Corroding cash: Razor-thin margins burden retailers amid retail boom

Operators grapple with rising rents and higher costs.

Singapore’s retail industry looks rosy on the surface, with new stores and restaurants opening left and right. But retailers are struggling to make profits in spite of the retail boom.

According to a report by Colliers, factors such as rising tourism receipts are expected to keep the retail sector upbeat throughout the year. But a horde of operating challenges remain, affecting both established and small operators alike.

“Established retail operators continue to face rising costs and shrinking profits. Tight foreign labour policies and low interest from locals to work in the sector make it difficult for retailers seeking to staff their outlets, especially so in the hiring of front-end staff. Aside from labour costs, firms are also seeing their margins being squeezed by rising rentals upon renewal. In addition, the majority of Singapore shoppers are now more discerning and there is pressure on shopping malls as well as individual shops and eateries to rejuvenate themselves constantly in order to cater to changing consumer tastes,” noted the report.

Here’s more from Colliers:

Despite some of the uncertainty in the first half of 2014, there are some factors that will lend strength to the retail sector in the second half of 2014.

The Singapore economy is expected to grow at a modest pace in 2014, with the Gross Domestic Product (GDP) projected to expand between 2.0% and 4.0%.

The Singapore Tourism Board (STB) currently projects visitor arrivals in 2014 to grow to between 16.3 and 16.8 million, with tourism receipts to be in the range of $23.8 to $24.6 billion.

The Great Singapore Sale (GSS) taking place from 30 May to 27 July should also provide a boost to the prevailing consumer
sentiment.

As a gateway city to South-East Asia, Singapore is a desired location for new brands as well as an attractive destination for top international labels.

However, while new stores and F&B outlets will continue to make inroads by setting up shop in a variety of locations, retail rents and prices are not expected to increase by any substantial degree due to the lingering challenges in operating environment.