Covid-19: S’pore box shop boss waives sellers' rent while standing up to landlords' unfair practices

Stories of Us: Ann Goh, a tenant at various malls in Singapore, and a landlord to the merchants who rent space in her shops, explains how tenants and landlords need each other to survive in the long term.

Nigel Chua | June 14, 2020, 09:22 AM

Ann Goh, 43, is the co-owner of three homegrown retail brands with a total of 12 outlets after 19 years in business, since her first Simply Toys outlet opened at Far East Plaza in 2001.

Simply Toys deals with collectible items, including the popular Funko pop collectibles, as well as high-end movie replicas.

Goh's other two businesses, HAKO and Toy Outpost, are consignment shops (also known as "box shops") that rent out shelf space to sellers, allowing them to showcase their products in malls at relatively affordable rates.

This concept initially started at the first Simply Toys outlet, and later expanded to Toy Outpost and HAKO.

Covid-19 impact

Since movement restrictions kicked in on Apr. 7 as part of the circuit breaker (CB) here in Singapore, Goh has had to close all of her shops, which will remain shuttered till Phase Two of the post-CB recovery period.

Fortunately, online sales at Simply Toys have almost tripled as demand for toys from both regular and new customers shifted online during CB.

But sales dropped to zero at HAKO and Toy Outpost as they were not able to shift operations online, since their concept is very much dependent on physical space.

Across the three brands, Goh estimates that there has been a net 80 per cent reduction in total sales.

Some of her merchants were unhappy about their sales proceeds being literally locked up behind the shops’ shutters, as HAKO and Toy Outpost staff were not allowed to access the shops to tabulate and pay out the merchants’ share of the sales for the month because of the government-mandated closures.

HAKO at Causeway Point. Photo by Nigel Chua.

Biting the bullet to waive rent

Goh decided right from the beginning, in early April, that HAKO and Toy Outpost would not collect any rent from their “tenants” (who are called merchants) during the period of closure, even while her own landlords stalled over passing on rental relief in March and early April.

This was done by announcing that the rent merchants had paid in March (as advance rent for the month of April, paid before CB was announced) would be used to cover rent charges when the shops are allowed to reopen.

This means that Goh’s revenue for HAKO and Toy Outpost outlets was completely cut off, but she went even further, by offering extra space to merchants at no additional cost, so as to convince them to stay on.

In a way, Goh finds herself uniquely positioned to comment on the ongoing discussion about what many have said is the unbalanced relationship between landlords and tenants.

After all, she is both a tenant (of the malls where her shops are found) and a “mini-landlord” (to the merchants who rent boxes at HAKO and Toy Outpost outlets).

“Although I’m in the same kind of relationship, like 'mini-landlord' and tenant, we know how unfair [typical rental contracts] are, and we try to make [our contracts] as user-friendly as possible.”

At that time, the situation for merchants at HAKO and Toy Outpost stood in stark contrast to the situation for tenants of most commercial properties, such as malls, where many landlords dragged their feet to take action, even while businesses were at risk of shutting down.

Goh has had a range of experiences with the various landlords from whom she leases space.

SingPost, the landlord for one of her Simply Toys outlets, initially stonewalled its tenants' calls for relief with what she says was nothing but “radio silence” for more than a month, before finally caving and announcing a rent waiver for the month of April, via an email in mid-March.

When tenants sought to clarify whether this was coming out of the government tax rebate being passed on, the landlord once again fell silent, and to date, Goh says there is still no word on rent rebates for May.

Singpost Centre, one of Simply Toys' locations. Photo via Singpost.

SingPost, in reply to queries by Mothership, said that it was “keenly aware” of the situation, and had implemented property tax rebates for all tenants for the months of April and May.

However, SingPost and its retail mall manager, CapitaLand, are currently processing rent waivers for “selected tenants” for the month of May, a spokesperson said.

Some landlords, Goh says, have thankfully been “very forthcoming”.

She mentions Mapletree, the landlord for her VivoCity Simply Toys outlet, as an example of one who proactively extended help to its tenants, and Singapore Press Holdings, her landlord at Clementi Mall, which she credits for being one of the first to waive rent during the CB period, before the government stepped in.

Others, however, used the tax rebate to pressure tenants to renew their contracts at higher rates, by setting contract renewal as a condition for the tax rebates to be passed on.

Goh resisted this however, saying that she is "not sentimental about a space in a location".

If, for any given outlet, things reach a point where a rent arrangement no longer makes sense, she is quick to move on.

She acknowledges, however, that this is not an easy option for many tenants, who, acutely aware of the risk of losing regular customers, had no other option but to try to negotiate with their landlords.

Tentative equilibrium after government relief addresses immediate needs

After a months-long tussle over rental relief, the situation has — for now — settled into a tentative equilibrium.

