Speech By Mrs Josephine Teo, Minister Of State For Finance And Transport, At The Singapore Retail Industry Conference 201206 Sep 2012
Dr Jannie Chan, President of the Singapore Retailers Association,
Ladies and Gentlemen,
1. Good morning and thank you for inviting me to the 21st edition of the Singapore Retail Industry Conference. I also like to thank Singapore Retailers Association for their very good and sustained effort to uplift the industry by sharing knowledge among the practitioners.
2. Singapore’s retail industry has been growing. Since 2005, operating receipts grew from $21 billion to $31 billion. The contribution of our retail sector to GDP has held steady.
3. Success in retail requires one to be very nimble. Most of the time, many of the products and services that is offered to the customers are also offered by your competitors. There are, very often, low barriers to entry. Customers’ tastes and preferences are constantly evolving. The operating environment is not static either. Retailers succeed by always adapting. Needless to say, it is a business that is very hard for those without passion and determination.
4. For today’s purpose, I will highlight two trends, which are emerging and will impact retailers one way or the other.
i) Beyond Bricks and Mortar
5. The first is that retail is increasingly moving beyond bricks and mortar. I have asked younger colleagues where they shop, particularly for clothes. I am somewhat surprised that almost all of them said they shopped online. I am very curious - how often do you shop online? How much do you spend online? I discovered a couple of things. As far as they are concerned, time is precious and shopping online literally allows them to “let your fingers do the walking”.
6. They are attracted by the variety and the price because when you operate an online business, the overheads are lower. Today, with lower shipping costs, it is no longer a barrier for shoppers to buy online. These online shoppers have been enabled by the security of the payment methods that are now available.
7. And one thing that I find very interesting, among these younger shoppers - they are very willing to take risks. In fact, they told me that they accepted that up to 50 per cent of their purchases were going to turn out to be duds. Whatever they bought may not meet their expectations, the size may not fit and the pictures on the website look better than the real merchandise. But they did not mind. When I asked then what do they do with these purchases, they said they will try to re-sell these items to their friends or colleagues or at the flea market.
8. So we are talking about a generation of young buyers who are very different, very willing to go online, very willing to take risks. In fact, a 2011 survey by MasterCard revealed that nearly two out of three Singaporeans shopped online. Euromonitor estimates that internet retailing in Singapore has reached $778 million in 2011, compared to just under $500 million in 2006. So, that is a Compounded Annual Growth Rate (CAGR) of about 10 per cent – not bad.
9. The largest product segments of internet retailing turned out to be Apparel, Consumer Electronics and Media Products, with the latter two among the fastest growing segments. We are looking at a generation of more sophisticated consumers who prefer to search online and acquire knowledge about certain products, and give themselves the opportunity to make comparisons before they make the purchases.
ii) Consumption as an engine of growth in Asia
10. The second trend is a more encouraging one. Consumption is very likely to be a growing engine of growth for Asia. There are several reasons for this. The economies in US and Europe have been weakened. This means export-driven economies like China will increasingly look towards domestic consumption as a driver of growth. If you look at another large market like Indonesia with a population of about 220 to 230 million, domestic consumption provides a measure of resilience that will spur growth even if external conditions are not the most favourable.
11. Asian societies tend to have high savings rates, conservative in the way we consume but that is rapidly changing too, because incomes and wealth are growing and Asian consumers are projected to drive 80 per cent of the growth in global middle class spending.
12. One expression of the increased consumption is travel. Singapore is a tourism destination and has been a beneficiary of this trend of rising consumption in Asia. According to Global Blue, a world leader in tax refund services, Singapore is now the top destination in the world for Chinese tourists to shop for luxury watches and jewellery, beating even Switzerland, a country known for its traditional stronghold in upmarket timepieces.
13. A key targeted market for international retailers looking to penetrate Asia is Singapore. In fact, Singapore is regarded as one of the most vibrant shopping destinations, certainly in Asia. The presence of both international and local retailers are needed in order for us to retain the buzz factor. You cannot have only international retailers with no unique concepts and brands. But it cannot be just local brands either. This is because shoppers want variety and an interesting mix to add to the buzz.
