Wolf Money(portfolio update for end Sept 2024)part 1
“Lackluxtre”
With the interest rate cut, deals are starting to pop up in our REITs market. Ion Orchard, 50% stake held by CapitaLand was sold to CICT. The deal looks good on paper, where all parties seem to gain from the sale, with CapitaLand getting a lot of cash. The bankers and lawyers doing the deal will be looking forward to a big payday and the REIT shareholders getting an opportunity to buy one of Singapore’s most iconic luxury malls with this accretive purchase. The profile of the mall as you have seen from the first few levels are mostly tier 1 or tier 2 luxury brands. The mall is positioned to be a choice destination for people looking for luxury goods.
From my observation, a lot of luxury brands are facing closure due to poor economic conditions in HK and China. Previously, Hong Kong was known to be the hunting ground for Chinese tourists looking to buy luxury items due to its proximity to the mainland, but Chinese mainlanders are heading to Japan to shop due to much better exchange rates. I estimate that HK luxury items is about 10% cheaper than Singapore now. The HK government has been coming up with new ideas to draw travellers from South East Asia to diversify their traditional source of tourists. I have enclosed the link.
Singapore is no longer a cheap place to go for a holiday due to the strength in our currency, let alone shopping for luxury items. Our luxury market used to rely on wealthy Indonesians and Chinese tourists, but recently I have seen fewer shoppers in those luxury boutiques in Orchard. The recent retail sales and tourist numbers speak of a weaker retail environment in Singapore. With the weakening RMB and IDR, Chinese and Indonesians are seeking alternative destinations. The strength of SGD and GST has an impact on local spending too. Long weekends and school holidays were in fact off peak season for retailers as more Singaporeans headed overseas to stretch their dollars.
Given the recession-like environment in China, Europe and the softness in the US economy. Middle class consumers have their wallets tightened. Joining a queue to make a beeline for the H and C brands in Singapore is no longer required. LVMH reported a 14% drop in revenue in Asia ex. Japan and Burberry’s profit warning recently are signs of weakness across the sector. There is a big fundamental change on how travellers spend their dollars now. Since the covid reopening, I spend more dollars on buying experience and sightseeing when I travel. The way I spent on my travels has changed materially.
Changing face of tourism
One of the major trends involved Gen Z ditching brands for items that are wallet friendly. Young tourists are more willing to spend on buying experiences. Going to iconic places for photos, eating viral food and posting on Instagram or TikTok now plays a more significant part of their holiday itinerary over shopping. One might even associate those partaking in luxury shopping with older demographics.
Given the winter in the luxury market, will the landlords be able to pass on a substantial rental increase without a hitch? Given the problem facing the tier 1 brand, will the tier 2 brand be increasing their presence? As for the super rich, the current cookie-cutter brands no longer fulfil their aspirations.
The situation will only change if our SGD goes through a big depreciation or our tax authorities decide to give the full 9% GST refund to tourists to make our retail more competitive. Some luxury malls might need to reposition by introducing more budget-friendly brands and services. The challenge is the rental they can charged for those budget-friendly brands. I have seen a spike in independent clothing brand stores on the first floor of some shopping malls. Previously, clothing stores were sidelined for prime location in the malls, obviously for what a landlord could charge for those engaging in the clothing trade . Typically f&b, luxury goods and those in the beauty trade are the prime tenants of the shopping malls. As retail spaces become tougher to lease out, wallet friendly clothing stores are making a comeback in prime spaces. They might be tenants of last resort. It may also spell trouble for rental income.
Malls could introduce more experience-based attractions like kids indoor playgrounds. An example is playtopia which i saw in Jakarta. More retail genres suitable for young people like POP MART, TJ Maxx, Whole foods or streetwear brands like Palace Skateboard, can be a way to cater to a younger crowd. Experimental attractions like teamlab in Japan draws in huge crowd, can be incorporated in the malls. The tenants’ mix is very important given the weaker economy.
Ways to enhance our tourism experience
Singapore offers only man-made attractions, which already limits what our country can offer to a tourist. A tourist looking for natural beauty and adventure is coming to the wrong country. Given there are only man-made attractions, we are not on the list of countries attracting eco-tourism like Taiwan. I have not known of any tourist coming to our country due to the beauty of Pulau Ubin. We are not a country with great historical sites like Machu Picchu, Peru. That leaves us short on natural and historical offerings.
Some suggestions I can think of to improve the Singapore experience, like opening up part of Istana as a paid attraction similarly to Windsor Castle, England, or we could position St. John island as an internet free pleasure island for people who want to get off their electronics devices or gaming addiction. The previous rumour of a Disneyland at Kranji could also be revisited. Disneyland has the ability to draw family holidaymakers into our country. With the last race at Kranji Turf Club happening on the 5th Oct. The impending closure of The Singapore Turf Club provides Singapore with the opportunity and space to undertake a Disneyland project. I hope our government can reconsider the suggestion. A Disneyland in Kranji could stop some economic leakages to JB. We might even draw visitors from across the Causeway to spend money in our country. As current offerings lose their appeal, it is important to refresh our tourism offerings.
The only way to make up for our lack of depth in our tourism sector is to provide better service for guests coming to Singapore. An experience I had with PARKROYAL, Jakarta, gave a good example. I was looking for a copy of the Jakarta Post for easy reading. Unfortunately, there is no copy available. The staff went all out to contact an external news vendor for a copy to be delivered to me. I was mightily impressed by the good service and the attention to detail. The service DNA is not Singapore’s strongest point. If we need to compete more effectively for tourist dollars, the culture of service DNA has to improve.
We have 2 years to come out with a more comprehensive tourism strategy before JB starts chipping away at our tourist’s dollars. With the opening of RTS, tourists might spend and stay in JB and relegate Singapore to a day tour destination only. Luxury shopping is no longer able to satisfy the most sophisticated visitors. A mall focusing only on luxury brands might not serve the new generation of visitors.
Part 2 coming up shortly
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