This came about only after the government mandated that landlords take action, and rolled out four rounds of budget measures culminating in the Fortitude Budget on May 26.

Here's a quick rundown:

Government measures to grant relief for tenants

Rental waivers

Landlords of commercial properties will now need to provide, by law, an additional two months of rental waivers for their worst-hit tenants, who have seen turnovers drop by at least 35 per cent.

This, together with previously-passed legislation requiring landlords to pass on tax rebates in full, means that eligible tenants of commercial properties will receive a total of four months’ waiver off their base rental.

Jobs Support Scheme covering employees’ wages

Retail operators will have 75 per cent of their employees wages paid for by the government, under the enhanced Jobs Support Scheme, until they are allowed to reopen.

Protection from legal action

Businesses are now protected from certain kinds of legal action, under the Covid-19 (Temporary Measures) Act.

The law makes it an offence for a landlord to terminate a lease, repossess premises, or start court or insolvency proceedings against a tenant who has requested for deferral of rental payments as temporary relief because of the Covid-19 situation.

Attention turns to longer-term objectives

With the immediate needs settled, attention has turned to longer-term objectives, with renewed questioning of the underlying status quo — that of systemic imbalances in tenant-landlord relationships here.

In late May, retail and F&B tenants asked the government to consider implementing fair tenancy legislation, in a push fronted by a newly-formed industry group, the Fair Tenancy Framework Industry Committee (FTFIC).

But how did we get here in the first place?

But how did things in the retail industry evolve to the point where so many tenants felt that the most viable course of action was to seek legislative intervention?

Goh has an explanation for this relationship of imbalance — landlords’ inability to think for the long term, as well as the need for landlords to answer to their shareholders.

“Everybody wants to maximise their profits,” Goh says, explaining how the management of any mall is constantly under pressure to deliver a certain level of returns to their shareholders.

This is most readily achieved by passing on that pressure downwards, onto the tenants, by trying to get the maximum rental from tenants to reach their KPIs.

“It’s just a rat race. Everybody is trying to earn money for their bosses at the expense of us [tenants],” she says.

Sometimes, rent can seem so unrealistic that it seems like, Goh says, “the landlords are just asking for the sky”.

Forcing tenants out

Landlords’ practice of continuing to increase rental will, Goh predicts, inadvertently drive businesses and their customers out of the malls, and into the online space.

There, the comparatively lower overhead costs for businesses mean that they can offer the same products more cheaply, and at better margins.

This means that landlords need to think about how to work with tenants to capitalise on the interaction between online and offline sales, instead of focusing on maximising rental incomes, Goh says.

One example of what could be done, which Goh applies in her shops, is to encourage shoppers who buy items online to collect their purchases at the physical stores, as this increases the chances that they will browse more, and thus, buy more.

In delaying their adoption of strategies like this, many landlords are inadvertently “killing themselves by not moving with the times,” she argues.

Creating room for creativity: a different perspective on termination

On the other hand, fairer tenancy contracts with more built-in flexibility would create “more room for creativity”, Goh says.

For her, flexibility means providing exit clauses, allowing tenants whose businesses are no longer viable to terminate their rental arrangements, making way for newer concepts to take their place.

Merchants at HAKO and Toy Outpost can terminate their rental contracts with a month’s notice.

Tenants of malls, on the other hand, often find themselves “locked in” to rental contracts even when they find their business is no longer viable.

Goh is aware that in other countries such as Australia and Japan, rental contracts give tenants the option of exiting a rental agreement early by paying a sum of money — for example, by forfeiting their security deposit.

Here, however, rental contracts typically do not give tenants any right to early termination.

“If we terminate, we have to pay up the rent until the end of the lease, even though they can find another tenant.”

“So, you’re stuck,” Goh says, sharing that in extreme cases, some businesses end up continuing to pay the rent till the end of the lease even though they have closed down and left the premises.

This is because their businesses are simply no longer viable, and it would be cheaper to only pay rent than to continue operating and incurring overhead costs like utilities, wages, and so on.

Goh is quick to point out, however, that such situations might arise due to shortcomings in a tenant's business model, but could also be attributed to landlords having over-sold their retail space in terms of the estimated average number of shoppers that could be expected.

“Why do you want to bind someone that is not making money to rent your place?”

“Why do you want to bind someone that is not making money to rent your place?” Goh asks, rhetorically. “Another business could do even better,” she says.

While this thinking seems to hold little sway with landlords, HAKO and Toy Outpost are better off for it, Goh says.

“We rely on our merchants to make money, [so] if we have interesting merchants, then we will draw good customers coming in.

Because of flexibility [in terms of] allowing quick exits, it allows for the trendiest items to be always appearing in our shop.”

