Cost-cutting isn’t cutting it anymore for Singapore’s struggling retailers
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Profits plummeted by 30% over the last 5 years.
Retail firms have been thinking out of the box in terms of cost-cutting to constrain cost growth, but they can only do so much on back of the struggling retail industry.
According to a report by BNP Paribas, retail trade firms have seen persistent erosion of profit margins.
“Aggregate revenue growth for the roughly 22,000 retailers has been hard to come by (5-year nominal CAGR of 1.2%). This likely reflects slower domestic growth and the impact of macro-prudential tightening,” the report noted.
Additionally, retailers have also grappled with labour market policies spurring strong wage gains (5Y CAGR of 7%) and, more recently, rising debt service.
“As a result, we estimate industry-wide pre-tax profits fell by 30% over the last 5 years,” the report added.
Meanwhile, similar sinking trends in profit margins are also manifest in the services sector, as labour market data indicates firms are now attempting to pass the problem on to households by shedding jobs.
“In turn, these developments allude to slower wage income growth and a potential vicious cycle as highly-indebted households struggle with their own debt service,” the report noted.
Questions & Answers
Q.What is the primary reason given for the difficulty in achieving revenue growth for Singaporean retailers?
What is the primary reason given for the difficulty in achieving revenue growth for Singaporean retailers?
The report suggests that slower domestic growth and the impact of macro-prudential tightening have made it challenging for the 22,000 retailers to achieve aggregate revenue growth over the past five years.
Q.Beyond cost-cutting, what other factors have negatively impacted retail firms' profit margins?
Beyond cost-cutting, what other factors have negatively impacted retail firms' profit margins?
Retailers have also faced challenges from labour market policies leading to strong wage gains for staff and, more recently, an increase in debt servicing costs, further eroding their profit margins.
Q.How do trends in the services sector relate to the retail industry's struggles?
How do trends in the services sector relate to the retail industry's struggles?
Similar declines in profit margins are seen in the services sector, where firms are reportedly shedding jobs. This could lead to slower household wage growth and increased difficulty with personal debt.
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