In February 2011, book store chain Borders filed for Chapter 11 bankruptcy. Shortly after, the company was forced to liquidate its 399 stores as it was not able to secure a buyer for its business. This ended a 40-year old business.
But Borders was not alone in this development. A few months earlier, DVD rental chain Blockbuster also filed for bankruptcy protection. Its stores lasted a little longer, but it ultimately decided to close 300 of its brick-and-mortar stores in November 2013.
The end of both businesses shared a common threat – online services such as Amazon.com, Inc (NASDAQ: AMZN) and Netflix, Inc (NASDAQ: NFLX). These online businesses generally offer a better variety of products, price, and convenience to consumers.
As internet and mobile penetration in Singapore is one of the highest in Asia, it would seem like this trend will hit Singapore shores. In fact, the TODAY newspaper quoted a Euromonitor representative on the trend of e-shopping in Singapore:
“Consumers spent S$960.3 million on e-shopping last year, up 12.3 percent from S$855.4 million in 2012”
How malls will fight back
In a previous article, my fellow Fool Ser Jing also highlighted the same risk when it came to Frasers Centrepoint Trust (SGX:J69U), a suburban mall REIT. In the spirit of Motleyness, I would like to add a counterpoint here to his point, and that is Frasers Centerpoint has been changing its tenant composition over the past five financial years.
Source: Company Annual Report
The two pie charts show the composition of tenants within Frasers Centerpoint Trust for the financial year ended 2009 (FY2009), and the financial year ended 2013 (FY2013). In the five years between, the REIT has visibly shifted its rental income source towards areas such as food and restaurants, services and education, and beauty, hair, cosmetics, and personal care. On the other hand, areas such as books and music (as we have seen in the case of Borders) has faded into the background. In other words, Frasers Centerpoint Trust has shifted towards more service-oriented tenants (like haircuts) or food and restaurants to make it a “place to meet” destination rather than a “place to get things”. The shift has been gradual but important, because last I checked, you can’t get your haircut online.
Similarly, a few malls on Orchard Road including Tangs have started to offer free wifi within the confines of their space in order to attract more shoppers. Beyond that, the CAPITASTARS membership program was also launched in 2012 to bring more shoppers to the malls properties owned by Capitamall Trust (SGX:C38U).
Online shopping can be seen as a threat or an opportunity. All signs point to signs that the tide of online shopping is here to stay. It might be important sooner or rather than later for brick-and-mortar stores to address this rising tide, and turn this threat into an opportunity.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong owns shares in Amazon.com and Netflix.