rising costs are pushing up retailers’ margins

Retail businesses in Singapore are struggling with higher costs as rents rise and energy prices rise, the Singapore Retailers Association said.

Cost pressures are a major concern for many Singapore retailers, who have not fully passed on price increases to consumers and who are currently feeling “marginally squeezed,” the association’s president Ernie Koh told CNBC’s Street Signs Asia on Tuesday.

Singapore’s utility SP Group announced that electricity prices will rise by around 8% compared to 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,” said SP Group.

Energy prices are likely to remain high during the second half of 2022, and residents should be prepared for inflation to continue to remain high before stabilizing, the Treasury said in June.

Retail businesses in Singapore are struggling with higher costs as rents rise and energy prices rise, the Singapore Retailers Association said.

Bloomberg | Bloomberg | Getty pictures

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

The government has been proactive in responding to the volatile environment and is willing to help retailers manage their electricity bills and rent increases, Koh said.

Not everyone agrees that high electricity prices affect retailers.

Electricity contributes only a small part to the rising costs for retailers, said Song Seng Wun, an economist at CIMB Private Banking.

He said rents, labor costs and consumption taxes have also risen and it “hits everyone”, including retailers. “For retailers, in terms of energy costs, it’s only electricity to turn the light on and off. So we see that it’s only a small part of the total cost,” Song added.

Increase in retail sales

Despite the current inflationary landscape, retail sales in May increased Singapore by 17.8% year-on-year compared to the April increase of 12.1% according to data from the Department of Statistics or SingStat.

Excluding motor vehicles, retail sales increased 22.6% in May compared to 17.4% increase the previous month, SingStat said.

All the tourism and travel that is coming back is definitely helping to increase consumption in Singapore.

Brian Tan

senior economist, Barclays

“It’s not very surprising that we’s seeing demand rise in such a significant way,” said Brian Tan, a senior economist at Barclays.

He said the pent-up demand in spending comes from tourists rather than residents of Singapore.

“All the tourism and travel that is coming back is definitely helping to increase consumption in Singapore,” Tan said.

He rejected proposals that it was due to “revenge costs” from residents of Singapore, saying “it does not make sense” that there is an accumulated demand now that they were still able to buy these goods within the last six months .

Department stores, which were severely affected by Covid-19 restrictions in 2021, saw sales increase by 73.1% as consumer confidence returned. But supermarkets and hypermarkets had a 10.3% drop in sales as there was a higher demand for groceries in May 2021, when residents stayed home, SingStat reported.

Motor vehicle sales fell by 10.2% since last year and by 5.7% on a month-on-month basis.

Tan said this is mainly due to the rising cost of car ownership. In addition to paying for the car, car owners must also pay for the license to own one, known as a Certificate of Entitlement. COEs for a category of cars hit a record high of $ 110,524 Singapore dollars ($ 78,820) this week – surpassing the previous high in 1994, according to local reports.

Although sales of furniture and household equipment increased by 4.7% compared to last year, it decreased by 1.7% on a month-on-month basis.

“If you think about the last two years, a lot of the demand in the sector was due to people being forced to work from home and study from home,” Tan said. “Now that they’re all going back to the offices and people are able to travel, it’s probably a little less in demand.”

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