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Germaine Foo started LOVET, her online women’s fashion business, as a passion project during her university days in 2014. At the time, she was really into online shopping and remembers how “receiving my parcels, and even selling my pre-loved clothes to raise money to buy more clothes was thrilling”.
This experience inspired her to start a women’s fashion blogshop. The self-confessed not-an-entrepreneur-at-heart admitted that she is not a risk-taker by nature. After graduating from university, Germaine took up a role in HR in the hospitality industry.
After juggling LOVET as a side-hustle in the early days, she decided to focus on it full-time as business started to gain traction. The decision to leave the stability of her pay check was made easier when her husband-to-be, Lee Wei Leong, encouraged her to take the plunge. His words of wisdom to her were “you’re young and you can always go back to work if it fails”.
Germaine first started working out of the spare bedroom of her mother’s flat and subsequently in the new 4-room BTO flat she had moved in to after marrying Wei Leong, converting a spare bedroom into her makeshift warehouse. As the business progressed, she roped in Wei Leong, a banker by profession, to help manage the financial side of the business as his side-hustle. One of his first inputs was to plough back company profits by purchasing their own warehouse space – a decision that risk-averse Germaine would never have considered without him. This gave them back their spare bedroom and also acted as a catalyst for greater expansion plans. Today, the husband-wife team owns four commercial properties from which they run their business.
This year, despite the COVID-19 setback, business has grown to the point that Wei Leong has also left his job to work on LOVET full-time.
DollarsAndSense had the opportunity to speak to Germaine and Wei Leong to learn about their entrepreneurship journey and how purchasing commercial properties has helped improve their business.
Dinesh: Thanks for sharing your entrepreneurship journey with us. The online retail scene must have been very different back in 2013. What were some of the biggest changes you’ve had to make to keep LOVET relevant?
Germaine: When we first started, the only thing I did was set up our blog and start selling products. That was all an e-commerce store needed back then. The industry was not as saturated as it is today. There were not a lot of options to choose from back then.
As the online fashion scene became more crowded, we had to differentiate ourselves. We had to bring a lot of creativity to the table. Sometimes, it feels like we are a creative agency rather than a blogshop today. We have a full in-house creative team that takes and edits photographs, does graphic design and posts on social media daily.
We are also very focused on customer experience. We want to provide excellent customer service and product quality. Starting a business in school was a good thing as money wasn’t the motivation. I just wanted someone else to experience the joy of online shopping like I did. Unknowingly, we built one of the biggest women’s fashion communities.
We also had to evolve from simply getting products from wholesale markets – which everyone else would also be selling – to manufacturing our own fashion products. We started manufacturing our own designs back in 2017. It was risky, but we were confident of pulling it off.
Dinesh: Online businesses were typically less hard-hit because of COVID-19 as more people and businesses were forced to go online. How did LOVET ride this wave?
Germaine: During the initial Circuit Breaker, we were very lucky to still be able to operate. We know many businesses that had to close their operations. However, our manufacturers in China were all shut and we had no foresight on when they would re-open. We were also affected by delays in sea and air cargo. There has been a hike in cargo fees for us as well, which had eight upward adjustments today compared to 2019.
We quickly pivoted our strategy to a fortnightly launch rather than a weekly launch. This affected our revenue significantly. Moreover, we had to absorb the higher cargo fees. We didn’t want to simply pass on this cost to our loyal customer base, as we want to remain an affordable fashion brand, especially since people are also more cost-conscious today as COVID-19 continues to create uncertainties.
As we are primarily digital and have a strong following on our Lovet Fam Telegram channel, we saw our sales volume increase even though our margins suffered significantly. During the Circuit Breaker, people were also spending more time online. This helped us gain a new customer base.
Dinesh: Many people associate blogshops with being asset-light. Why did you decide to invest in your own commercial properties and how did operating out of your own space help your business?
Germaine: We needed more space as we expanded. Each time one of our product shipments comes in, it weighs between 1,500 kg to 2,000 kg. This is because of our weekly launch model. We need the products to come in before we launch to avoid delays and unsatisfactory customer experience.
With COVID-19, shipments have also become much more costly and take longer. Sea freight takes up to 24 days now to reach, when it only took about 8 to 10 days in the past. Even when the cargo arrives in Singapore, there is a long queue and docking dates keep changing as our ports are congested. Delivery is also less predictable today, so we try to increase the order size.
Because of the uncertain supply chain factors, we sometimes even receive the next shipment earlier than expected – so we really need the extra space to store them.
