Retail Market: Traditional vs E-commerce Essay

In the most traditional sense, financiers, planners and investors have retail infrastructures built based on the following 5 major components which were of concern to them.

Firstly, buildings built were to be leased to tenants with the value added upside and inflation hedging rents based on gross sales at the time of purchase. Secondly, retail malls were to encourage both destination and impulse buying through tenant mix. Thirdly, the infrastructure should offer activities such that the visit to the mall does not feel like an errand to complete and be done with in the shortest time but rather, an event. Fourthly, it should offer safe and easy access, ample parking as well as pleasant shopping experience for the visitor. Lastly, the cash flow from the mall as well as the potential capital appreciation of infrastructure due to good property management and marketing of the mall is important (Baen, 1999).

These basic objectives are similar for malls in Singapore. With globalisation as well as suburbanisation, the retail space in Singapore has grown very quickly in the past few years. According to Colliers Consultancy, there will be an additional 1.2 million sq ft of retail space to be completed in 2015 with the demand being supplyled such that retailers target mall openings as opportunities to expand into new locations.

Also, Baen notes that the success of suburban retail centres often comes at the expense of retail malls in the core shopping areas. In recent times, suburban centres have begun to be overbuilt with multiple retail malls competing for a finite amount of disposable income in the vicinity. As a result, there is a battle between the different malls to be bigger, better and newer in order to capture the dollars of its shoppers.

The presence of ECommerce complicates things even further as the implications of ECommerce goes further than simply physical and locational factors online retailers are also able to offer lower prices due to the absence of rental cost. If physical retailers were to match the prices offered by online retailers, it would then result in smaller profit margins. As a result, there is now a new threat to property values.

In the past, the retail sector could only function with the presence of brick and mortar real estate as that was the only channel in which selling can be done to consumers. However, in recent times, many traditional retailers are also moving towards click and mortar, and also, many businesses are choosing to solely retail online. Click and mortar refers to using online retailing as a supplement to their traditional brick and mortar retailing (Steinfield, 2002). An example of a business which has adopted click and mortar is Forever 21 which saw the business implementing online retailing as a way to overcome the restrictions of brick and mortar retailing.

In addition, Baen notes that early indicators of impact to the physical retail markets may include reduction in customer expenditure, lack of retail space improvements and lastly, increased space vacancies.