Retail (Singapore) Industry Outlook - DBS Bank
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Industry Outlook Retail (Singapore) Refer to important disclaimers at the end of this report DBS Group Research . Asian Insights Office 17 September92015 March 2017 Macro Outlook Singapore’s GDP growth to accelerate to 2.8% in 2017. We have upgraded our 2017 growth forecast for Singapore to 2.8% (up 1.5 percentage points) on the back of the upward GDP revision for previous quarters and a robust 2016 fourth quarter, which registered the strongest quarterly growth in six years at 12.3% on-quarter, seasonally adjusted annual rate. This translates to 2.9% on-year growth, with GDP growth for 2016 coming in at 2.0%, substantially above expectations and backed by significant upward revision to previous quarters’ data as well. The key driver in the 2016 fourth quarter was an 11.5% on-year surge in manufacturing growth, driven by semiconductor (up 62% on-year) and pharmaceutical (up 34% on-year) manufacturing. The services sector grew by 8.4% on-quarter, seasonally adjusted annual rate, or by 1% on-year, led by financial (up 36.5% on-quarter) and trade-related services – transport and storage services rose by 12.4%. Loan growth has bottomed and will likely trend higher. Container throughput and re-export growth have continued to creep higher too. Expect spillover from the manufacturing and services sectors into the rest of the economy. GDP performance from the 2016 fourth quarter bodes well for overall GDP and employment growth. We see the positive impact from semiconductor and pharmaceutical clusters spilling over to the rest of the economy, e.g. into the precision engineering cluster, transport and warehousing for exports, financial, other supporting services and small- to medium-sized enterprises. This should drive more broad-based improvement in the rest of the economy. GDP growth rate: Year-on-year change Remarks Growth % 16 1. GDP growth is set to accelerate to 2.8% in 2017 14 12 2. 2016 fourth quarter driven by semiconductor and 10 pharmaceutical 8 manufacturing 6 3. Services sector is improving 4 – led by financial and 2 trade-related services 0 -2 -4 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F Source: ThomsonReuters, DBS Bank . Page 1
Industry Outlook Retail (Singapore) Singapore retail sales (ex-motor vehicles) Remarks % chg 1. Overall retail sales (ex- 15 motor vehicles) have, since 2012, trended on a gentle 10 decline. This is largely in line with decelerating GDP 5 growth 0 2. Retail sales growth negative in 2016, in line -5 with lower private consumption and higher -10 unemployment rate -15 Mar-12 Mar-15 Mar-16 Mar-13 Mar-14 Sep-12 Sep-14 Sep-15 Sep-16 Sep-13 May-12 May-13 May-16 May-14 May-15 Jul-13 Jul-14 Jul-12 Jul-15 Jul-16 Jan-13 Jan-14 Jan-15 Jan-12 Jan-16 Nov-12 Nov-13 Nov-15 Nov-16 Nov-14 Source: Bloomberg Finance L.P., DBS Bank Singapore shop rental Remarks 1. Retail rents have fallen in 2016 due to weak consumption and GDP growth Source: CEIC, DBS Bank . Page 2
Industry Outlook Retail (Singapore) Private consumption tapered off as unemployment rate increased. Post-financial crisis recovery has led to growth in consumption expenditure. However, the decline in 2012 was due to a reduction in tourist arrivals and non-resident expenditure, as well as recreation and culture. In 2015, consumption growth expanded sharply on increased transportation costs, attributable to the high cost of certificates of entitlement (COE, vehicle ownership licenses) and the number of new and used car sales. It, however, tapered off in 2016 due to a higher unemployment rate of 2.1%. Private consumption expenditure growth Remarks Growth % 5.0 1. Increase in private consumption in 2015 was 4.5 led by the transportation 4.0 sector 3.5 2. In 2015, the number of 3.0 new vehicle registrations 2.5 increased 54% while vehicle transfers increased 2.0 20% at a time when COE 1.5 prices ranged between S$54,000 and S$78,000 1.0 0.5 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F Source: DBS Bank The age distribution of cars in Singapore is lumpy. COE prices currently stand at around S$50,000. According to the age distribution of cars in Singapore, close to 100,000 cars will reach the age of nine to ten years and will be due to be scrapped this year, compared to 30,000 to 50,000 per year for cars aged two to nine years. Motor vehicle taxes and vehicle quota premiums revenue for the Singapore government in 2017 are estimated to total S$9.3 billion (up 0.8% from S$9.2 billion in 2016). COE quotas are expected to expand, driving up motor vehicle tax, estimated at S$2.7 billion, by 18.2%. COE price, Category A (S$) Remarks S$ 1. Vehicle population 100000 growth rate is currently 90000 0.35% 80000 70000 60000 50000 40000 30000 20000 10000 0 Source: Bloomberg Finance L.P., DBS Bank . Page 3
