SINGAPORE: The retail sector in Singapore is facing a downturn as more Singaporeans shop overseas due to the stronger Singapore dollar.
Recent data from the Department of Statistics, reported by Channel News Asia, reveals a 1.2% year-on-year decline in retail sales for April, marking the sector’s weakest performance since December.
Meanwhile, some sectors, like automotive, have shown resilience, while others, particularly consumer goods like clothing and footwear, department stores and mini-marts, have witnessed a notable drop in sales.
Analysts attribute this decline to various factors, including reduced consumer spending following the first-quarter concert boom and other events.
Concerns regarding the labour market have prompted households to adopt a more cautious approach to their expenditures.
According to Selena Ling, Chief Economist and Head of Global Markets Research & Strategy of OCBC: “Even though we are getting rising visitor arrivals, maybe they are a little bit more careful about what they spend on.
Here on the domestic consumption side as well, if the labour market really is cooling, then I suppose Singapore households also will be turning a little bit more cautious in this high-for-longer type of interest rate environment.”
The report from CNA also noted that sales of food and beverage services increased by 0.3% year-on-year in April, continuing its growth from March.
Although it is increasing slowly, sales turnover for restaurants and fast food outlets is declining.
As Singapore uses the exchange rate more than interest rates to control the economy, the local dollar gets stronger than other countries’ currencies to help with high prices when inflation increases.
However, the Singapore Retailers Association (SRA) highlighted the consequences of this approach.
According to a report by The Straits Times, the SRA pointed out that the appreciation of the local currency, combined with Singaporeans’ love for travel, drives consumers to seek more budget-friendly options abroad, particularly in destinations like Japan, South Korea, and Malaysia.
SRA also emphasised that many Singaporeans view a day trip to Johor Bahru as a convenient option for a weekend getaway or public holiday, where they often shop at significantly lower costs than in Singapore.
For example, one can get a full manicure and pedicure that costs S$35 in Johor Bahru, compared to between S$80 and S$120 in Singapore.
SRA noted that the strengthened currency encourages Singaporeans to go on more overseas holidays despite the additional expenses incurred.
On the other hand, Singaporean retailers feel the pinch as the prices of goods and services have risen for tourists due to the strengthening of the Singapore dollar.
“This is why the increase in tourist numbers did not result in stronger retail sales,” SRA remarked.
Professor Qian Wenlan from the National University of Singapore Business School also added that weak consumer demand may stem from the uncertain economic outlook, causing people to be cautious.
She believes that specific incentives, such as lower sales tax, are necessary to encourage more locals to spend domestically rather than overseas.
Despite the significant contribution of tourists to Singapore’s gross domestic product (GDP), domestic spending remains a key driver of consumption.
Professor Qian emphasises that this is a “reminder for us to keep an eye on the domestic demand, which is a strong indicator of economic health.”
This shift in consumer behaviour presents challenges for local retailers, who are now exploring strategies such as converting consumers to online shopping and engaging regulars with events to revive sales.
Professor Qian noted, “So, if people are reluctant to spend, overall, it’s not a very good sign.” /TISG
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