Wei Leong: I was in the banking industry in my previous job. So, I understand the process of purchasing a commercial property and thought, “why not get our own property?”.
This gives us certainty in the space that we do have. Being owners of the property, we have the choice to maximise the usage of the space to suit our needs. If we were to rent, we will have to reinstate the property to its original state if the landlord jacks up the price unreasonably and we will have to look for a new space for our operations. We can invest in the renovation works knowing that there will be no disruptions as we are here to stay.
Dinesh: Unlike buying, renting a space does not require stumping up a few hundred thousand as down payment. What were some of the financial considerations you had to debate between buying your own space VS renting a space?
Wei Leong: Prudent cash flow management is required. We keep enough cash for at least nine months of operational cost. I consider anything above this amount to be investible.
There are also tax considerations for businesses. We can write off rent as a business expense, however, we cannot write off the full bank loan repayment amount as an expense.
Our latest commercial property purchase was actually a third adjoining unit in the development to create one big unit. We purchased the initial two units back in 2020. This has helped us expand our business with more assurance as we have more storage space for our products. Because we own our space, we can expand and renovate with the guarantee that the rent will not suddenly spike as we need those exact three properties in a row for our business operations.
Finally, buying a sought-after space is also important. If we really don’t need the space or urgently require to cash out, we can always pledge the property or sell it off to free up our cash flow. If we can afford to hang on to it, we can also rent it out for income. This is the case for the first commercial property we purchased in another development, before moving to S9 – near Ang Mo Kio. It’s still a desirable location for other businesses despite the pandemic and is being rented out to someone else.
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Dinesh: Unlike buying residential property – as over 80% of Singaporeans are homeowners – not many people are familiar with buying commercial properties. What are some factors to consider when purchasing a commercial property?
Wei Leong: There are many similarities to choosing a commercial property to buy. In our case, we got a good price at a good location, so we knew we were making a good investment.
Located near Ang Mo Kio, it is a very accessible location, especially for employees to travel to the property. Within the development, our commercial property is located in the building closest to the main entrance of the compound and the closest bus stop which most employees use.
When buying a commercial property, we also have to consider the remaining lease. Many newer light industrial properties come with 30-year leases, where upon TOP, only 25-27 years of usable lease is remaining. The commercial property we purchased came with a 60-year lease and has close to 50 years remaining on the lease as of now.
Dinesh: What are some of the main challenges you faced when buying your commercial properties?
Wei Leong: As an ex-banker, I was quite familiar with the process of taking a commercial property loan. This was also one of the reasons I decided that we should go down this route from the start. Moreover, I was also in contact with an experienced Business Development Manager from OCBC that helped facilitate the transaction.
Interest rates-wise, I found OCBC’s Commercial Property Loan offers a very competitive rate. There are also various options of fixed rates packages offered that help to minimise interest rates swings.
Buying A Commercial Property Can Help Run Your Business Better
As LOVET’s business expanded, they could no longer operate out of a spare bedroom in the owners’ BTO flat. They had to either rent or purchase. As a banker, Wei Leong was familiar with applying for commercial property loans. This experience provided him insights into spotting a good commercial property. As Wei Leong shared, similar to residential property purchases, location is key. You would want to ensure that it has good accessibility to transport nodes for employees.
Many commercial properties may not be situated in obviously attractive locations. As a business owner, you are naturally thinking of these things already. A location you want to rent would likely be a good location.
Purchasing is not going to be cheap. The last thing you want is to put a down payment on your commercial property and leave your business without the cash flow to tide through market downturns. By the time LOVET purchased their fourth property, COVID-19 had hit and impacted their margins significantly. The husband-wife duo ensures that they have at least nine months’ worth of expenses in their bank account before investing the remaining funds.
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One advantage when investing in multiple commercial properties is that you do not have to worry about Additional Buyer’s Stamp Duty (ABSD) that individuals have to fork out when investing in multiple residential properties. Banks also allow you to borrow up to 80% of the property purchase price or valuation. This is higher than investing in residential properties, where you can only borrow 75%.
Buying a commercial property can also provide investment returns and help save on rental costs. However, the real benefit for Germaine and Wei Leong is that they were able to expand their floorspace with certainty that landlords will not suddenly increase their rent after securing next door units and spending a lot on renovation to combine the space. This gives businesses the confidence to scale up and renovate to suit their exact requirements.
While Wei Leong is experienced in the process of taking a commercial property loan, not all business owners are the same. This is where OCBC can step in to offer attractive interest rates, as well as a dedicated Business Development Manager to take you through the process. If you are considering a commercial property, you can get a loan approval in as fast as 72 hours.
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