Mothership Finds Out: Why are S'pore malls so boring?

If you think that our local malls are becoming carbon copies of each other, you're not alone.

Coupled with the fact that we have A LOT of malls, could this be why Singaporean shoppers take a "seen-one-seen-all" approach towards malls today?

As with many things, there are likely many reasons why malls are seen to be generic. But one of the biggest factors, arguably, is the use of REITs as a tool to own malls.

What are REITs?

A Real Estate Investment Trust (REIT) pools together capital from a group of investors.

It then uses this pooled capital to buy, typically, several pieces of property.

In return, as these properties generate rental income, the REIT is able to distribute dividends to its investors.

Infographic from DBS website.

There are REITs for all kinds of property.

Some own office buildings; these depend on demand for office space to generate income for their investors.

Others own hotels and serviced apartments. These are heavily dependent on tourism.

But the REITs that we're interested in for the purposes of this article are those that own shopping malls, also known as retail REITs.

Some popular retail REITs in Singapore include Frasers Centrepoint Trust which owns malls like Causeway Point and Northpoint City, Starhill Global REIT which owns Ngee Ann City and Wisma Atria, and CapitaLand Integrated Commercial Trust which owns Bedok Mall, Bugis Junction, Junction 8, and Westgate, among others.

One of the biggest sources of income that retail REITs rely on is rental income (paid by mall tenants) to generate dividends for their investors.

When shopping malls become investment instruments

It follows then that the ideal mall, in the eyes of a retail REIT investor, is one that is optimised to bring them high profits.

This means that there are some key qualities that the mall looks for in its tenants.

Firstly, the tenant should provide goods and services that are in demand. Duh.

Secondly, the tenant should be able to generate high income.

Mall rental typically consists of a base rate plus a portion of the tenant's gross turnover. So, a tenant that can generate higher turnover means more profits for REIT investors.

Even if a tenant cannot generate high turnover, it should be able to bring in traffic for the mall.

Malls look for tenants who can bring in traffic. Photo by Deepika Murugesan on Unsplash

Thirdly, the tenant should be able to provide sustainable rental income.

This means choosing tenants that have a track record of generating sales and have foreseeable demand, and therefore, a lower probability of closing down midway through their lease.

More often than not, only big established chains are able to fulfil these qualities. They are typically favoured by malls as tenants

This is why we see so many of the same (popular) brands in many of our shopping malls, leading to the perception that they are carbon copies of one another.

Negotiating as a group

There is another reason why malls seem to have similar tenant mixes.

Many brands today are part of bigger portfolios owned by corporations.

Just think of BreadTalk Group whose portfolio comprises BreadTalk, Toast Box, Din Tai Fung, Food Junction and more.

Or DFI Retail Group which counts Cold Storage, Giant, 7-Eleven, and Guardian in its stable of brands.

These groups of brands might band together when trying to enter negotiations with a mall.

This is why sometimes, you might see a BreadTalk together with a Toast Box in the same mall.

Via CapitaLand.

A process of negotiating

We approached Lynda Wee, an adjunct professor at NTU's Nanyang Business School who specialises in retail and mall management, to find out more about how malls are run.

Screengrab from our video on why shopping malls are so generic.

There is a tension that arises from malls being used as investment instruments.

Shopping malls ultimately have to be well-run and attractive to shoppers in the long run if they want sustained income for their investors.

And so in this sense, being part of a REIT incentivises malls to provide shoppers a good time, which includes serving up fresh shopping experiences.

But in the short run, anything that deviates from the tried-and-tested model of running a mall might spook investors who might then decide to take out their capital.

"You see, though the public have cash and they come forward (to invest in a REIT), they all have different interests," said Wee.

"Some are more risk averse, some are more cautious. And so they want different things. The minute you're not giving them what they want, they will cash out."

Photo by Vuitton Lim on Unsplash

This is why the mall operator and the REIT manager might have conflicting short term goals especially when there is an opportunity to try something new.

"So then, now we have two stakeholders," said Wee.

"If you look at the mall operators, they will be interested in finding the new-to-market malls. But that requires risk and opportunity cost, which the financial stakeholders may not agree to. So these two are constantly helping each other, negotiating so that the mall can go forward and try different things."

Intangible aspects of refreshing a mall experience

Beyond the search for new tenants (which mall operators constantly do, by the way), there is a way for malls to differentiate themselves.

It involves going beyond using the mall solely as a place for people to transact goods and services.

"I think malls should stop looking at themselves as transactional," said Wee.

"Most transactional needs can already be met. People are looking for something interactive, immersive."

Photo by naipo.de on Unsplash

With online shopping become so prevalent these days, shoppers need more reasons to enter a mall. Malls, with their physical space, offer something that online shopping cannot: an experience.

For instance, it could be a space to discover first-to-market products, a place for lifestyle services, said Wee.

Retailers are heading in this direction.

Some companies have started rebranding their retail outlets as "experience stores" where customers can try their products. The Dyson Demo Stores, where customers enjoy complimentary styling demos, are a good example.

Credit: Dyson.

"Stop thinking of yourself as a mall," said Wee.

"Start thinking of yourself as a lifestyle space where you create things for your community to come (together)."

A different kind of mall?

Is there a different way that malls can get capital, aside from REITs, that can also fulfil customers' desires for new experiences?

Instead of capital from the general public, malls can be financed by a private equity fund, set up by investors who have the same risk appetite and who believe that there is demand for a more experimental mall scene, said Wee.

"They could be willing to accept a smaller dividend at the start. Because they know that they're building something more robust, more scalable, more sustainable."

We already see something similar in sustainability-focused funds, said Wee; this might be a possible financing model for malls to explore.

The most generic mall in Singapore?

In a world of generic malls dominated by global brands, where does that leave local SMEs?

We spoke to leather atelier Bynd Artisan and cheesecake brand Cat & The Fiddle to learn how they made their way into popular malls, and find out which is the most generic mall in Singapore.

Top image from CapitaLand.