Retail is a sector that has taken its lumps due to the imposition of movement restrictions and border controls.
Lower footfall in shopping malls has led to lower takings for stores.
A dearth of tourists has adversely impacted retail sub-sectors that depend on a steady flow of visitors to sustain their operations.
The latest numbers from Singapore’s Department of Statistics (Singstat) showed that total retail sales for July inched up just 0.2% year on year.
Month-on-month, the increase was just 0.8%.
Part of the reason was due to the disappearance of the “low-base effect”, where the April to June period last year saw Singapore implement its “circuit breaker” that effectively closed the bulk of retail shops.
It didn’t help that the country just exited from its Phase 2 (Heightened Alert) status only from 10 August, which allowed dining in along with restrictions.
With retail sales in a funk, should investors still hold out hope for retail stocks?
Pockets of growth
Department store sales fell by 9.2% year on year, in line with the waning popularity of this retail format.
Recall that Robinsons, a storied 162-year-old retail giant, had announced its closure last November.
And this year, Isetan (Singapore) Ltd (SGX: I15) announced that it will not renew the lease for its Parkway Parade outlet once it expires in March 2022.
It was not all doom and gloom, though.
If we study the different retail industries, we can still see pockets of growth.
For instance, supermarkets and hypermarkets saw a 4.4% year on year increase in sales, while watches and jewellery enjoyed a 10.4% year on year rise.
Food and alcohol as well as computer & telecommunications equipment both saw a year on year rise of 8.1% and 4.2%, respectively.
The numbers above show that pockets of growth still exist despite the continued movement restrictions imposed by the authorities.
Demand for discretionary items
Interestingly, demand for discretionary products such as watches and jewellery remains firm.
Back in June, this segment saw a 78.4% year on year surge as sales rebounded from a low base.
The 10.4% year on year increase in July bodes well for luxury watch retailers such as The Hour Glass Ltd (SGX: AGS) and Cortina Holdings Limited (SGX: C41).
Jewellery retailers such as Aspial Corporation Ltd (SGX: A30) and TLV Holdings Ltd (SGX: 42L) should also benefit, as should pawnbrokers such as Valuemax Group Ltd (SGX: T6I).
Singapore intends to attract more millionaires and billionaires to park their money here.
These rich folk have demonstrated that their wealth remains intact throughout the pandemic, thereby creating a sustained demand for luxury goods.
Consistent demand for F&B
Over at food and beverage (F&B), sales dropped by nearly 6% year on year mainly due to a recalibration of dining rules during the month from five to two and then an outright ban from 22 July.
However, the online sales proportion for F&B remained high at 41.5% as more people relied on food delivery apps such as Foodpanda and Grab Food.
Moving forward, as Singapore enjoys a high vaccination rate, it is unlikely to revert to Phase 2 unless the pandemic situation deteriorates significantly.
Restaurants, which saw a 21.6% year on year decline in sales due to the changing rules, are likely to enjoy more stable patronage moving forward.
This should be good news for restaurant businesses such as Jumbo Group Ltd (SGX: 42R), Katrina Group Ltd (SGX: 1A0) and RE&S Holdings Ltd (SGX: 1G1).
Sales at cafes and food courts also improved by 6.6% year on year and rose by 7.2% month on month.
This momentum should carry on for the rest of the year and benefit food court operator Koufu Group Ltd (SGX: VL6) and coffee shop owner Kimly Ltd (SGX: 1D0).
Supermarkets and hypermarket sales saw a 4.4% year on year sales uptick, lending support for their resilience as more people shop for necessities as they telecommute.
Sheng Siong Group Ltd (SGX: OV8) is one of the beneficiaries as the supermarket operator reports strong demand for its wide variety of goods at its 63 stores islandwide.
Multi-format retailer Dairy Farm International (SGX: D01) could also be seeing better days after the troubles it faced last year.
Get Smart: Thriving sub-sectors
The slowdown in retail sales in July was due to a higher base during the same period last year.
If investors look carefully, they can still find retail sub-sectors that are thriving.
That said, much depends on how the trajectory of the pandemic plays out.
If the world continues to see a recovery, then retail sales across all categories should eventually see an increase too.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.