On the other hand, if she was to insist on inflexible tenancy agreements that do not allow merchants to turn a profit, "then who will want to continue to be your tenant?" Goh asks.

Outliers

Goh’s perspective as a “mini-landlord”, which is that it would be better in the long run to withhold rental increases where possible, makes her an outlier.

But she takes heart that she is not alone.

Goh singles out Golden Village (GV), who sub-leases its space at Plaza Singapura, for special praise. They are one of a rare few landlords, she says, who see their tenants as partners.

Simply Toys and Toy Outpost at Plaza Singapura. Screenshot via Discovery Walking Tours on Youtube.

She says GV has kept rental increases so modest over the years, that the rent increase over 10 years there is equivalent to the rent increase that other landlords might impose when a lease is renewed, typically every three years.

As to how this makes commercial sense for GV, Goh suggests that it is likely due to them recognising that their own cinema business may be affected if the space was occupied by less popular shops.

A coffeeshop analogy

She also compares this situation to that of a coffeeshop, where the drinks stall operator is also the owner and landlord of the coffeeshop.

If the coffeeshop owner is able to secure a stall that attracts many diners as one of its tenants, sales of drinks will increase as well.

“But if they are greedy, and rent out to a less-attractive shop, because they offer a higher rental, then their main business will be down. So they have to be smart in striking a balance.”

What else suggests that Golden Village has been a good landlord?

Goh points to the fact that “from day one [of her shop’s operations there], since 10 years ago, the tenants [under Golden Village] remain the same. All the tenants, no change.”

In contrast, a high turnover rate at a mall (in terms of tenants moving in and closing down relatively frequently) can serve as a signal to tenants such as Goh that the mall has been unable to bring in the footfall it needs to sustain the retail businesses that rent its space.

Why can’t tenants just quit?

Under such circumstances, which could objectively be described as oppressive, why does the retail industry continue to operate in this manner? Why don’t tenants simply walk away?

“Everybody will be saying, ‘yeah, if it is unfair, don't sign’, you know? ‘Don’t get into this!’ But there will always be some suckers who don't know the business, or maybe there are foreign investors coming in with lots of money.”

This creates an opportunity for landlords to be unfair, “because they know that they can always get tenants”, Goh says.

However, Goh cautions that this can’t go on forever.

Incubators

“Weaker” malls, where footfall is lower, she says, should serve as incubators with more affordable rental rates, allowing businesses to improve their profitability, Goh says.

The way she sees it, however, the reality of the situation today is that young entrepreneurs are facing an increasingly inhospitable and unforgiving retail environment — “because every landlord wants the best deal”, including at these “weaker” malls,

“Even having vacant units, they don’t care. They just want to hit their budget. They don’t want to bring down the value of the property.”

If every mall continues to chase the rental rates up in this way, Goh predicts that high operating costs will be a powerful disincentive to SMEs and young entrepreneurs.

“This will become a dying trade. Eventually it will just be the big players, like Uniqlo, or Starbucks, all running the show… It will be very sad to see every mall so identical. One H&M, one Uniqlo, one Starbucks, one McDonald’s.”

These bigger players have the resources to afford the high rental rates, while SMEs would be “squeezed to hit the budget”.

This would be the end of the retail industry as we know it, she cautions, saying that “if intervention is not done at an early stage now, it will just be lost in a generation”.

In fact, Goh says that the only reason why she continues in business today is that she has had a 20-year head start.

She imagines that younger business owners with less experience would likely “just look at the tenancy agreement, and say ‘oh, I give up. I don’t even want to start the business’”.

“We mutually need each other”

This thinking explains why Goh has been able to find much solidarity among Singapore Tenants United For Fairness (SGTUFF) — a group of more than 3,000 tenants seeking a more constructive arrangement in the retail and F&B landscape, by advocating for tenancy arrangements to be built on “trust, fairness and reciprocity”.

The push for fair tenancy is borne from the perspective that tenants and landlords “mutually need each other to be able to perform well together”, Goh says.

Goh, who has been involved in SGTUFF since its genesis, shares that the community started as a group chat that outgrew the WhatsApp platform’s limit of 250 participants, leading the tenants to move over to Facebook and Telegram.

As their number grew to over a thousand in February and March, the tenants quickly organised themselves by malls, and by landlords, to facilitate collective bargaining exercises.

This sometimes involved “name-and-shame” tactics where tenants would publicly decry shady practices, such as a voucher scheme disguised as rent relief.

"We are not rebels"

Because of these tactics, Goh has received some “inside information” — some landlords were considering banning her from renting their properties in future.

“Maybe one year down the road, I will know if I’m really a target. If I’m given very high rental offers”, she says, laughing.

