If you build it, they will spend: Singapore bets new malls will thrive despite recession

A man is silhouetted against illuminated walls as he sweeps the escalators at the ION Orchard, a new shopping mall a day before it opens its doors to the public on July 20, 2009 in Singapore. The project, which includes a 56-story luxury condominium tower just behind the mall, will cost about US$1.4billion. Singapore, where shopping is a beloved national pastime, is betting three massive new malls on the island's main retail strip can thrive despite a limp global economy. (AP Photo/Wong Maye-E) (AP)

SINGAPORE — Singapore, where shopping is a beloved national pastime, is betting three massive new malls on the island's main retail strip can thrive despite a limp global economy.

The revamp of the city-state's famous Orchard Road, along with two resorts featuring the country's first casinos opening next year, is part of the government's plans to make Singapore a regional tourist and shopping mecca and fuel a rebound from its worst recession ever.

But retailers on Orchard, which packs some 40 shopping centers into 2.5 kilometers (1.5 miles), could struggle for some time. Locals and tourists are spending less while the addition of hundreds of new shops in nearly a fifth more retail space will further squeeze profits.

"The timing of the new malls wasn't great," said David Cohen, an economist at consultancy Action Economics in Singapore. "Sales could be soft for a while."

So far this year, Singapore's retail sales are down more than 10 percent from a year earlier. Big-ticket items — such as jewelry, cars and furniture — have been especially hard hit.

"We really started to feel the recession in November, and in the last few months sales have been recovering very gradually," said Desmond Png, a manager at a Hugo Boss store in Ngee Ann City mall on Orchard. "Before, if a customer liked a shirt, and we had it in three colors, he'd buy all three."

"Now he's getting just one."

The biggest of the new malls, the ION Orchard, opened 70 percent of its stores last week after offering a 30 percent rebate on rent through October to attract tenants to fill its 640,000 square feet of retail space. Costing about $2 billion Singapore dollars ($1.4 billion), the project includes a luxury 52-storey condominium.

Rents at prime Orchard spaces will likely fall up to 12 percent this year, according to consultancy CB Richard Ellis.

"Yes, we've just gone through one of the worst global recessions ever," said Soon Su Lin, chief executive of Orchard Turn Development, ION's landlord. "But the tenants see this as a long-term investment."

"We believe the market will improve."

A regional economic recovery is also key for Orchard Road since tourists from countries such as Indonesia, Malaysia and China account for at least 20 percent of the country's retail sales, Cohen said.

Annual tourist arrivals, which fell 12 percent in the first five months of the year, are equal to 173 percent of Singapore's total population, the second highest ratio in the region after Hong Kong.

"Compared to Malaysia or Hong Kong, I prefer shopping in Singapore because of the comfort and safety," said Fitria Evariany, a 33-year-old Indonesian housewife who visits Singapore three times a year to shop. "I come here to buy certain brands I can't get back home."

Some Singaporeans see frequent pilgrimages to the local mall as their patriotic duty.

"Materialism is one of the cornerstones of Singapore society," said Darian Ee, a 22-year-old university student. "How else are we supposed to keep the economy flourishing?"

Singapore also lacks the gorgeous beaches, rolling hills and lush rain forests of its Southeast Asian neighbors, leaving residents without much else to do in their free time.

Besides, most Singapore shopping centers have supermarkets and many restaurants featuring Chinese, Malay, Indian and Western fare, giving families a good excuse to head to the mall for a quick bite or just a break from the tropical heat and humidity.

"It doesn't mean we're actually buying stuff," said Kit Wei Zheng, a Singaporean economist with Citigroup. "We can enjoy the air conditioning, have some food."

"What do we do on the weekends? We just go to the mall."

Most economists are optimistic that government tax breaks and spending programs will keep the unemployment rate low, and the economy will grow more than 4 percent next year after a 5 percent drop this year.

"As long as unemployment doesn't get out of control, consumers will still spend," said Selena Ling, an economist with OCBC bank in Singapore. "But if there's a protracted recession, then it's a totally different ballgame."

Associated Press Writer Bryna Djuhar in Singapore contributed to this report.