Industry Outlook Retail (Singapore) Singaporeans’ nominal and real wages continue to increase. According to Ministry of Manpower statistics, the median monthly wage grew from S$2,543 in 2007 to S$4,056 in 2016. The nominal wage has never declined. Workers th th between the 25 and 75 percentile generally draw a monthly salary of between S$2,000 and S$6,999 per month. Mean gross monthly income (RHS) and real wage increase (LHS) Remarks Growth % S$ 6% 4800 1. Real wage growth was 3.1% from 2010 to 2016 5% 4200 and 3.3% from 2015 to 2016 4% 3600 3% 2. Average bonus between 3000 2005 and 2015 was 2.2 2% months 2400 1% 1800 0% -1% 1200 -2% 600 -3% 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Ministry of Manpower, DBS Bank According to the Monetary Authority of Singapore’s (MAS) Financial Stability Review 2016, Singapore’s household debt-to-GDP was close to 80% in 2015, making it the fourth highest among Asia-10 nations, behind Malaysia, Thailand and Korea. High-ticket items such as home purchases and cars require loans. Driven partially by low interest rates, the property market price increase during 2010 to 2013 had also caused the increase in household indebtedness. The TDSR (total debt servicing ratio), introduced in 2013, will help to keep household leverage in check. Household debt-to-GDP ratio Remarks % 90% 1. Higher than Taiwan, Philippines, Indonesia, 80% India Hong Kong and China 70% 60% 2. Lower than Malaysia, Thailand, and Korea’s 50% debt-to-GDP ratio 40% 1. 30% 20% 10% 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Singstat, DBS Bank . Page 4
Industry Outlook Retail (Singapore) TDSR and mortgage servicing ratios (MSR) relaxed in 2016. A series of property cooling measures have been introduced since 2010, including adjustments to loan-to-value (LTV) ratios. Two key measures were the additional buyer stamp duty (ABSD) and TDSR introduced in December 2011 and June 2013 respectively. Additional buyer stamp duties were imposed on second and subsequent properties, while debt and MSRs limit how much buyers can borrow and repay to fund their property purchases in relation to their income and total indebtedness. In September 2016, MAS allowed the refinancing of property loans above the TDSR threshold and MSR threshold of 30% for owner-occupied HDB flats and executive condominiums (ECs). Singapore housing index Remarks Index 2000=100 160 1. ABSD currently ranges 150 from 7-15% depending 140 on citizenship status and the number of properties 130 already owned 120 110 2. TDSR cannot exceed 60% 100 of buyer’s net income 90 while MSR cannot exceed 80 30% of income for new 70 properties 60 Dec-94 Dec-97 Dec-00 Dec-03 Dec-06 Dec-09 Dec-12 Dec-15 Mar-94 Mar-00 Mar-03 Mar-09 Mar-97 Mar-06 Mar-12 Mar-15 Jun-99 Jun-05 Jun-08 Jun-14 Sep-95 Jun-96 Sep-98 Jun-02 Sep-04 Sep-07 Jun-11 Sep-13 Sep-01 Sep-10 Sep-16 Source: Bloomberg Finance L.P., DBS Bank Singapore’s interest rates, in particular the three-month swap offer rate (SOR), are foreign exchange-implied rates that take into account the US dollar/Singapore dollar forward swap. The SOR is used as a benchmark to price commercial loans. The forwards typically reflect short-term interest rate differentials between Singapore and the US. As a foreign exchange-implied rate, the SOR is susceptible to changes in demand and supply for the Singapore dollar, and usually comes under downward pressure when the Singapore dollar strengthens against the US dollar, and vice versa. When the Singapore dollar is strengthening, demand for the Singapore dollar results in narrowing forward points and a lower SOR. Essentially, if a foreign investor can profit from narrower US dollar/Singapore dollar forward swap points (strengthening Singapore dollar), he or she will be able to accept lower returns from Singapore dollar interest rates (SOR). Singapore interest rates Remarks Index 1998=100 4.5 1. Interest rates expected to 4.0 increase in view of four rate hikes in the US this 3.5 year 3.0 2.5 2. Interest rate increase had 2.0 led to sluggish retail sales in 2015 1.5 1.0 3. Low interest costs also 0.5 fuelled the property 0.0 market from 2009 to 2013 Source: Bloomberg Finance L.P., DBS Bank . Page 5
Industry Outlook Retail (Singapore) Population growth rate of 1.5%. Singapore is targeting a population of 6.9 million by 2030, according to its latest planning parameter. Based on the June 2016 population of 5.6 million, Singapore’s population growth rate would have to be at a compound annual growth rate (CAGR) of 1.5% per annum for the population to reach 6.9 million by 2030. Singapore’s resident population pyramid 2016 Remarks >84 Male 1. There were close to 4 80 - 84 million Singapore Female 75 - 79 residents in 2016 70 - 74 65 - 69 60 - 64 2. Over 50% of Singapore’s 55 - 59 population is between 30 50 - 54 45 - 49 and 60 years of age 40 - 44 35 - 39 3. Gender split is 51% to 30 - 34 49%, in favour of females 25 - 29 20 - 24 2. 