Singapore retail companies mired in labor cost hurdles

Manpower shortage and higher wage costs strike.

According to OCBC, at the company level, revenue growth for consumer-related firms was tepid, which is hardly surprising, given the uncertain macro-environment. These companies also faced additional challenges from rising operating expenses – particularly labour costs – which increased pressures on operating margins.

Here's more from OCBC:

The impact of recent government policies to reduce Singapore’s dependence on foreign labour (by charging higher foreign-worker levies and restricting employment numbers) was compounded by rising inflation (CPI +3.4% in 2012) and a tight labour market (unemployment rate 1.9%1), resulting in a manpower shortage and higher wage costs. A survey by DP Information Group found that more than seven in ten small and medium enterprises (SMEs) reported rising manpower costs as the main reason affecting their profitability.

…although cost management was effective 
Despite rising operating costs, consumer-related companies still managed a respectable performance. Through a mix of cost-control measures – managing inventory more effectively, purchasing raw materials in bulk, and altering pay structures to make them more variable – the companies were able to reduce cost pressures, and in some cases even improve margins.

Retail sales soft but improving
Overall retail sales volume – excluding the heavily weighted motor vehicle component – rose 1.4% MoM in Sep (+3.9% YoY) to add to the previous month’s marginal gains of 0.6% MoM (+2.8% YoY). Similarly, the value of retail sales (ex. Motor vehicles) for Sep rose 0.7% MoM (+3.3% YoY), compared to a gain of 0.3% MoM in Aug (+2.3% YoY).

Sales volume for telecommunication apparatus and computers provided  the strongest support with a 19.3% MoM gain while other segments such as department store and supermarket sales volumes remained resilient with MoM gains of 0.4% and 1.1%, respectively.