Developers and Mall Operators Monitoring Profits of Retail Tenants

Mr Zaqy Mohamad asked the Minister for Trade and Industry whether there is a practice by retail developers and managing agents to require retail outlets to declare their profits or link their point of sales systems to monitor profitability of the outlets and, if so, whether the Ministry would study the impact of this practice on the competitiveness of the retail sector in terms of rental rates and prices to consumers.

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The Minister of State for Trade and Industry (Mr Lee Yi Shyan) (for the Minister for Trade and Industry): Sir, some mall operators do require their retail outlets to declare their revenues or link their point of sales (POS) systems to a mall-wide system. The revenue data may be used to determine the rents of their tenants and this allows mall operators to charge rental rate that varies with economic and business conditions, rather than a flat rate regardless of business performance.

The contractual agreement between the mall operator and retailers is a commercial arrangement, and does not inhibit competition in the retail sector. Such contractual agreements are best left to the market players to negotiate among themselves. To support the business environment, the Government maintains an adequate supply of commercial space to meet medium-term demand and ensures that businesses do not engage in anti-competitive practices. The Ministry of Trade and Industry and the Ministry of National Development will continue to monitor the commercial property market closely.

Mr Speaker: Mr Zaqy, do you have a supplementary question?

Mr Zaqy Mohamad (Chua Chu Kang): Yes, Mr Speaker, just one supplementary question. The reply by the Minister of State is certainly good but the feedback that I get from the retailers, especially the small ones, is that the practice swings towards a playing field to favour the developers. So there is little incentive for the retailers to improve productivity and to reduce costs because they know the developers will know of their profitability. What is the Ministry's view on this practice? If landlords increase rental rates, the costs will also increase and these will be passed on to consumers. Will this also mean that the retail sector will favour the larger players and we are seeing the smaller players being a bit more disadvantaged as a result of this practice?

Mr Lee Yi Shyan: Sir, to begin with, the retail sector is a very competitive sector. Competitive because the threshold for entry is relatively low and many would-be entrepreneurs would want to begin a business idea from the retail sector.

Retail space prices go in cycles and what we have observed is that the retail rentals in the last quarter have returned to the pre-crisis peak in 2008. And the previous peak was in the 1998. There was 10 years of lull period, where retail rental was relatively low. The Government's role is really to ensure that in the median term, there would be an adequate supply of retail space and, in fact, based on known projects, the retail space supply would be between 90,000 and 108,000, compared to the five-year past average of just 85,000. So this is about 27% more than the previous supply.

We believe that with this supply coming on-stream, the mall operators and their tenants will work together to cope with the increased space as well as to innovate. It is a narrow view to say that by participating in the mall-wide point-of-sales system, there would be a lot of downsides. In fact, by integrating sales information, I think the mall operators and the tenants can better share information about their customers, about what is selling, what is not, about the best-performing stalls and the least-performing stalls in the mall and from there, they can decide how to promote the malls to the targeted customer segment. In that sense, my personal observation is that the better organised malls are the more successful ones, and are the bigger crowd pullers.

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Having said this, I think it is important to emphasise the importance of raising our retail sector productivity. This is why the National Productivity and Continuing Education Council (NPCEC) launched the National Retail Sector roadmap for the productivity improvement in the 2010. Under this roadmap, the Government will provide a lot of resources to help SMEs train their workers and improve the service level as well as to invest in the necessary technology systems to help them to be the best of class.

Mr Speaker: Mr Zaqy, last question. Keep it short.

Mr Zaqy Mohamad: I understand the market dynamics approach that MTI adopts and the issue here is, for the retailer, with your books being very transparent to the developer, all you are doing is really running on the treadmill. You do more, you make more; they increase the rents. There is very little incentive to invest in better service, better quality for consumers. That is one. Two, I understand there are market dynamics in terms of having aggregate rentals going up or down vis-a-vis the market conditions. The only issue is when you have Profit and Loss statements being put up to the developers, they can target rent increase, whether to a small segment –

Mr Speaker: Mr Zaqy, you need to give the Minister of State time to respond.

Mr Lee Yi Shyan: Thank you, Sir. Well, to put things in perspective, I could probably highlight one survey. Singapore retail rent is comparable to many other cities in the world. For instance, compared to New York, we are about one-sixth or one-seventh of Fifth Avenue rents. We are about one-sixth of that of Hong Kong and one-third of that of Ginza in Tokyo. Retail rental is one component of the costs. Apart from just looking at cost containment, which is something that SMEs retailers must do, they also must look at value creation.

3.00 pm

Mr Speaker: Order. End of Question Time.

[ Pursuant to Standing Order No. 22(3), Written Answers to Question Nos. 10, 11-31 and 33 on the Order Paper are reproduced in the Appendix (Pg 990-993). Question Nos. 12 to 15 have been postponed to the sitting of Parliament on 18 January 2012 .]