SPEECH BY MR S ISWARAN, MINISTER, PRIME MINISTER’S OFFICE AND SECOND MINISTER FOR HOME AFFAIRS AND TRADE & INDUSTRY AT RETAIL GLOBAL CONNEXION 2011 “THE RETAIL MIRACLE”, ON WEDNESDAY, 12 OCT 11, 0845 HOURS, AT FAIRMONT BALLROOM, LEVEL 4, RAFFLES CITY CONVENTION CENTRE

Introduction 

Good morning. I am pleased to join you for Retail Global Connexion 2011, and would like to thank Mr Liew Mun Leong and CapitaMalls Asia for the invitation. 

Importance of Retail Sector 

The retail sector is a key part of the Singapore economy. In 2009, the 18,000 establishments in the sector generated $3.8 billion in value-add, accounting for 1.5 per cent of our GDP. They employed 103,000 workers, or 3.4 per cent of the workforce. Beyond the numbers, a vibrant retail sector infuses Singapore with buzz, draws talent to our shores, and fulfils the lifestyle needs of locals. 

Singapore’s retail scene is also a mainstay attraction of our tourism sector. We are renowned as an international shopping destination. In 2009, shopping was the most significant expenditure item for tourists who visited Singapore. At $3.3 billion, shopping receipts represented 36 per cent of total tourist spending. 

Outlook & Opportunities 

Driven by consumer sentiments, retail growth tends to mirror economic growth. The period between 2004 and 2009 is a case in point. As our nominal GDP rose by 7 per cent per annum, nominal retail value-add and turnover increased by 7.2 and 6.9 per cent per annum respectively. In those five years, our retail offerings became more diverse too. Global brands such as Louis Vuitton, Gap, Banana Republic, and Sephora established, or significantly expanded their presence, here. 

Looking ahead, there is much uncertainty in the global economy stemming from the problems in the Eurozone and the US. Yet, while Asia cannot be completely insulated from a slowdown in the West, the Asian growth story remains positive. IMF data published last month projected that EmergingAsia[1]as a whole will grow by a strong 8.2 per cent this year, and 8 percent in 2012. A rising Asia will help Singapore realise our economic growth potential of 3 to 5 per cent per annum in the next decade. That Asian growth will, in turn, help strengthen the prospects for the retail sector.

In particular, our retailers stand to benefit from the rising number of tourists coming to our shores. As Asians gain in disposal income, more will travel to Singapore for leisure, healthcare, education and MICE activities, as well as retail. 

Challenges 

The first pertains to labour productivity – a national concern. Singapore faces supply constraints in manpower, and there is a limit to how much we can supplement our workforce with foreigners. As a result, we need to learn to do more with less. Otherwise, the lack of labour could become a binding constraint on growth. 

This challenge is especially salient to our retail sector. In 2009, our retail productivity was only 41 per cent of the national average. Comparing across countries, in 2007, our retail productivity was about half that of the US, and two-thirds that of Hong Kong. Clearly, there is scope for improvement. 

The second challenge concerns disintermediation in the retail value chain with the advent of e-commerce. In the past, bricks-and-mortar stores served as the end node in the supply chain network. Their key value proposition lay in making final goods and services accessible to consumers. However, disintermediation in the form of electronic commerce has emerged as a keenly competitive alternative channel because of the convenience it offers, and the cost savings it affords. 

In the US, for instance, e-commerce accounts for an increasing share of shop and non-shop retail sales. According to the US Census Bureau, this figure rose from 1.8 to 4 per cent in the 6 years from 2003 to 2009. Anecdotally, travel agencies and bookstores have figured among the biggest losers. In 2009, researchers from the University of Chicago found that the number of travel agencies in the US had dropped by 36 per cent from 1997 to 2003. For bookstores, the corresponding figure was a decline of 10 per cent. This coincided with a period when the proportion of survey respondents who had made online purchases increased from less than 4 per cent to more than 40 per cent. 

