Rough times ahead for Singapore's retail sector

Singaporeans will be tightening their belts, spending less on shopping next year.

The MTI forecasted 2012 GDP growth rate of between 1-3% will cause consumers to re-adjust and re-prioritise spending habits.

Here's more from OCBC:

Challenging times ahead for retail sales. With a MTI forecasted 2012 GDP growth rate of between 1-3%, a moderation in retail sales is likely as we head into 2012. A reduction in average household earnings resulting from a labour force tightening will cause consumers to re-adjust and re-prioritise spending habits. That said, retail sales are likely to ease to at best match 2010's level. If the global climate deteriorates even faster and worse than expected, 2009's steep fall off could be revisited.

However, some bright spots exist - IRs. Since the opening of the two integrated resorts in 2010, spending on sightseeing and entertainments, which includes entrance fees to attractions and nightspots, gaming at the
IRs etc., increased a whopping 1,834% (vs. 2009) and 136% (2Q11 vs. 2Q10). Correspondingly, expenditures on shopping and F&B services also increased by 17% YoY and 23% YoY respectively (vs. 2009) and 9% YoY
and 23% YoY respectively (2Q11 vs. 2Q10). Going forward, both IRs should continue to provide a base support for visitor arrivals and tourism expenditure in FY12.

Demand from Asia should hold up. There are some fears that spill-over effects from a downturn in Europe and the US will cause growth in Asia to ease. Whilst these fears cannot be fully negated and discounted, we expect Asian countries to continue to see support from domestic demand and post stronger growth as compared to western counterparts. In addition, Asian central banks have more flexibility and tools (monetary, fiscal) at their disposal
to balance the trade-off between growth and inflation.

In the interim, go defensive. With their defensive qualities against economic slowdown and opportunities to maintain or improve on operating margins, our preferences are on the supermarket segment. Although the sector's revenue growth for 2012 will be very gradual, it runs a far lower risk of earnings disappointment especially when compared to other discretionary or highly cyclical counters.