Stand-alone Outlets and Small Shopping Centres Outperform Large Shopping Centres in Occupancy Cost and Profitability

In the study to be conducted on the value of heartland stops in Singapore, HDB specified that the service provider should conduct a literature review on past research on retail landscapes in Singapore and internationally.

Amanda Duvenhage and Andre Kruger from the University of Johannesburg investigated the occupancy cost and profitability of three different retail formats in South Africa and published their findings in an article entitled Retail Format Selection: Occupancy Cost and Profitability.

The three retail formats they studied were:

  1. Small shopping centres;
  2. Large shopping centres; and
  3. Stand-alone outlets.

While it may not be an apple-to-apple comparison,

Small shopping centres may be likened to strata-titled malls (think People’s Park Complex, Golden Mile Tower);

Large shopping centres may be likened to single-owned mall, usually by institutional landlords such as Capitaland (think Raffles City, Bugis Junction); and

Stand-alone outlets may be likened to shop houses, strata-titled shops and yes, HDB shops.

What is the purpose of making such an association, you may ask? You can look at this as a form of exploration for the purpose of discovering insights.

Measuring profitability using eight performance criteria such as Rent % to sales and Profitability per m2, the researchers arrived at the following findings:

  1. The stand-alone outlet delivered the best results in the following criteria: gross margin percentage to sales, rent per m2, other occupancy cost per m2 and overall profitability per m2;
  2. The small shopping centre delivered the best results in the following categories: gross margin percentage to sales, rent per m2, other occupancy cost per m2 and overall profitability percentage to sales.
  3. The large shopping centre format did not deliver optimum results in any of the analysed scenarios, indicating that the financial benefit from trading in this retail format type is not derived from the occupancy costs.

It will be interesting to know what would be the findings if this research is done in Singapore. Regrettably our company has only been operating in single-owned shopping malls and not strata-titled malls/shops, shop houses nor HDB shops. While this is likely to change post-COVID-19, I do not have any data to share regarding our profitability across different retail formats.

The Consultant who is awarded the tender to conduct the study may want to look into this. Given that they will conduct in-depth interviews as part of this study, it may be interesting for them to interview a company like Phoon Huat that has shops of different retail formats.

It is interesting that the authors postulated that the financial benefit from trading…(in large shopping centres)…is not derived from the occupancy costs. The consideration may be more top-line driven, that is, revenue or gross sales driven.

What I find interesting is the role HDB shops may play in enabling businesses to diversify their retail real estate. We live in unpredictable and unprecedented times. Ray Dalio is interviewed and will be interviewed multiple times on how to navigate through COVID-19. He has been nagging that diversifying well is the most important thing you need to do in order to invest well.

He was primarily talking about diversifying across markets, currencies and asset classes. Perhaps what we can ask ourselves is how we can be more intentional in diversifying across retail formats:

  1. How should a retailer diversify across “small shopping centres” (strata-titled malls, mixed development shops), “large shopping centres” (single-owned mall), “stand-alone outlets” (HDB shops, shop houses) and eCommerce (own e-store, online marketplaces)?
  2. How should a retailer diversify across store size?
  3. How should a retailer optimise her/his mix of rented and bought shops?



Categories: Opinions

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  1. Deep Dive: The Role of HDB Shops in Singapore’s Retail Landscape – FairTenancy.org

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