15 - 19 10 - 14 5-9 0-4 200,000 100,000 0 100,000 200,000 Source: Singstat, DBS Bank Singapore’s inflation bottoming out. Singapore does not have natural resources and a huge agriculture community. As such, most goods and raw materials are imported for manufacturing or consumption. Inflation is typically led by supply and less commonly from the demand side. Singapore experienced two years of negative inflation led by the slump in oil prices and, to a lesser extent, property cooling measures. The MAS manages the Singapore dollar to keep inflation in check. It has maintained a zero Singapore dollar nominal effective exchange rate appreciation policy stance since April 2016 and will likely continue doing so in view of the slow growth. Inflation rate: Year-on-year change Remarks % chg 10 1. Slump in oil prices led to negative inflation in 2015 8 and 2016 6 2. Inflation increase in 2008 due to food, transport and 4 housing, before declining to a negative figure in 2 2009 due to the global financial crisis 0 -2 3. 2010 inflation was largely due to increasing COE -4 prices Dec-04 Dec-11 Mar-03 Mar-10 Jun-08 Jun-15 Apr-07 Apr-14 Sep-06 Sep-13 May-04 May-11 Jul-12 Jul-05 Jan-02 Jan-09 Jan-16 Nov-07 Nov-14 Feb-06 Feb-13 Oct-03 Oct-10 Aug-16 Aug-02 Aug-09 Source: Bloomberg Finance L.P., DBS Bank . Page 6
Industry Outlook Retail (Singapore) Singapore has rejuvenated over the years into a destination for visitors for both leisure and events. In 2008, Singapore hosted its first edition of Singapore Formula 1 Grand Prix, with the Asia-Pacific Economic Cooperation Summit following closely in 2009. The opening of Resorts World Sentosa and Marina Bay Sands in 2010 injected life into Singapore and tourist arrivals crossed 15 million in 2013. By 2016, tourist arrivals crossed the 16 million mark, as Chinese visitors, who stayed away following the MH370 incident, returned. Singapore visitor arrivals Remarks m 18 1. 2014 decline in visitor arrivals due to decline in 16 Chinese visitors over loss of MH370 aircraft 14 12 2. 2015 visitor arrivals picked up due to events such as 10 South East Asian games 8 and lower 2014 base 6 3. 2016 saw a recovery in 4 Chinese visitors 2 0 2009 2010 2011 2012 2013 2014 2015 2016 Source: Singapore Tourism Board, DBS Bank . Page 7
Industry Outlook Retail (Singapore) Sub-segment Outlook Luxury retail Singapore’s luxury retail market represents 4.4% of Singapore’s store-based retail market. Singapore’s luxury retail segment was worth S$1.3 billion in 2016. The luxury retail segment grew at a five-year CAGR of 2% between 2011 and 2016. Growth was dominated by luxury bag and luggage specialists (up 2.2%), luxury department stores (up 2.5%), and luxury jewellery and watch retailers (up 2.2%). Luxury apparel and footwear declined by 1.1%. The number of outlets has moderated from the peak of 83 in 2014 to 79 in 2016. Luxury retailing peaked in 2014 and has dipped in recent years, mainly attributed to the falling numbers of inbound tourists, the strength of the Singapore dollar, locals spending overseas and reduced shopping expenditure. Singapore’s luxury retail market breakdown 2016 Remarks Jewellery and Apparel and 1. Department stores and bags watch retailers footwear 11% and luggage specialists 12% dominate the Singapore luxury retail market with close to 80% share 2. Department store Bags and contribution was largely by Luggage Takashimaya specialist 33% Department stores 44% Source: Euromonitor, DBS Bank 2.0% CAGR for Singapore’s luxury retail market from 2011 to 2016 Remarks S$m 1600 1. Growth led by department stores, jewellery and 1400 watches, and bag and 1200 luggage specialists 1000 2. Luxury apparel and 800 footwear declined, losing growth to mid- to low-end 600 luxury apparel and footwear retailers 400 200 3. Weakening tourist spending has also a resulted in lower 0 2011 2012 2013 2014 2015 2016 luxury sales in recent years Apparel and footwear Bags and Luggage specialist Department stores Jewellery and watch retailers Source: Euromonitor, DBS Bank . Page 8
Industry Outlook Retail (Singapore) Four players dominate around 70% of Singapore’s luxury retail market Remarks Others 1. Luxury department store 13% segment is dominated by Burberry Group Takashimaya Plc 5% Kering SA 2. Market share is fragmented 5% Takashimaya Co Ltd across other luxury retail 45% players who are mainly Tiffany & Co luxury bag retailers 6% Prada SpA 7% Hermès International SCA LVMH 7% 12% Source: Euromonitor, DBS Bank Prada shrank in retail area, while Tod’s, Takashimaya, Tiffany, Burberry, and Richemont saw sales areas remain constant. Players continued to expand their physical presence in Singapore. There were a 4% increase in number of stores and around a 50% increase in luxury retail selling area between 2011 and 2016. Only Prada decreased its selling area by 3%, closing down one store in 2015. Those with increased selling area saw net store increases of between one to four stores and floor area increase of 3-18%, namely LVMH, Hermes, Kering-PPR, Coach, Salvatore Ferragamo, Ralph Lauren and Mulberry. LVMH, Takashimaya, and Burberry dominate around 75% of Singapore’s luxury Remarks retail floor area 1. Takashimaya has the Others biggest selling area in 26% Singapore Takashimaya 39% 2. Luxury retail companies take up an estimated 800,000 square feet of selling space in Singapore LVMH 15% Burberry Group 20% Source: Euromonitor, DBS Bank Leverage growth on existing outlets. Based on the estimated market revenue of 14 companies across the past five years, ten players registered positive CAGR growth of 1.5-6.4%. LVMH, Kering, Burberry and Lacoste were the four that saw sales declines of between 0.5% and 7.8%. While selling space for these four companies had generally increased, sales efficiency per store and per square foot declined, which could signal overexpansion. The ten players which grew revenue did so in two ways: (i) Takashimaya, Prada, Tiffany, Richemont and Tod’s grew sales per square foot while maintaining or reducing total sales area; (ii) the rest of the companies grew their revenues by increasing . Page 9
