A retail shakeout in Singapore

January 31, 2004
Singapore Democrats

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Linus Chua
Bloomberg News
29 January 2004

Tax increase adds burden after years of losses and closures

Every year, Robinson Co., Singapores oldest and largest department store company, advertises the sale worth waiting for. This year, it could not even sell itself.

Offers for the 145-year-old retailer, which had been on the market since September, did not meet expectations, the company said on Jan. 16 as it announced it was scrapping the sale.

Robinson is not the only Singapore retailer eyeing an exit. Annual economic growth that has declined to an average of 2.6 percent since
1998 from 9.1 percent in the previous seven years has cut the city-states average retail sales growth from 3.5 percent to 0.05 percent in the same period.

The outbreak of severe acute respiratory syndrome last March sent tourist visits to a two-decade low, which in turn helped create record unemployment.

Retail spending may get worse before it gets better. At the start of the year, the sales tax rose from 4 percent to 5 percent, hurting retailers and suggesting that more could follow Robinsons lead.

Singapore doesnt seem to have a growth story in terms of retail, said Pieter Van Putten, managing director at APS Asset Management in Singapore. Id rather buy Hong Kong, where theres more potential with the hina tourist flow.

While the Singapore government forecasts 5 percent growth for the $89 billion economy this year, the higher sales tax will crimp spending and hit store owners right from where they purchase their merchandise up to where they show it on the shop floor, said Lau Chuen Wei, executive director of the Singapore Retailers Association. Retailers would be hard-pressed to be too optimistic.

Some stores already have folded. Last April, DBS Group Holdings, Singapores biggest bank by assets, placed One.99 Shop, a 14-store chain that sold goods for one price, into receivership with debt of $1.8 million.

Unless you have a very unique product proposition, you wouldnt want to make retail your core business in Singapore, the chains founder, Nanz Chong-Komo, said.

Chong-Komo, named Woman Entrepreneur of the Year in 2000 by the Association of Small and Medium Enterprises, was declared bankrupt in September. SARS was the heavy last straw that broke the camels back for us, she said.

At C.K. Tang, Singapores third-largest department store by sales, the chief executive, Tang Wee Sung, last year offered to pay $17 million to buy out minority shareholders frustrated by five years of losses.

Tang, which has not paid a dividend since 1995, borrowed $70 million last year to pay off debt even after selling a prime retail property in Kuala Lumpur in 2002.

Isetan Singapore, the No. 2 department-store chain, started its end-of-year sales in mid-December. Yet Christmas shoppers spent only marginally more than in 2002, said Gerard Goh, sales and promotions manager. Isetans $590,336 profit in 2002 was its lowest since a loss in 1995.

Courts Singapore, a retailer of furniture and electrical appliances, posted its lowest profit in 12 years. Courts has waived the 5 percent sales tax for three months from December in a bid to raise consumer confidence, said the managing director, Terry OConnor.

Some stores are perennially on sale and they are willing to sacrifice the margins to get the traffic going, said Lau of the retail association.

QAF, which ran 35 Shop N Save supermarkets in Singapore, sold its 51 percent stake to the Hong Kong-based Dairy Farm International Holdings in November. QAF posted a net loss of $1.9 million in the third quarter of 2003, down 182 percent from the previous year.

Lau said tourists to Singapore usually visited countries such as Thailand and Malaysia as well, where goods are cheaper. Tourist dollars make up a fifth of retail spending in the main shopping area, Lau said. In the 1980s, the figure was 40 percent.

Robinsons failure to attract buyers followed its decision not to purchase the 38 percent stake held by Oversea-Chinese Banking in the retailer. Robinson was put on the market because Oversea-Chinese Banking must meet a government directive to divest non-banking businesses.

Thats certainly one of the options that should have been considered ages ago, said Hugh Young at Aberdeen Asset Management Asia.