Chart of the Day: Company closures in retail sector jumped by 20% in 2016

This is a whopping growth from 9.3% in 2014.

In Singapore, the absolute number of company and business cessations has seen an increase since 2015, after remaining relatively stable in the preceding years. According to the Ministry of Trade and Industry’s Economic Survey of Singapore, the cessation rate of businesses over the 2010 to 2016 period is roughly double that for companies.

The higher cessation rate may in part be explained by the nature and dynamics of businesses.

“For instance, due to the ease and lower cost of registering a business with ACRA, it is likely that entrepreneurs may register a business to experiment and test out a new concept, with many subsequently ceasing their operations if the concept does not work out,” it said.

Here’s more from MTI:

There was a slight pickup in the cessation rate of companies in recent years, from 7.3% in 2014 to 7.6% in 2015 and further to 7.8% in 2016. This could be due to the economic slowdown in 2015 and 2016, as well as on-going economic restructuring. Nonetheless, the cessation rate as at 2016 was still lower than the levels recorded in 2011 and 2012, suggesting that the overall corporate health of companies has not deteriorated significantly.

On the other hand, the cessation rate of businesses rose considerably in the last two years to reach 22% in 2016. This suggests that businesses may be more vulnerable to economic slowdowns than companies, as they likely have weaker balance sheets and may lack access to financing to tide over a period of slower economic growth. This could be especially the case for younger businesses, as a significant proportion of the businesses that ceased operations in 2015 and 2016 were less than two years old.

By sectors, the increase in company closures in 2015 and 2016 was broad-based, with all sectors recording a larger number of exits in these two years. In particular, the business services and wholesale trade sectors contributed the most to the overall increase in company cessation in the two years, with the number of company closures in these two sectors rising by 11% and 7.9% per annum on average respectively. Notably too, the number of company closures in the retail trade sector rose by 20% per annum on average in 2015 and 2016, significantly higher than the 9.3% seen in 2014.

As for businesses, while all sectors saw a rise in business cessation in 2015 and 2016, most of the increase in overall business cessation in these two years could be attributed to the retail trade and transportation & storage sectors. The rise in business cessation in the retail trade sector reflects the sluggish business environment faced by retailers in recent years, and also comes on the back of the spike in the number of new businesses formed in the sector in 2014. On the other hand, the increase in the number of businesses that ceased operations in the transportation & storage sector could be due to the exits of drivers providing private car-hire services after having tried it out for one to two years.