Industry Outlook Retail (Singapore) selling areas via store or outlet expansion. However, they registered a decline in sales per square foot due to the increased selling space. Apparel and Footwear Growing at 1.5% CAGR led by internet retailing. Singapore's apparel and footwear segment was S$3.8 billion in 2016, comprising of luxury apparel and footwear retailers and internet retail. The share of internet retailing for apparel and footwear has crept up to 8% of the total market, growing at a CAGR of 6.4% over the past five years. There were 3,348 apparel and footwear specialist retail outlets and 23 luxury apparel and footwear retailers in Singapore in 2016, lower than the total of 3,386 outlets five years ago. 1.5% CAGR growth for Singapore’s apparel and footwear market Remarks S$m Apparel and Footwear through Internet Retailing 1. Internet apparel and Luxury Apparel and Footwear Retailers 4500 footwear is now 10% of Apparel and Footwear Specialist Retailers the market 4000 3500 2. CAGR growth of internet retailing versus brick-and- 3000 mortar retailers was 6.4% 2500 to minus 1% over the past five years 2000 1500 3. While luxury footwear and apparel declined from 1000 2011 to 2016, mid- to 500 low-end apparel and footwear retail sales 0 increased 2011 2012 2013 2014 2015 2016 Source: Euromonitor, DBS Bank Mainly small independent retailers. Singapore's apparel and footwear segment is largely fragmented with many independent specialist retailers. Entry barriers are low with some level of differentiation. Key fashion retailers are either local distributors of various brands (Melwani Group, RSH Holdings, FJ Benjamin) or international groups operating their own brands (Fast Retailing, H&M, LVMH). 2016 share of apparel and footwear market Remarks A&F Internet Retailing 1. Market size of S$3.8 billion Luxury Apparel 8% and Footwear Retailers 4% 2. Approximately 88% of sales are through specialist retailers even though the internet channel is growing A&F Specialist Retailers 88% Source: Euromonitor, DBS Bank . Page 10
Industry Outlook Retail (Singapore) Fast fashion taking over traditional fashion retail players. Fast fashion retailers with mid-priced positioning, including Uniqlo, Forever21 and H&M, have seen their market shares growing over traditional retailers such as Charles & Keith, Giordano and Esprit. The rise of online retailing and blogshops has also shaped consumer behaviour to be less brand conscious, while paying much less online for designs similar or comparable to the branded designs found in stores. Fast fashion outlets offer value, branding and the latest designs in this respect. Key apparel & footwear retailers’ market share in 2016 Remarks Brand Company Outlets Sales psf $ Share 1. Segment remains Uniqlo Fast Retailing Co Ltd 23 660 5.6% fragmented with market H&M H&M Hennes & Mauritz AB 10 1,090 4.6% leaders holding market Mango Punto Fa SL (Mango) 13 2,910 2.9% share of less than 6% Zara Inditex, Industria de Diseño Textil SA 8 1,688 2.6% Burberry Burberry Group Plc 3 395 1.8% 2. Largest chain stores have Giordano Giordano International Ltd 41 1,287 1.6% over 20 outlets Esprit Esprit Holdings Ltd 21 551 1.4% Topshop Arcadia Group Ltd 6 1,085 1.2% Charles & Keith Charles & Keith Holdings Pte Ltd 26 2,074 1.1% Others - 3,023 949 77.1% Total 3,348 933 100.0% Source: Euromonitor, DBS Bank Internet retailing to increase while retailers shift to provide new retail experiences. Sales growth of apparel and footwear specialist retailers and internet retailing is forecast to be at 2.2% CAGR for the next five years, largely led by internet retailing. Growth will be driven by new retail spaces in new shopping malls, attracting online and overseas players seeking to take advantage of the opportunity to develop seamless omnichannel operations encompassing online and retail experiences. As consumers continue to be influenced online, a pick-up will also be seen in mobile retailing, online fashion blogshops and on social media platforms. This is expected to drive more fashion-tech start-ups during this period. 2.2% CAGR for specialist retailers and internet retailing over the next five years Remarks S$m A&F Specialist Retailers A&F Internet Retailing 1. Growth is expected to 4500 continue being led by online retailing 4000 3500 2. Expect new retail experiences to kick in to 3000 sustain growth in store 2500 retailing 2000 1500 1000 500 0 2016 2017F 2018F 2019F 2020F 2021F Source: Euromonitor, DBS Bank . Page 11
