Tuesday 21 May 2013

Retailers forced to make tough decisions amid labour crunch

Some shutting less profitable outlets, freezing expansion plans
By Jessica Lim, The Straits Times, 20 May 2013

WITH no respite expected for the tight labour market, some retailers in Singapore are shutting their least profitable outlets, freezing expansion plans and even cutting opening hours.

With rents going up at the same time, it seems that they have no choice.

Rent and labour make up over 70 per cent of a typical retailer's operating costs, according to recent estimates by the Singapore Retailers Association (SRA). A small shift could easily push an outlet into the red.

Take Masterfix, which specialises in key-cutting, dry-cleaning and shoe-mending. It had nine outlets, but the three least profitable ones closed in the past year.

This also allowed owner Webster Tan to bolster staff numbers at his remaining six outlets, now staffed with one employee each at any one time.

The 40-year-old, who personally helps out at three outlets daily, lost two foreign workers and three local workers last year and has been trying in vain to replace them.

"We are a cobbler shop and Singaporeans think it's dirty. They want to know if there is a glue smell," he said. "The worse thing is there is demand. With more manpower, I would open three new stores. But that's not going to happen.

"The labour shortage is not going to go away. We could not hold on waiting for things to change. They won't."

His story is a common one in the current retail landscape, where even big chains such as the Jay Gee Melwani Group have been left reeling.

The franchise holder of brands such as Levi's and Aldo is in talks with malls to close all stores at 9pm. Most of its 130 stores now close at 10pm or 10.30pm. "We are trying to manage the acute shortage," said its managing director, Mr R. Dhinakaran, who has started talks with Raffles City and CityLink Mall.

The group hires about 600 people, but has 120 vacancies it has yet to fill.

Productivity woes

JOB vacancies in Singapore's wholesale and retail trade sector stood at 6,160 as of September last year - earning it the dubious honour of coming in fourth for the most number of job openings in any sector. Of these, 27 per cent were front-line jobs in sales and service. The top three industries with more job openings than wholesale and retail are community, social and personal services; accommodation and food services; and manufacturing.

But even with fewer workers than there are jobs, productivity growth has been slow.

In 2000, the value added per worker in the retail sector was $30,000. In 2011, it grew to only $42,000.

Retailers here say they grapple with unique challenges: Locals are reluctant to join the industry, automation is rarely feasible and competition is rife.

SRA executive director Lau Chuen Wei said the association's 300-plus retail members are still searching for ways to raise productivity.

"The adoption of technology is not as suitable for the retail industry, especially on the shop floor where the labour shortage is the most felt," she said.

The problem, she added, is heightened by Singapore's small market size and the ease of online shopping. Both limit sale volumes.

SRA's retail members, which employ more than 40,000 workers, each report a labour shortage of between 10 per cent and 20 per cent, she said.

Small retailers, big problems

SMALLER companies also tend to be hit harder - and the industry has lots of them.

Of the over 15,000 retailers here, more than 80 per cent are micro-companies with less than $1 million in operating receipts. The high number is likely due to the lower start-up costs compared with other industries.

These micro-firms are typically unable to pay employees much, hire few staff, run only one outlet and lack a dedicated human resource team.

"Small companies cannot really move labour around and they don't have large headquarters with many local workers. Automation also seems like a far-fetched idea for them," said Ms Sarah Lim, a senior lecturer of retail at Singapore Polytechnic. "We could see many of them shutting down unless they do something."

Businesses like sneaker chain Limited Edt Vault also cannot see the light at the end of the tunnel. Its four stores, which hire 18 staff, are short of three full-timers.

"I don't really have a solution. Moving transactions online may involve even more staff," said owner Mandeep Chopra, 35, who said automatic stock ordering systems are not an option.

"Our products are limited edition and don't come on a regular basis. It's really tough."

Beyond Singapore

THE problem is also being felt beyond these shores.

According to Jones Lang LaSalle's retail head Hannah MacDonald, brands are now thinking twice about opening up in Singapore.

"More are looking over to Malaysia in terms of Asia-Pacific entry," she said, adding that the property consultancy is currently working with 20 new-to-market brands which are considering Singapore. "They are not sure they can secure a high level of service."

Jones Lang LaSalle also helps firms here with expansion plans.

"We have had 25 clients turn around and say, 'Stop. I cannot expand now. Come back six months later after we fully analyse the effect the foreign worker quota has had on us'."

Think sharp, sell smart

BUT what can companies, especially smaller players, do about their predicament?

"It's about looking at it through the lens of the buyer. That's how smart retailers look at a problem," said Mr Simon Bell, executive director of strategy at Landor Associates, a global branding consultancy. "Move away from the old ways of serving the consumer. Constantly trying to hire more people and shifting staff between outlets won't work in the long run."

He suggested that companies like MasterFix relook their systems to become more "concierge- like". Customers, for instance, could be given a buzzer or sent an SMS when their item is ready.

Last month, Deputy Prime Minister Tharman Shanmugaratnam called on the industry to "re-imagine" their businesses and to go beyond simple economising or replacing of manpower with technology.

Some firms have taken the lead with out-of-the-box ideas.

Brother International installed a system in 2011 that lets the company remotely control computers and printers installed in customers' homes. They now serve 400 customers a month this way, without having service staff leave the office.

Others such as the 10-outlet Epicentre are catching up. Its outlets are 20 per cent short of staff, and plans to open two new stores this year have been put on hold.

Epicentre chief executive Jimmy Fong hopes to ease the problem with an e-commerce portal it launched in the beginning of this year that will let customers buy products online, then collect them at stores.

"Customers can get information about the product and all the processing is done online. They just come and collect the item," said Mr Fong.

NTUC FairPrice, which has self-checkout systems at six stores, will roll them out at nine more stores by the end of the year. One person is needed to man four of these systems. The conventional system requires one staff member each. The supermarket chain is currently short of 900 staff.

By the year end, 71 more stores will get electronic price labelling on their shelves, up from 29 now. FairPrice will also open a new distribution centre next year, equipped with latest technology like the Caddy Pick system which moves 10,000 cartons an hour - 25 per cent faster than the current system.

Dairy Farm Singapore recently turned its Shop N Save outlets into Giant stores, which meant the merging of merchandising teams and manpower savings of 6 per cent.

These are good moves, said Mr Bell, but in the end the answer boils down to demand. Brands need to understand their audience, he said.

"Retailers must embrace change; it's as simple as that," he said. "Without flexibility in what they do or willingness to listen to what the customer wants, then there will only be a disaster waiting to happen."

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