Having thought long and hard about this, Goh says that she does not mind being the face of the complaints from tenants.

“I am already sick and tired of the retail business because of all the unfair tenancy agreements, [under which] there is no way for retail to sustain in the long run.”

She adds, with a wry laugh:

“A lot of people thank us, the core team, for helping everybody. Obviously there are some who hide behind, don’t want to contribute, do not want to have their names mentioned, because they know how to play the game — they want to be in the good books of the landlord, as well as [try] to save their business.”

At the end of the day, Goh says of the core team at SGTUFF: “We are not rebels. We just want to do what is right for our business and our staff”.

Time for self-help

Over time, the conversations in SGTUFF evolved from negotiating with landlords to conversations about how tenants can support each other.

“On top of crying for help, we need to self-help as well,” Goh says.

“We shouldn't be whining and asking, expecting handouts from [the] government, or getting the landlords to help us. We must also help ourselves [by thinking about] how to improve sales.”

When the CB period was announced in early April, the community turned its attention to topics like how to take their businesses online, and shared tips on managing the temporary closure of their business.

Online sales, Goh predicts, will remain an important source of revenue even in Phase Two when most retail shops are allowed to open.

Social media promotions, such as live auctions, are an area she has been exploring.

The live auction page for Simply Toys, where bidding starts (and sometimes ends) at S$1 for each item. Screenshot via www.simplytoys.auction.

Goh herself has benefited from being a part of the community; she credits a fellow member of the group for recommending that she send her local staff for government-subsidised online courses on Microsoft Office, customer service, and online marketing, while the shops are closed.

Beyond that, on a personal level, she says that “if not for this group of business owners being in the same situation, I would be in depression”.

Silver lining: Tenants coming together

The unprecedented solidarity among tenants, who banded together in their time of shared difficulty, has been the silver lining in the whole situation, Goh says.

In "peacetime", she says, tenants would not usually have the opportunity to get to know one another.

“But during wartime, everybody comes together, and becomes like brothers and sisters,” Goh says with a chuckle.

SGTUFF has become a community of business owners providing support for each other in terms of giving advice, sharing experiences, and coaching newer business owners on negotiating with their landlords when it comes to disagreeable clauses in rental agreements up for renewal.

“Throughout the conversations we have with each other, we realised that there are people saying ‘oh wow, you mean you can do this?? Wow, is that what you are paying?’ That is when all the skeletons in the closets are coming out.”

Goh continues to see a place for a community like SGTUFF, moving forward, and hopes that it will continue to be a community where business owners can share business contacts with each other, such as recommended contractors, e-payment systems, and so on.

Goh says that some were initially wary about collaborating with other businesses who might be their competitors, but says that over time, tenants gravitated to smaller “synergy groups” where they could work together to help each other.

It’s evident from the energy in Goh’s voice that she is quite proud of having contributed to the formation of this fledgling community, and is full of ideas on how tenant businesses can work together.

For example, a clothing retailer might partner with a shoe shop to come together to share a membership programme, or to broadcast each others’ services to their own customer base.

Future remains grim and uncertain

Our chat draws to a close as Goh shares some parting thoughts on the future of the retail industry.

While she is appreciative of the decisive government action thus far, it is after all, only a stop-gap measure.

“What will be our future?” Goh repeats my question back to me, tentatively.

After a brief pause, she says:

“Landlords should, for the next few months, even after these four months' rental waiver, be doing something to the rental.

If this is not done, you will see a lot of empty shops in the next few months. And nobody will want to go to the malls, because there are no shops… it’s not attractive anymore.”

The industry, Goh says, has to recover as a whole. The stakeholders in the industry have to be willing to share the burden of the Covid-19 business impact.

Goh suggests one practical way that landlords could do this: Suspend their spending on advertisement and promotions, and channel the savings to their tenants in the form of rent relief.

After all, Goh points out, until a Covid-19 vaccine is found, efforts to lure shoppers to malls may not yield much result, as shoppers would likely still be deterred from shopping amid safe distancing, the requirement to use Safe Entry, and concerns over their safety.

It’s a convincing argument, but not one that I imagine many landlords would be keen to adopt.

Still much to look forward to in Phase Two

Goh is still optimistic about Phase Two, however.

For the SGTUFF community, she says that after months of liaising virtually, “we are all looking forward to meet up”.

And for her own businesses, Goh is optimistic about the prospects of pent-up demand from shoppers, which she hopes will fuel the initial stage of recovery.

“I hope that we will be doing well,” she says.


Stories of Us is a series about ordinary people doing extraordinary things. Be it breaking away from conventions, pursuing an atypical passion, or making the world a better place in their own small way, these stories remind us both of our individual uniqueness and our collective humanity.


Top photos courtesy of Ann Goh and HAKO.