Business

Rising costs reduce retailers’ margins

Retailers in Singapore are struggling with higher costs due to rising rents and energy prices, according to the Singapore Retailers Association.

Pricing pressures are a major concern for many Singaporean retailers who have not fully passed on price increases to consumers and are currently experiencing “margin squeeze,” association president Ernie Koch told CNBC Street Signs Asia on Tuesday.

Singapore Utility Company SP Group announced an increase in electricity tariffs about 8% over the previous quarter from July to September.

“The increase is mainly due to higher energy costs driven by rising global gas and oil prices exacerbated by the conflict in Ukraine,” SP Group said in a statement.

Energy prices are likely to remain high in the second half of 2022, and residents should brace themselves for inflation to remain high before it stabilizes. The Treasury Department said in June.

Retailers in Singapore are struggling with higher costs due to rising rents and energy prices, according to the Singapore Retailers Association.

Bloomberg | Bloomberg | Getty Images

Last month, Deputy Prime Minister and Finance Minister Lawrence Wong announced a $1.5 billion support package. to provide immediate assistance to vulnerable groups and local businesses facing higher operating costs.

The government has responded actively to the volatile environment and is ready to help retailers manage their electricity bills and rent increases, Koch said.

Not everyone agrees that high electricity prices are affecting retailers.

According to Song Sen Woon, an economist at CIMB Private Banking, electricity is only a small part of the cost increase for retailers.

He said rents, labor costs and utility bills have also risen, and this is “hitting everyone,” including retailers. “For retailers, when it comes to electricity costs, it’s just electricity to turn the lights on and off. So we see that this is only a small part of the total costs,” added Song.

Retail sales growth

Despite the current inflationary picture, retail sales in Singapore rose 17.8% year-on-year in May, compared with a 12.1% increase in April. according to the Department of Statistics or SingStat.

Excluding automobiles, retail sales rose 22.6% in May, compared with a 17.4% rise in the previous month, according to SingStat.

All the tourism and travel that is coming back is clearly helping boost consumption in Singapore.

Brian Tan

Senior Economist, Barclays

“It’s no surprise that we’re seeing such a significant increase in demand,” said Brian Tan, senior economist at Barclays.

He said the pent-up demand for spending comes from tourists, not Singaporeans.

“All the tourism and travel that is coming back is clearly helping boost consumption in Singapore,” Tan said.

He dismissed speculation that this was due to “revenge spending” by the people of Singapore and said “it doesn’t make sense” as there is now pent-up demand as they could have been buying these items for the past six months anyway.

Department stores that were hit hard by Covid-19 restrictions in 2021 saw sales up 73.1% as consumer confidence rebounded. But at supermarkets and hypermarkets, sales fell 10.3% as grocery demand was higher in May 2021 when residents stayed at home, SingStat reported.

Auto sales were down 10.2% year-over-year and 5.7% month-on-month.

Tang said that this is mainly due to the rising cost of car ownership. In addition to paying for the car, car owners also have to pay for a license to own a car, known as a deed of entitlement. CE for one category of vehicles hit a record high of SGD 110,524 ($78,820) this week. — exceeding the previous high of 1994, according to local reports.

While sales of furniture and home appliances rose 4.7% year-over-year, they were down 1.7% on a monthly basis.

“If you think about the last two years, the demand in this sector has been mainly due to people being forced to work from home and study from home,” Tan said. “Now that they are all back in the offices and people are able to travel, demand is probably down a bit.”


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