terms to tenants since retailers can now push for more favorable conditions, such as shorter lease lengths and the amount of space they occupy.
Data will play a bigger role in shaping the new retail experience. Using data analytics, mall operators can pinpoint high-traffic areas and peak times, optimize the shopping experience, create an engaging retail mix, and decide what rents to charge.
A customer's smartphone can be a powerful data tool, as about 90% of shoppers use their phones to compare prices, check product information, and read online reviews. This offers retailers a better way to connect with customers, such as sending push notifications for deals.
Experiential, multifaceted consumption will become the norm, as customers today want a retail environment that caters to them and their lifestyles. A good example is Tokyo's new upmarket Ginza Six, which collaborated with Mori Art Museum to install a selection of artist Yayoi Kusama's trademark pumpkins in the atrium. The complex further boasts a Noh theater, digital installations by TeamLab and a book store by Tsutaya Books specializing in art publications.
There is no doubt retail is in flux. But it is far from over. Like many industries, it is streamlining. Positive changes are afoot, and the retail sector will look and feel different from what it used to be. Retailers and mall operators who see where opportunities lie will be able to come out of this patch more resilient and successful than before.
Anthony Couse is the Asia Pacific CEO at JLL.