In January this year, real estate investment trusts CapitaLand Mall Trust (CMT) and CapitaLand Commercial Trust (CCT) announced that they would be integrating by a trust scheme agreement to form CapitaLand Integrated Commercial Trust (CICT) in May 2020.
This merger will mark the formation of Singapore’s largest real estate investment trust (REIT), which is a company that owns a group of income-producing real estate. It will also become the third largest REIT in terms of market capitalisation in the Asia Pacific region. Both CMT and CCT are already leaders in their own segments to begin with. According to The Fifth Person, a leading investment website in Singapore, CapitaLand Mall Trust is the largest owner and operator of retail malls in Singapore, with a market capitalisation of S$9.55 billion and 15 shopping malls in their portfolio worth S$11.8 billion. Meanwhile, CapitaLand Commercial Trust is Singapore’s first commercial REIT listed on the Singapore Exchange with a market capitalisation of S$8.22 billion and a total of 10 office building properties in their portfolio worth S$11.1 billion. Their merger will result in an integrated giant REIT worth S$23 billion with a total of 24 properties in their portfolio.
REITs are financial assets that might seem independent from the fashion industry. However, merging Singapore’s largest shopping mall landlord with a completely unrelated entity spells intrigue and perhaps trouble for the retail sector ahead. What are the implications of a merger between these two REITs? What does this mean for the state of retail? How does this demonstrate a strategic evolution for the retail industry? We break these insights down.
This CMT-CCT merger marks the fifth merger within the Singaporean REIT industry in the past year. CapitaLand and Ascendas-Singbridge kicked things off in January 2019, followed by OUE Hospitality Trust and OUE Commercial REIT in April 2019, Ascott Residence Trust and Ascendas Hospitality Trust in July 2019, and finally Frasers Logistics & Industrial Trust and Frasers Commercial Trust in December 2019.
However, this pattern of mergers and combinations is not limited to the Singaporean REIT industry. A similar pattern of acquisitions is also evident across the global fashion industry.
Less than a month ago, multi-label concept store Opening Ceremony was bought over by Italian luxury conglomerate New Guards Group, which also owns the licenses of cult streetwear brands Off-White and Heron Preston, among many others. At the end of last year, the luxury industry’s largest conglomerate Moët Hennessy Louis Vuitton (LVMH) announced that it had acquired American luxury jeweler and retailer Tiffany & Co. for an eye-watering $16.2 billion.
Large conglomerates with deep pockets are on a perpetual lookout to expand their corporate portfolio, as strategic unity is strength. A larger and more diversified corporation presents varied revenue sources and enhanced product differentiation, allowing the overall group to better withstand inevitable market fluctuations and corrections. In addition, a broader asset portfolio communicates more negotiating power in the corporate world.
Swayed by this alluring prospect, it is tempting to diversify across all product categories the moment companies can afford it. After all, if a diversified portfolio increases a company’s chances of economic survival, why not just expand into as many segments and categories as possible?
To counter this argument, let us examine the state of the modern department store. It is not breaking news that department stores and retail malls in general are suffering a decline. Barneys New York, a luxury American department store, filed for bankruptcy in August 2019, and is planning to shut all 22 stores by end 2020. Beales, an English department store chain, is on the verge of closing all its stores after entering administration (becomes insolvent) on 20 January 2020. Closer to home, local chain department store Metro closed its flagship store at The Centrepoint in September 2019.
Department stores are one of the most diversified retail establishments, carrying products ranging from apparel to furniture and even perishables like food. With a product range wider than that offered by multi-label stores like Dover Street Market, it is puzzling why so many established players are downsizing, shutting unprofitable stores or even filing for bankruptcy.
Brands need to recognise that the secret to success lies in harnessing the right diversification strategy that helps bolster, not bruise, business. Diversification approaches — be it in tenants or labels — should strengthen and consolidate the group’s core identity, instead of acquiring for the sake of increasing capital ammunition and profits. The key to developing an appropriate diversification strategy lies in focus: a laser-focused brand identity for customers to easily identify with, together with marketing strategies designed for a highly specific group of audience that will likely become recurring customers and brand advocates. This is why companies such as Dover Street Market and Colette enjoy a “cult” status that most retailers only dream of becoming, despite carrying fewer labels and product than the average department store.
By now, industry players recognise the seismic shift in the retail industry from providing a physical, transactional focus to an experiential one. This has also been identified as a reason for the CICT REIT merger. In its analysis of the merger, The Fifth Person highlighted the merger as a testament to the popularity of integrated developments as the next frontier for retail malls as venues for both work and play. In today’s hyperconnected Information Age, customers can shop online with their phones and computers, and have their orders delivered directly to their homes. Therefore, they need a strong, compelling reason to visit the shopping mall.
As spaces for living and working, an integrated solution simultaneously transforms workers into potential customers for the retail outlets. For example, Raffles City Singapore is a mixed-use integrated development building, combining a 42-storey Raffles City Tower above 5 floors of retail space at Raffles City Shopping Centre, with the 73-storey Swissôtel The Stamford Singapore and the 28-storey twin-towers Fairmont Singapore situated around the vicinity. Therefore, executives working in the Raffles City office tower are more likely to spend at Raffles City Shopping Centre, and might even be recurring customers for F&B outlets there. Tourists staying in the development’s hotels are an additional source of revenue too.
Evolving the retail mall into an integrated development also promotes more efficient land use, which is highly beneficial for a land-scarce country like Singapore. By imbuing more uses and experiences within the same space, higher returns are generated, therefore benefitting all stakeholders, from consumer to retailer, landlords and even policymakers.
In conclusion, the CMT-CCT merger provides a glimpse into how the future of retail could unravel. Retailers who unite and capture customers with a targeted, experiential approach are more likely to succeed in the wave of disruption ripping across the industry. A focused approach to diversification across tenants, segments and experiences are more likely to bolster the retailer’s core identity, therefore granting customers the opportunity to become committed regulars and perhaps even advocates.
Fashion Commentator & Creator
Fashion Journalist at Fashive