Industry Outlook Retail (Singapore) Recreational Goods Leisure and personal goods market largely driven by jewellery and watches. The leisure and personal goods market grew at a 5.5% CAGR from S$5.8 billion between 2011 and 2014 but fell 4.6% from 2014 to 2106 to S$5.9 billion. More particularly, the market fell 11% on-year from 2015 to 2016 on the back of poor economic performance and driven by a 17% decline in jewellery and watch sales. The declining trend was in line with slowing GDP growth, albeit with a one-year lag. Growth going forward is not expected to be robust, dipping slightly over the next few years before ending flat at S$5.9 billion in 2021. Flat growth forecasted for the next five years Remarks 1. Growth between 2011 and 2015 was driven by higher sales per square foot for watch and branded goods retailers 2. In 2016, stores consolidated due to competition from online channels and cost pressures Source: Euromonitor, DBS Bank Between 2011 and 2015, sales per square foot of watch, jewellery and branded goods retailers experienced a surge. In particular, names including Prada, Stelux, Sincere, Aspial, Soo Kee, Tiffany, Richemont, World of Sports and RSH saw over a 5% CAGR increase in sales per square foot. Sales per square foot of the market declined in 2016 by 9.6%, on high rents, softening tourist spending and the rise of internet retailing. Singapore's leisure and personal goods market composition 2016 Remarks Other Leisure and Personal 1. 80% of Singapore’s leisure Goods Specialist and personal goods market Retailers is dominated by jewellery 12% and watches, bags and Sports Goods Stores luggage, media and sports 8% goods 2. Other leisure and personal Media Products goods segments include Stores Jewellery and toys and games, pet shops, 12% Watch Specialist stationery shops Retailers 57% Bags and Luggage Specialist Retailers 11% Source: Euromonitor, DBS Bank . Page 12
Industry Outlook Retail (Singapore) Online channels are expected to become more prevalent. These will generally hamper the growth of leisure and personal goods sales in Singapore. Jewellery and watch specialists are poised for negative growth as retailers migrate to online channels with more digital marketing. Bags and luggage specialists have seen falling tourist spending, while marketplaces like Reebonz and Asos offer alternative channels for consumers to purchase similar products online at more competitive prices. Media consumption in recent years has gone online with more books, music and video content becoming downloadable as e-content into platforms such as smartphones and tablets. Sporting goods continue to be stable and are forecast to grow at a CAGR of 1% over the next five years supported by the market’s active lifestyle and sporting events. Competition, nonetheless, is keen with price discounts and promotions commonly offered by retailers in the market. 2016 leisure and personal goods players Players in Singapore Outlets Sales psf $ Share Hour Glass Ltd, The 9 12,313 4.0% Sincere Watch Ltd 4 16,219 2.6% LVMH Moët Hennessy Louis Vuitton SA 17 1,436 2.5% Popular Holdings Ltd 27 812 2.3% Aspial Corp Ltd 42 4,132 1.9% Cortina Holdings Ltd 6 7,143 1.8% Soo Kee Jewellery Pte Ltd 32 3,124 1.6% Hermès International SCA 3 8,169 1.6% Prada SpA 5 2,640 1.6% Toys "R" Us Inc 9 695 1.5% Tiffany & Co 3 10,380 1.3% Pet Lovers Centre Pte Ltd 69 446 1.1% Kering SA 9 1,610 0.9% Richemont SA, Cie Financière 5 2,035 0.8% Kinokuniya Co Ltd 4 846 0.8% Coach Inc 7 1,861 0.7% Stelux Holdings International Ltd 18 2,592 0.7% Poh Heng Jewellery Pte Ltd 15 2,937 0.6% World of Sports Holdings Pte Ltd 19 546 0.6% Taka Jewellery Pte Ltd 13 4,077 0.6% Royal Sporting House (RSH) Ltd 22 921 0.6% Nike Inc 13 1,867 0.5% Adidas Group 11 1,943 0.4% Samsonite International SA 16 839 0.4% Mothercare Plc 17 374 0.4% Ludendo Groupe 2 1,045 0.3% Asian Jewellery Pte Ltd 6 1,845 0.3% Pandora A/S 11 916 0.3% Thai Beverage PCL 7 383 0.3% Kiddy Palace Pte Ltd 15 108 0.2% Mulberry Group Plc 3 1,504 0.2% Rimowa GmbH 3 1,081 0.1% Meyson Holdings Pte Ltd 6 1,184 0.1% MPH Group Malaysia Snd Bhd 3 574 0.1% Pets' Station Holding Pte Ltd 5 830 0.1% Princess Jewellery 3 1,833 0.1% Mini Toons Pte Ltd 7 298 0.0% MJ Multimedia Holdings Pte Ltd 1 376 0.0% Folli Follie Group 2 0 0.0% Others 3,587 1,242 66.3% Total 4,056 1,310 100.0% Source: Euromonitor, DBS Bank . Page 13
Industry Outlook Retail (Singapore) Furniture and household equipment The Singapore market for furniture and household products grew at a CAGR of 1.2% from 2011 to 2016 to S$2.2 billion. There were a total of 1,422 outlets in 2016. Sales of furniture and household equipment for the next five years are expected to remain flat at S$2.2 billion. More notably, its non-internet retail component is expected to decline marginally by a CAGR of minus 0.5% over the next five years, displaced by internet sales. Internet sales for 2016 made up 3% of total sales and are expected to creep up to 5% by 2021. Homeware and furnishing sales peaked in 2013, in tandem with the property market’s peak. 1.2% CAGR for Singapore furniture and household sales Remarks S$m Home Improvement and Gardening Internet Retailing 1. Property cooling Home Care Internet Retailing measures