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Headwinds buffet Singapore retail sector
IT has been a challenging fiscal quarter for a number of listed retail stocks, which have unveiled gloomy report cards in recent weeks, stung by tough operating conditions, softer consumer demand and the strong Singapore dollar.
Spending is also being diverted from local brick-and-mortar stores; consumers have engaged mouse and shopped at online retailers, lured by lower price tags, or shopped overseas to get more bang for their buck.
In addition, there has also been a let-up in the number of tourist arrivals and in tourism spend, in the wake of China's slowing GDP growth and the weakening of regional currencies against the Singapore dollar.
Among the retailers who announced lower earnings for the most recent fiscal quarter were watch retailer The Hour Glass, lifestyle-products group OSIM International and fashion firm F J Benjamin.
Weighed down by higher costs and expenses such as rent, The Hour Glass reported an 18 per cent slide in net profit for the second quarter ended Sept 30 to S$9.65 million - despite a six per cent rise in revenue to S$175.32 million.
F J Benjamin sank into the red with a net loss of S$5.47 million for Q1FY16, from a net profit of S$1.11 million a year ago; its turnover was 15 per cent lower at S$63.7 million. The company blamed its performance on poor consumer sentiment, currency volatility, softer tourist arrivals and the effects of the haze, which added to a "challenging" retail environment.
Preliminary figures from the Singapore Tourism Board indicate that visitor arrivals for the January-to-September period dipped 0.3 per cent year-on-year to 11.35 million.
This suggests a slight pick up from the half-year mark; tourism spend had fallen 12 per cent for the first six months to S$10.5 billion, outstripping a 3 per cent year-on-year decline in visitor arrivals to 7.3 million over the same period.
F J Benjamin said: "Given the uncertain global economic outlook and intensifying competition, the group expects the retail sector in its key markets of Singapore, Malaysia and Indonesia to remain challenging in the mid-term."
Metro, which derives the bulk of profit from its property business, turned in a $2.13 million loss from operating activities from its retail business in Q2FY16; this was a widening from a loss of S$1.23 million a year ago.
Sales in its Singapore retail stores rose to S$36 million, thanks to its new Metro Centrepoint store and higher contributions from existing stores, but operating and overhead expenses of the new store resulted in more red ink at the operating level.
OSIM International, which has operations in markets such as Singapore, Malaysia and North Asia, reported its worst set of results since Q2 of 2009: Net profit plunged to S$6.17 million for the third quarter ended Sept 30, down 62 per cent from a year ago. The bottom line was hit by the double whammy of lower revenue and higher costs.
Local supermarket group Sheng Siong posted a 19 per cent increase in net profit to S$14.48 million on the back of improved margins and new stores, but warned that consumers will remain cost-conscious against the backdrop of uncertain economic conditions; this will be exacerbated by stiff competition among supermarkets, it added.
Barclays economist Leong Wai Ho, referring to the latest retail sales figures released on Friday, said: "The underlying trend (for retail sales) was quite weak and should remain quite weak." For the month of September, retail sales (stripping out motor vehicles) were down 1.4 per cent year on year and 4.5 per cent lower month on month.
OCBC Bank's head of treasury research and strategy Selena Ling noted that demand for discretionary items such as recreational goods, watches and apparel were weak across the board in September.
However, domestic demand - referring to that for food and beverages, telecommunications and supermarket spending - is holding up, in a testament to domestic confidence and a tight labour market, she added.
With the year-end festivities not far away, some industry observers reckon a more subdued Christmas spending may be on the cards, as uncertainties in the global economy keep consumers cautious.
Traditional retailers may also feel the impact of emerging trends: Consumers today increasingly spend on experiences - such as spa sessions or concert tickets - rather than on physical products or gifts, noted National University of Singapore (NUS) associate professor in marketing Ang Swee Hoon. But Barclays' Mr Leong foresees domestic demand getting a boost during the year-end festive period if Singaporeans stay at home for the holidays.
To recapture some of the spend that is gravitating online, Assoc Prof Ang suggests that retailers introduce products that are available only in physical stores. "Products that are more customised would find a niche following and would probably do better," she added. Local entrepreneurs should offer something "unique" or with a Singaporean flavour.
Meanwhile, to tackle the e-commerce threat, the Orchard Road Business Association (Orba) will introduce a free mobile app OneOrchard, complete with an e-store and vouchers from its member companies, to keep the tills ringing over the festive season.