Wolf Money(portfolio update end June 2025)part 1
Real Tale(Retail)
June was a good break for me. Our family has decided to stay put in Singapore. It is a rare occasion to be in Singapore during the school holiday. We have been traveling frequently for the last 2 years. We were contemplating of going to Osaka, but I was deterred by the huge crowd going to the World Expo exhibition held in the city. Osaka on any given day, is a very popular city, well liked by many. With the World Expo attracting another 28 million into the city over the next 6 months, the streets are going to be filled with tourists from all over the globe.
The break gave me the opportunity to touch base with old friends and some new ones too. I have many friends in different industries which give me a broad understanding of the challenges and opportunities operating in their trade. Many of them are in f&b and retail business.
Friends in retail/f&b had one thing in common. Almost all lamented about the weak business environment in Singapore. Those in retail and f&b saw a drop in sales once the school gate closed to signal the start of the school holidays. Many families will be flying off to their choice destinations. Singaporeans are probably one of the most travelled tribes in the world. Our strong currency gives us plenty of purchasing power overseas.
Retail problems like higher rents and the ability to attract good people to join the industry are well-known issues facing the industry. I will give a few thoughts for those wanting to start their retail or f&b business.
From what I have gathered, mass market f&b tends to do better than the high-end restaurants due to the weak economy now. It will be better to test out your f&b concept by doing a low-cost hawker trade first, slowly scaling up into an independent outlet. The concept must be unique and first in the market, giving the business owner a head start. Remember Donuts Factory and Quickly bubble tea decades ago? In present days, copycats of fried rice and Ma La Xiang Guo are aplenty. The most successful concept had a lead time of close to a year, before the copycats started chipping away at the originators’ profit. Most leases will be a minimum of 2 years with an option for another year. Those who wish to try their hands on physical stores, you need to make back your money within the first rental contract. One can’t assume the landlord is your friend, extending a lease at a favourable term. Many landlords are opportunistic. How many times a landlord raises rent that is punitive to the long term survival of the business? Some rental increases are justified due to the higher cost of financing. Many just flocked their space to the next highest bidders indiscriminately. I am not demonising landlord, they are under pressure too. Profit maximisation is the first order of the business day, it is how the capitalist market works. If retailing is your cup of tea, having exclusive distribution rights to certain markets or products can keep the competition out for a while until parallel imports find a way to undercut your business.
The first rental contract signed for a new retail/f&b start-up is the most important. Work your numbers diligently before signing any long-term lease. Some shopping malls require 6 to 8 months of deposit if you are new to the trade. If the space required paying a monthly rent of $15,000, the deposit alone could be as high as $120,000. There is also the cost of renovation. Commercial renovations are more expensive; a simple fit out can easily cost $150,000. Some franchise owners require franchisees to use their contractor to have a uniform store look. The renovation cost will be even higher than norm. Other items included staffs that need to start their employment for training before the store generates any revenue. To summarise, one needs to make a profit within the first rental contract. You can be sure the next rental increases to reflect the growing and profitable business of yours if one manages to survive! I have not gone into taxes and cost of goods sold 😅.
Staff cost is another big component of running a retail/f&b business. It is very hard to get people to join the retail/f&b trade. Staff turnover is high. A case was shared during one of my conversations with a friend. A staffer after going through 3 days of training decides not to turn up for work on the fourth. It was followed by a resignation via WhatsApp. Getting staff willing to put in more hours is also tough as more are pursuing some form of work-life balance. Bosses have to chip in during the weekend. If you don’t like working during the weekend, don’t be a boss. A boss of a listed f&b company once mentioned, he had to engage one with mobility problems to work as dishwasher. A job as dish washer required long hours of standing. The situation was definitely not ideal, but he had no choice.
One piece of advice is to automate as much work as possible. Self-ordering kiosks reduce the need for more staff. Engaging a group of part-timers is essential to keep the cost down. Having an active social media presence is critical for survival. A retail outlet lacking of footfall can level up with the competition by doing sustained social media campaigns.
Space that comes with large alfresco dining is best to avoid as it is unsuitable for Singapore weather. Most outdoor dining area is under-utilised for good part of the day. In the evening, when it is time for the space to generate some income, the heaven opens up. Remember the landlord do not give away the outdoor dining area for free. I saw 3 bars near my place, two are fully air conditioned and one with an open concept. No prize for guessing which bars are the more popular ones during hot weather.
Competition from overseas and the opening of RTS will put pressure on the sector. As the society ages, domestic spending power on discretionary weakens as more money will be spent on healthcare and other essentials. As one aged, that failing eyesight also blurred the line between a $7 latte and a coffee shop coffee. A pursuit of fluff is no longer seen as necessary. I end my passage with a quote from a friend: “Want to go broke? Try retail trade. Want it faster? Try f&b”. It takes a strong stomach to be successful in the trade. I wish those pursuing their dream, the very best of luck. God bless.
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