introduced in 2300 Homewares and Home Furnishings Internet Retailing 2013 have led to sales Home and Garden Specialist Retailers 2250 decline in homeware and home furnishing sales 2200 2. Internet sales will make 2150 up around 5% of total 2100 sales by 2021 2050 2000 1950 1900 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F Source: Euromonitor, DBS Bank Homeware and home furnishing stores are responsible for the majority (around 80%) of Singapore’s furniture and household sales. A smaller proportion come from home improvement and gardening stores. Internet retail for furniture and household products contribute 3% of total sales. The prevalence of internet shopping makes it necessary for retailers with physical stores to evolve to provide a better shopper experience and provide a higher level of engagement with customers. Singapore furniture and household product categories 2016 Remarks Internet sales 1. With the rise of online Home 3% Improvement retailing, retailers will need and Gardening to look for more creative Stores 18% methods to engage with customers when they are shopping in physical stores 2. Internet retailing comprises of homewares and home furnishings, home care and home improvement and gardening Homewares and Home Furnishing Stores 79% Source: Euromonitor, DBS Bank . Page 14
Industry Outlook Retail (Singapore) Courts and IKEA are key furniture players in Singapore. Courts Singapore and IKEA are Singapore’s largest furniture and household players and collectively dominate 35% of the market. Both have large flagship stores and total sales area of 40,000 to 50,000 square feet. Courts has been deploying experiential in-store product displays to enhance interaction with customers. It also has solutions-oriented services and high-definition LED screens, digital in-store signage, modular display tables and magnetic panels for in-store displays as part of the package. Value added bolt-on services (loyalty programmes, installation, connection, warranty, after sales service, etc.) and customer experience areas enhance customer engagement and improve customer stickiness. Singapore furniture and household market share 2016 Remarks Courts Asia Ltd 1. Furniture market is 23% dominated by just Courts and IKEA 2. Newer entrants are adopting a low cost model by cutting warehousing Inter Ikea Systems BV and store expenditure Others 12% while focusing on online 62% sales as their key TT Int'l. Nobel distribution channel Design, Home- Fix DIY 3% Source: Euromonitor, DBS Bank Omnichannel marketing is becoming increasingly more important due to the market’s connectivity to online retail channels. Market leaders are building up internet retail business to compete with newer entrants. The new generation of retail stores need to also provide shopper experience and lifestyle elements. Store-based retailers such as Harvey Norman and TT International have continued to expand selling space while developing their online business simultaneously despite sluggish sales. For the more established retailers entering the online space, their logistical and fulfilment functions will need to develop over time if they decide to insource. As online players are able to pass on cost savings to consumers, pricing should, therefore, become more competitive over time. Singapore store count 2016 Remarks 1. Property cooling measures introduced in 2013 have led to store count decline from 2012 2. Expect less aggressive store area increase while internet retailing of home products is expected to increase Source: Euromonitor, DBS Bank . Page 15
Industry Outlook Retail (Singapore) Department store Department stores grew by a flat CAGR of 0.7% from 2011 to 2016. Growth was much higher over 2011 to 2014 at 3.5%. However, in 2015 and 2016, outlets were rationalised with store closures by Metro, Robinson’s, Isetan and Marks & Spencer. The market size of department stores in Singapore in 2016 was S$2.7 billion with 39 outlets. 0.7% CAGR for Singapore department stores from 2011 to 2016 Remarks S$m 1. Spending in department 3000 stores has tracked GDP growth closely, peaking in 2013 2900 2. Weak economic 2800 fundamentals and growth of online retailing have resulted in poor 2700 profitability and store closures in recent years 2600 2500 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F Source: Euromonitor, DBS Bank The combination of a slowing economy, high operational costs, a tight labour market, the strong Singapore dollar and the growing popularity of the online retail scene have led to lower retail sales at department stores. Firms like Al Futtaim, which owns Robinson’s, Marks & Spencer and John Little, for example, are consolidating and closing off loss- making stores while looking to expand in lower-cost markets outside of Singapore. Metro closed its Compass Point and City Square outlets due to their underperformance. Smaller players like BHG and Yue Hwa have instead expanded between 2011 and 2016. Singapore department stores market share 2016 Remarks Marks & Spencer Yue Hwa Beijing Hualian 5% 1% Takashimaya 1. Market share evenly 5% 21% distributed among key Metro department store players in 6% Singapore Al Futtaim 2. Smaller-scale players are 9% expanding while larger and more established players with more outlets are Mustafa downsizing CK Tang 19% 10% 3. Players with single flagship locations continue to grow OG their sales per square foot 11% Isetan 13% Source: Euromonitor, DBS Bank . Page 16