The divergent paths of Amazon and Borders offers a salutary lesson, and other retailers ignore it at their own peril. We must expect e-commerce to become more widespread as electronic transactions become more secure and available on multiple platforms. Already, young people – Singaporeans included – are increasingly buying fashion apparel, jewellery, and even fast food through the Internet. To compete, retailers must carve a competitive niche for themselves by going beyond a physical destination to provide a high-touch, unique retail experience. 

Stakeholders, Roles & Strategies 

These and other challenges call for a concerted response from the key stakeholders of the retail sector – specifically the Government, mall operators and retailers. 

Let me start with the Government. In April this year, we committed $86 million to the Retail Productivity Plan, as part of our broader productivity drive spearheaded by the National Productivity and Continuing Education Council. The aim is to increase the nominal retail sector value-add per worker by 25 per cent by 2015. Together with the other Government schemes that the sector can tap, this productivity plan will help retailers sharpen their value proposition and enhance their competitiveness. 

Mall operators too play a significant role in creating a differentiated and distinctive retail experience for shoppers. By optimising parameters like design and layout, tenant mix, promotional events and marketing campaigns, mall operators can provide an integrated shopping experience that exceeds the sum of its individual parts. 

CapitaMalls Asia has done well in this regard with its various malls delivering distinct retail experiences. For example, Funan Digitalife Mall hosts official computer-game launches and IT fairs, to complement its stable of electronics and IT stores. In neighbourhood malls such as Lot One, there is something for everyone – department stores, supermarkets, video-game arcades, libraries, F&B outlets, cinemas and hair salons. This makes Lot One a preferred location to spend a lazy Sunday afternoon with family and friends. 

Finally, there is much that retailers themselves can do to anchor their value proposition and sharpen their competitive edge. These include the use of technology, emphasis on service quality, and worker training. Let me give some examples to illustrate. 

Let me use Atlas Sound & Vision, which specialises in high-end home entertainment and audio systems as an example. Last year, Atlas embarked on a campaign to imbue its staff with a customer-first mindset via experiential learning – a process that required self-reflection and evaluation on the part of the employees. This initiative has raised its mystery audit score from 91 to 99 per cent in the space of one year, and sales have grown by 25 per cent. 

Finally, worker training helps raise service standards and enhances the long term prospects for jobs in retail. A retail professional with good product knowledge and communication skills is well-equipped to advise customers on their purchases and enhance their overall shopping experience. As part of a joint project with SPRING Singapore, CK Department Store – a mass-market retail chain – sent its employees for training at Temasek Polytechnic in areas such as responding to customer complaints, and handling refunds, returns and exchanges. This has contributed to a dramatic improvement in CK’s service standards. The ratio of customer compliments to complaints improved by 54 times. 

Training also enhances the long-term prospects of retail jobs, allowing retail workers to take on positions that are better-paying and in line with their aspirations. This fosters a virtuous cycle in which retail workers remain in their profession, build on their experience, become more proficient in their jobs and move up the career ladder. This benefits retailers too, as retaining talent helps to raise productivity. 

This point is well understood by Dairy Farm Singapore, which operates 7-Eleven, Cold Storage, Guardian and other retail brands. Under the auspices of the National Retail Scholarship, Dairy Farm sponsored three undergraduates for their final year tuition fees. Following their graduation, it offered them a comprehensive career progression plan. This involved job rotations in their first year of service, to give them broad-based exposure before matching them to their preferred job functions. The end outcome is win-win. The scholars can look forward to a promising career in retail, while Dairy Farm develops a strong pool of talent. 

Conclusion 

To conclude, the retail sector in Singapore is well positioned to benefit from the economic growth of Asia. We need a coordinated response to the twin challenges of raising productivity and disintermediation and there is a role for all stakeholders including the Government, mall operators and retailers. Though retail is diverse in nature, best practices in leveraging technology, raising service quality and worker training, can be applied across the sector. In that context, Retail Global Connexion is a useful forum that facilitates the sharing of good ideas. 

I congratulate CapitaMalls Asia on organising this conference, and wish you all a productive and fruitful session. Thank you.

[1] This refers to China, India and ASEAN-5 (i.e. Indonesia, Malaysia, Thailand, the Philippines and Vietnam).