Cheap air travel is the hidden culprit behind dropping retail sales

Consumers are shopping outside Singapore.

Cheap air travel is siphoning residents’ shopping dollars from Singapore-based retailers, according to a report by DBS.

DBS noted that local retailers are grappling with cutthroat competition from regional countries. More Singaporeans are choosing to spend money overseas, aided by the proliferation of budget carriers and the Singapore dollar’s relative strength against regional currencies.

“Strong growth in overseas spending has coincided with the proliferation of low cost carriers (LCCs) and a strong SGD, which has made travelling to nearby countries such as Thailand, Japan and Australia, more affordable and therefore accessible for the general population,” said DBS.

DBS noted that over the past decade, local residents’ expenditure abroad has grown at compound annual growth rate (CAGR) of 6.5% per year, from $13bn in 2004 to $24bn in 2014. Overseas spending made up roughly 60% of Singapore’s retail operating receipts in 2014.

“This is negative for retailers because consumers are able to arbitrage on currency-driven price differences to purchase similar items at better prices overseas. Although controlling cost base would be a key way to combat lost sales from overseas leakage, rising labour costs and high fixed rents however give retailers very little room to price goods and sales competitively in a sustainable manner,” said DBS.