Industry Outlook Retail (Singapore) Number of department store outlets has fallen Remarks 44 1. Store closures from 43 Metro, Al Futtaim Robinson’s, Marks & 42 Spencer and Isetan in 41 2015 due to difficult operating environment 40 39 2. Those which expanded in 2013 – Isetan, Al Futtaim 38 Robinson’s and Marks & 37 Spencer – ended up downsizing by 2016 36 35 34 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F Source: Euromonitor, DBS Bank In recent years, retailers have been facing the challenge of drawing traffic to their stores to improve sales, as customer traffic is spread across various malls located in suburban areas and in the city. While promotions help to drive volume sales, more competitive pricing also lowers margins. Competition with online retailers is also thinning out sales. As such, retailers such as Yue Hwa, Robinson’s, Marks & Spencer and Tangs have ventured into online retail. The challenge for these retailers is to integrate their physical and online stores. New retail experiences in stores include interactive in-store features such as virtual fitting rooms, which allow customers to preview their looks with their selected apparel. Key department stores’ market share in 2016 Store Outlets Sales psf $ Share Takashimaya 1 1,974 21% Mustafa 1 3,746 19% Isetan 5 1,342 13% OG 3 799 11% CK Tang 2 1,043 10% Al Futtaim (Robinson’s) 4 810 9% Metro 3 8,69 6% Beijing Hualian 6 2,363 5% Marks & Spencer 9 1,378 5% Yue Hwa 5 321 1% Total 39 1,305 100.0% Source: Euromonitor, DBS Bank . Page 17
Industry Outlook Retail (Singapore) Minimart & Convenience Store Singapore’s market for convenience stores and independent grocers was S$975 million in 2016, split at 54% to 46% in favour of convenience stores. There were 607 convenience stores and 583 independent grocers in 2016. The market size for this segment has shrunk by a 1.2% CAGR between 2011 and 2016, undermined by supermarkets in Singapore. The alcohol restriction in Little India and after-hours has contributed to the decline in convenience store sales in the past few years. Minus 1.2% CAGR from 2011 to 2016 for convenience store and independent Remarks grocer sales S$m Convenience stores Independent grocers 1. Market size is undermined 1,100 by growth of 1,000 supermarkets, due to their increasing convenience 900 800 2. Split between convenience 700 stores is 54% to 46% 600 independent grocers 500 400 300 200 100 0 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F Source: Euromonitor, DBS Bank We expect convenience stores to decline over time due to the emergence of supermarkets, which carry a wider variety of items and can be found conveniently at high-traffic locations. Some even open 24 hours. Supplementing purchases from convenience stores can now be commonly carried out at supermarkets. Outlets expected to shrink in favour of supermarkets Remarks S$m Source: Convenience stores Independent grocers 1. Independent grocers, 1,400 generally owned by senior 1,300 citizens, are expected to 1,200 decline in the coming 1,100 1,000 years 900 800 700 600 500 400 300 200 100 0 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F Source: Euromonitor, DBS Bank . Page 18
Industry Outlook Retail (Singapore) Convenience stores like 7-eleven have moved into more ready-to-eat food and services. They also offer cash withdrawals, e-commerce payments and collection points for online retail orders. Seating areas have been created in some stores in addition to the introduction of fresh food items, chilled ready meals and a range of premium products. Singapore convenience stores’ market share 2016 Remarks 1. 7-eleven is the largest with close to 500 stores 2. Cheers has 90 stores and Independent iEcon has 29 outlets grocers 7-Eleven 46% 46% 3. There are 583 independent grocers iEcon Cheers 3% 5% Source: Euromonitor, DBS Bank Consumer behaviour. Most consumers among the older generation, with the luxury of time, will purchase fresh products from wet markets. However, because wet markets operate in the mornings, the grocery shopping alternative for the working crowd is supermarkets. Supermarkets in Singapore are conveniently located across multiple locations and enable people to shop after office hours. The role of convenience stores is typically for consumers to supplement their purchases of grocery and food items – including snacks, medication, personal care items, tobacco, packaged food, etc. – after-hours. Convenience stores these days have moved away from being publication, alcohol and tobacco businesses to offer more services, fresh/ready-to-eat/packaged food and other necessities. Convenience stores in Singapore are mainly controlled by large grocery retailers that also operate other formats of supermarkets and hypermarkets. These groups have distribution centres and centralised purchasing that enables them to gain economies of scale and price their products higher at their convenience stores than at their supermarkets for better margins. Due to the scale of these large players and the credit days given to them by suppliers, it is often difficult for the large minimarts to compete in terms of pricing and working capital generation. Unlike listed players, smaller independent grocery retailers do not have economies of scale in terms of volume. They are typically offered poorer or no credit terms by the suppliers. . Page 19