Still about the Customer
14. Trends suggest that there are still opportunities for growth. But we need to be aware of the areas that improvements will be required. Later this afternoon, I am aware that the Boston Consulting Group (BCG) will be presenting on Retail Industry Best Practices. This is an international benchmarking study commissioned by SPRING Singapore. Some of the findings are very interesting and useful. I would like to highlight one that I found intriguing.
15. The report found that retailers in Hong Kong are able to achieve better operating margins than Singapore, even though they face severe rental pressures. One of the reasons is their ability to maintain optimal level of inventory to satisfy customers’ needs without overstocking. This core competency of inventory management, while it is not particularly glamorous, it gives customers what they want, when they want it. It is also this core competency, which help retailers make more productive use of their working capital, warehouse and shop-front and sales staff. In other words, inventory management as a form of productivity, is what helps these retailers drive customer satisfaction and in turn, their profitability.
16. What this tells us is that for retailers to be truly customer-centric, it is not just about winning smiles. It is also about winning their trust and confidence by being well-organised and able to proactively anticipate and meet their needs. Questions that you should ask when it comes to retail productivity could be: Do you have a system to anticipate customer needs and replenish fast-moving stocks in good time? It is also about merchandising, having what your customers what.
17. It is also about visual merchandising, placing the goods in such a way such that it is attractive to your customers, to stir their hearts to want to open their wallets. It is about having a process t o save your customers’ time and efforts, by not wasting their time by visiting the store to find that the items they want are not available. It is also about helping your customers make decisions that they will be happy about. These are ways in which retailers can minimise hassle and maximise convenience for your customers.
18. When we broaden our ability to think of productivity in those terms, we realise it is not just about the productivity of the management and employees. It is actually productivity for the customer. When we are able to put that in the heart and the centre of our attention – respecting the customers’ ability to choose – that form of productivity improvement can potentially be the most powerful for retailers. Putting it very simply - help your customers, and you will help yourselves.
19. I would like to offer a couple of suggestions that you may consider as to how to up your game.
20. The first is to consider whether it is useful for you to develop your own brands and products to meet your customers’ needs and aspirations. Here, I want to share a familiar example. As a little girl, I used to take a bus along Geylang Road and I will always notice this shop called Nanyang Optical. Although I do not need to visit Nanyang Optical, I know that they are very prominent and doing well in major shopping malls.
21. The company has been around for more than 30 years. They did not start their business in retail; they started by collecting orders from retail shops, to take the lens back to their backyard workshop to do the grinding. They only ventured into retailing later. One of their first shop-fronts was along Geylang Road.
22. Today, families regard them as the trusted provider of eyewear and eyecare. But, as a business, they realised that they cannot rely solely on their brand heritage for sustained business. They have to keep their range of products fresh and unique. And besides winning distributorships, they decided that it is relevant for them to invest in technology and R&D to create their own in-house brands. The annual R&D budget of Nanyang Optical is about 10 to 15 per cent of their total revenue. That is quite significant for a retail business.
23. As an outcome of their efforts in R&D, they have developed the world's first spectacle frame made almost entirely from recycled materials. The frame is sold under the Linkskin brand. It is accredited with the Green Label Singapore mark and has received many design accolades including the Red Dot Design Award and International Forum Design Award. And so when the frame made its debut in Milan, fashion capital of the world, in 2008 at several optical fashion shows, Nanyang Optical received overwhelming response and the Linkskin brand can be found in several countries in Europe as well as Asia.
24. The second suggestion is about developing an online, and increasingly, a mobile strategy. Here, it is pertinent to point out that not all retailers can expect to have significant online transactions. Not everything can be sold online; not everyone wants to complete a transaction online. But nonetheless, online and more recently, mobile platforms can help retailers build and deepen your relationships with large numbers of shoppers for a sustained period of time, at fairly low cost. There are many very interesting options available for the retailers.
