The new buzzword that drives the retail scene today is experience.
Singapore's retail market though is facing one of its most challenging times since 2014. With declining retail sales, mounting cost pressures amid economic slowdown, changing demographics of shoppers and competition from e-commerce, retail occupancies and rental performance have suffered yet another blow as seen from last week's data released by the Urban Redevelopment Authority (URA).
URA's retail rental index for the first quarter of this year is into its ninth quarter of consecutive decline. Islandwide vacancy stock reached 5 million sq ft or 7.7 per cent, which is equivalent to the size of about five VivoCities (the largest shopping mall in Singapore). The slightly more upbeat tourist arrivals and spending last year have offered little reprieve to retailers, as many remain unprepared for the new disruption from demographic change and the advent of new technologies that are set to shake up the retail business in the coming decade.
Millennials, defined as those born between the early 1980s and 2000, are the largest generation in Singapore's workforce today, making up about 22 per cent of the resident population. Millennials are demanding consumers who expect more selectivity, personalisation and customisation in their products and services, as compared with previous generations within the same age group. Given the millennials' distinctive upbringing in the digital age, retailers will have to adjust and evolve quickly to keep pace with their changing needs, interests and tastes.
New technologies are also vastly transforming consumers' shopping experience. Today's smart consumers are a lot savvier, having been exposed to a multitude of options offline and online, and are firm believers in word-of-mouth and online reviews.
In addition, with consumers heading online in droves, bricks-and-mortar retailers will have to try even harder to bring customers back into their stores.
So what are the emerging retail trends of a future shopping mall? How should retailers adapt to the paradigm shift?
INSIGHTS AND CHANNELS
One trend will be how landlords and retailers make use of technology.
Take, for example, the area of predictive commerce. In a world that is constantly connected, landlords and retailers are investing in technology such as artificial intelligence to gain insights into shoppers' behaviours and preferences at particular locations and particular times. Predictive retail could happen any time in the purchasing process - before, during and after a purchase. Knowing the shoppers by heart will make interaction and transaction more efficient and enjoyable.
Disruptive technologies will change how businesses work in other ways. Just like an equivalent of Airbnb, online platforms are now providing new channels for landlords and small merchants to list and rent short-term retail space respectively. Storefront, for instance, has helped to match more than 1,000 merchants to retail spaces in US, London, Paris, Amsterdam and Hong Kong. The platform offers everything from full retail stores that can be used as pop-up shops to shelf space in boutiques available on a temporary basis.
Take technology another step further and we could even envisage an imaginary retail store. Virtual (VR) and augmented reality (AR) have the potential to change how retail stores are defined as they could bridge the gap between the online and physical worlds into a single integrated platform.
VR engages the shopper in a simulated world, while AR makes virtual objects appear as though they are in the real world. China's e-commerce giant Alibaba has been a pioneer of the VR and AR experience. US merchant Macy's partnered with Alibaba in its Singles Day shopping fun fair last November, selling affordable headsets that allowed Chinese shoppers to shop virtually at Macy's New York flagship store. Other brands such as Target, Costco, and Tokyo Otaku Mode are also collaborating with Alibaba to create a virtual shopping experience.
VR currently has high barriers to entry as it requires shoppers to invest in a headset or controller that have yet to become common household items. On the other hand, AR technology is more accessible as it only requires a smartphone.
Retailers need to recognise that digital is the way to go across the full value chain. Consumers today can easily shop in the comfort of their homes with their smartphones and tablets. For instance, the Singapore Tourism Board uses WeChat and Baidu Connect with other online travel services and social review sites to reach out to independent Chinese travellers.
We are already seeing some of the impact of technology as retailers try to cope with a shortage of manpower.
Robotic technology is the way to go for a small island such as Singapore, to ease the manpower crunch and lift productivity. There are flying drones at Timbre @ The Substation that take plates of food and drinks to patrons. In addition, we could see retailers use customer-facing robots that are designed to find products among the stockpile and deliver them to customers. This way, front-line retail employees can allocate more time to interacting with customers, instead of spending effort and time on day-to-day manual tasks.
Technology will also change the way payments are made.
Payment systems have evolved with time. In the past year, Singapore has become one of the leading markets in the world for contactless payments, with more than four million Visa payWave transactions in a month. According to Visa, transaction volumes jumped close to 70 per cent year-on-year last year for contactless payments through Visa-issued cards.
In China, Alibaba has even pioneered a VR payment system that works by the recognition of a shopper nodding his head.
While technology may be disruptive, tech firms themselves may well find themselves as tenants of retail players.
For example, e-commerce giants could be the equivalent of tech giants such as Google and Facebook, which are undeniably the market darlings for office leasing, given that their space requirements are in the hundreds of thousands of square feet.
In the context of retail space, e-commerce giants have the financial capacity to open a mega showroom, stocking all kinds of merchandise under one roof.
This is not new in Southern California, where Amazon's physical store acts as a way of "showroom-ing" - so shoppers can browse, touch and test a product before buying the item online. Besides showcasing products sold on Amazon, the store is also a magnet for complementary retailers, riding on the traffic of the e-commerce giant. It would not be surprising if these e-commerce showrooms potentially take over the department stores of today.
Apart from e-commerce giants, even crowdfunding platforms could contribute to the retail sector.
Last year saw Kickstarter, a crowdfunding platform for creative projects, enter Singapore's bricks-and-mortar scene. Under Kickstarter, interested people or investors can pledge a sum of money to help fund a project and, in return, potentially receive the finished product once the idea has been successfully curated. With its latest store in Millenia Walk, creative and innovative projects now have a physical showcase platform, which allows investors to preview the product before making a purchase.
Retailers will have to understand the critical importance of experience to their customers.
The mall of tomorrow will be anchored by food and experience as they are unlikely to be replaced by online options. Restaurants, cooking classes, pop-up vendors, food delivery to lockers, speciality food stores, food trucks - these concepts could displace the traditional notion of a food court, by evolving as a community gathering place.
New developments in Singapore are catching up on this trend. OUE's Downtown Gallery mall, which is expected to open its doors next month, features a 4,000 sq ft social kitchen equipped with 10 cooking stations. Interested parties can book the stations via an app or online. The landlord is also creating an auto deli where office workers are able to order food and pick it up at the assigned locker.
Artbox Singapore, the local version of Bangkok's hipster market which offers a diverse range of innovative food concepts with live music performances and Thai street art, became the talk of the town among local shoppers when it came to Singapore last month.
Customers will also play an important role in terms of promoting a retail business.
Satisfied customers can now take on a more active marketing role via social media as the Internet becomes a highly collaborative space, given that social media has such an assertive presence in people's lifestyle today. The concept, also known as affiliate marketing, can already be seen in the food and dining industry.
Today, even when we visit a foreign country and are clueless about what to eat, we can always go to some food app and ask for a specific cuisine at certain locations ranked by popularity. In future, more and more customers will rely on reviews or recommendation by word of mouth via their peers. Some retailers are even rewarding customers for spreading the word, which can in turn help retailers maximise customer engagement.
It is clear that the traditional retail model is inadequate in today's context. Physical stores are less of a point of sales, but a point of experience. All is not lost, though, as long as they evolve to stay relevant and continue to be an important part of the customer's experience.
•The writer is the director and head of research at real estate consultancy Cushman & Wakefield Singapore.