Industry Outlook Retail (Singapore) Online Retail Singapore's internet retailing market was estimated to be worth S$1.5 billion in 2016. Growth has been robust at a 22% CAGR for the past five years and the market is set to grow further by another 18% CAGR from 2015 to 2021. Growth has been led by apparel and footwear, personal accessories and food and beverage. Going forward, the growth of the internet market is expected to be driven by apparel and footwear, food and beverage, and media products. 22% CAGR growth for Singapore online sales from 2011 to 2016 Remarks S$m 1. Internet retail is expected 3500 to grow exponentially at a CAGR of 18% from 2015 3000 to 2021 2500 2. Growth to be led by apparel and footwear, 2000 and media products 1500 1000 500 0 2011 2012 2013 2014 2015 2016F 2017F 2018F 2019F 2020F 2021F Source: Euromonitor, DBS Bank Market leaders in Singapore include Giosis Group’s Qoo10, which recorded sales of S$500 million in 2016 and completed close to 15 million transactions in 2015. At the end of 2016, Qoo10 had a total of 2.2 million registered shoppers, becoming the largest online marketplace in Singapore. The majority of Qoo10 customers are women, with an average age of 27. Others like Lazada have 5.7 million daily visitors to their sites. Singapore online market share 2016 Remarks Others 1. Market dominated by less 26% than ten players Giosis Group 33% 2. Giosis Qoo10, Rocket Internet’s Zalora, and Apple’s online sales dominate over 50% of Asos Plc Singapore online sales 3% RedMart Pte Ltd 3% 3. Rakuten shut its Singapore website in 2016 and Amazon.com Inc 7% moved into a consumer- Apple Inc to-consumer business Reebonz Pte Ltd 12% 7% Rocket Internet model GmbH 9% Source: Euromonitor, DBS Bank . Page 20
Industry Outlook Retail (Singapore) The Singapore online market will be driven by the consumer’s ease of access to (i) cheaper and wide-ranging products; and (ii) convenience of payment and delivery services. Retail brands are increasing their collaboration with platforms such as Lazada and Qoo10 as an alternative channel to target customers. Retailers including Watsons, Samsung, Xiaomi, Lenovo, HP, Best Denki, Gain City and Audio House have partnered with Lazada to have their products sold through the platform. There has been an increase in importer/online retailer type start-up companies fuelled by higher demand for online shopping. These companies put their products up for sale at online marketplaces and fulfil purchases via a delivery or self-pick-up mechanism. Marketing through social media has also grown in importance as consumers increasingly conduct reviews, feedback, recommendation and research through this mode. Larger retailers and brands tend to have their own websites through which they conduct e-commerce, unlike smaller start-ups that leverage online marketplaces to trade. Singapore online category breakdown 2016 Remarks Apparel and 1. Marketplace platforms Footwear like Lazada offer 17 21% categories of goods Others including apparel and 37% footwear, and consumer electronics, from over 5,000 merchants Media Products 16% Consumer Health 3% Personal Consumer Accessories and electronics Food and Drink Eyewear 4% 9% 10% Source: Euromonitor, DBS Bank Our In-House Experts Andy Sim SVP, Group Research andysim@dbs.com Alfie Yeo AVP, Group Research alfieyeo@dbs.com Please note that DBS Bank Ltd may have research coverage in the companies mentioned in this industry report, that have been produced prior to or subsequent to its publication. Please refer to the links below for the latest specific equity research reports published on below-mentioned companies and the accompanying disclaimer/disclosure of DBS’ interest in the companies mentioned in the respective reports. . Page 21
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In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies. Wong Ming Tek, Executive Director, ADBSR Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report. . Page 22
Industry Outlook Retail (Singapore) Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it. United Kingdom This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients. Dubai This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it. United States This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate. Other jurisdictions In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. DBS Bank Ltd 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888 Company Regn. No. 196800306E . Page 23
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