25. An example of what is perhaps considered traditional retailing, is bookstores. Times The Bookshop in Singapore has developed multi-channel customer engagement strategies, comprising an online bookstore called NoQ store.asia. They also have an iPhone application that allows customers to compare prices.
26. Times offer a wide range of merchandise at competitive pricing. In addition, they have been able to fully automate sales, delivery, which allows them to manage volume in an efficient and productive way. What this allows Times to do, is to pass on the savings of between 30 and 50 per cent to their customers. This is another way in which they are benefiting the customers while improving their own margin.
27. Since it was launched in August last year, NoQ store’s customer base has grown by 20 per cent every month, with 60 per cent of the purchases coming from its membership programme. Besides capturing new customers, NoQ store enables Times to data mine and understand their customer preferences more intimately.
28. This is the next point that I want to suggest, which is that increasingly, we are able to use customer relationship management (CRM) systems, not in a very costly level, to mine your customers’ preferences. The biggest value is always “what do you customers want” and there are systems to help you to do that.
29. Another example is ONI Global, the franchisee for GNC products. They implemented a new Point-of-Sales system that allows employees to check customers’ purchase history. Hence, it is easier for the employees to provide personalised service. Also, it helps their customers, who may have forgotten exactly what they bought previously. As a result of this enhancement, they have been able to grow their revenue by 16 per cent. This is a kind of top line productivity growth: same workforce, but yet able to generate more revenue for the company, making each employee more productive.
Retailers will get Government support
30. Working hand-in-hand with the association, the Government will continue to lend support in a variety of ways.
Retail Productivity Plan
31. Last year, SPRING Singapore announced a package of assistance worth about $86 million that will be provided over the next five years, in particular to help drive productivity improvement. Not for productivity in its own sake, but productivity centred around customer needs, productivity that will help you improve customers’ satisfaction and improve your profitability. The Retail Productivity Plan that SPRING oversees, aims to supports retailers to achieve excellence in three key areas:
- process improvement
- manpower development and optimisation, and
- fostering the culture of productivity improvement for more sustained efforts within the business.
32. To-date, more than 200 retailers have benefited from the plan and more than $10 million of the committed fund have been disbursed. A range of assistance schemes are also available.
33. One of them is the Innovation and Capability Voucher (ICV) by SPRING Singapore. For SMEs who may find it difficult to start and are worried about the additional paperwork when they have to deal with the Government, SPRING has this $5,000-voucher scheme that is literally fuss-free, targeted at SMEs to take first steps to uplift themselves. SMEs just need to go to a panel of service providers that are able to help you in:
a. technology innovation
c. human resource
d. financial management
The Voucher can be used to offset the cost of using their services.
34. In the current context, branding is very important. For those who are beyond the first steps and able to do more, there is a programme called BrandPact that co-funds and provides resources to help companies build and use their brands a s a strategy for business competitiveness.
35. If you are interested in IT, through the IDA’s iSPRINT, funding is available for a whole range of infocomm solutions. Again, to make it easier and fuss-free, there is a list of over 120 info-comm packages that are pre-qualified.
36. From the Ministry of Finance, we also provide, in terms of tax benefits, the Productivity and Innovation Credit (PIC) as well as the Renovation and Refurbishment (R&R) Deduction Scheme for businesses to renew and refresh their premises regularly to remain competitive.
There are a whole range of schemes that are available.
37. Let me draw my remarks to a close, by noting that there is room for the retail business to continue to thrive in Singapore. Retailers who seize the opportunities, invest in efforts to upgrade and to raise the level of engagement with their customers will ride the wave of growth and position themselves for even greater success.
38. I hope the examples and best practices shared today will help stimulate new ideas on how to innovate and set your businesses on a new growth path and in doing so, keep Singapore a vibrant shopping hub in Asia. I congratulate the SRA once again and I wish you a fruitful day ahead.