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I read the facebook note by Dr Chee that shared the story about a small independent bookstore appealing for help to stay afloat. It gives a glimpse of what is really happening to many small retailers. While I sympathize with the owner, we should also take note of things from a broader perspective by looking into the challenges faced by small business owners in Singapore.
As a small business owner over the past 10 years, I personally witness that many local retailers (big or small) are suffering because of the economic downturn, this is not entirely something new – the retail scene has been lacklustre for many years, each year seems to get worse than the last. This is something real and felt by most retailers, and an economic downturn isn’t unexpected in retail business.
As a fellow small business operator, let me share some challenges faced by a brick and mortar retail business in Singapore today:
(1) There are simply too much rental spaces for retail and this is further set to increase with more new shopping malls opening up. Now we have more shops competing for the same dollars – so it is basically the same cake shared by more people.
(2) Rentals have been shooting through the roof despite the increased supply. With lower sales and increasing cost of rental – which is perhaps the greatest operating cost for retail businesses or at least for small and medium sized ones – it is not unexpected that many retail outlets just cannot survive once they see a small decrease in sales.
(3) People are turning to the Internet where they can easily compare prices, especially for generic products. Many consumers here do not buy local. Yet the local shops cannot offer their goods too cheaply because firstly they are imported, and secondly there are all these high costs of rental and the higher wages due to a shortage of willing and ready labour supply. Many overseas websites are offering not just lower prices, but cheap/ free shipping to Singapore. Some are even taking VAT off and we are talking about 19% or more off the published retail prices. You can say it is unethical and sometimes illegal, but this happens all the same as long as the seller is willing to do it.
(4) GST does not apply for consumers if they buy goods below S$400 or S$600. This is an unfair advantage when a lot of the companies importing the goods are slapped with GST as soon as they arrive, while the consumer buys from an out of Singapore website, they do not have to pay GST. And it is not uncommon for customs to miss charging GST even for parcels above $1,000 to consumers, especially if they use the national postal agency. This is a loophole. Our regulations already put our local businesses at a huge disadvantage. People are willing to take the risk because they may just get lucky not to be slapped with GST if our local customs misses it. Also, there are many sellers who may be happy to under-declare their invoices. This appears to be extremely common with some online players shipping into Singapore, even though this violates international trade laws.
(5) Rental agreements are always biased and partial to the landlord. I hear that there are laws protecting the small retailers for example in Australia, whereby tenants are allowed to choose their operating hours. This helps businesses decide their most productive time, and avoid unnecessary need to pay for staff in those hours that do not appeal to their clientele. In Singapore, landlords force tenants to stay open say 10am to 10pm, and send security guards to police the mall and fine tenants if they close earlier than the mall operating hours. This puts an upward pressure on costs, as it will mean they have to hire someone just to keep the store open when there is clearly no customers, in order not to risk a hefty daily fine. This is just one part of the unfairness. Others include landlords’ at malls charging a rent based on GTO (Gross Turnover) of up to 20% if 20% of the month’s store sales is higher than the rental already paid by the tenant. In short, the tenant works hard and have higher sales, only to be taxed by a higher rental which is totally unfair. If the sales are low, landlords already have a high base rental to charge the tenant. In Singapore, we do not have laws on what makes a tenancy agreement fair, nor do we have anything protecting the small businesses.
While there are many other problems a small local retailer faces, these are just some of the more common issues that interestingly not many people are aware of.
On the other hand, I am not so sure if helping a business to survive is going to help them in the long run. Watching small retailers who are passionate yet struggling to keep their businesses afloat is painful, but many times the rentals, due to lack of transparency in the market, may have been bidded up by too many businesses that are new and unfamiliar yielding to the powerful landlords’ unfair and unreasonable increases in rentals and provisions for rentals, and refusing to walk away. Many new startups also use the convenient tool of price cutting as a way to get business quickly. This can have critical impact on the rest of the industry, as margins may become so thin everyone may have problems surviving at the end of the day. I wish to highlight that these are some of the ways many new businesses operate. It is a vicious cycle, and there doesn’t seem like there is a solution.
This begs another question: Should we or should we not help these businesses? Are we really helping them? I remember not too long ago someone at the helm of a famous local chain of restaurants commented that sadly, at the end of the day, it is the bad business models that will eventually drive out the good business models. While it may sound a little harsh, we may also have to ask ourselves what kind of outcome do we really want? There is really no clear answer. Will our efforts to save a tree end up killing the entire forest?
I hope my input and understanding of the local retail scene could provide the general public more food for thought.