Retail Sales Are Falling But Should Investors Be Worried?

Ser Jing - Retail Sales Are Falling, But Should Investors Be Worried(pic)Singapore’s Department of Statistics recently announced that retail sales in March have decreased by 7.4% last year. The fall was mainly due to lesser motor vehicles being snapped up by shoppers and if that were stripped away, the shopping-army in Singapore actually spent 1.2% more compared to March 2012.

Now, retail sales figures are important as it can tell us how tight or lose shoppers are with their wallets – and if you’re an investor in retail companies, more shoppers can mean higher profits. But, don’t rush out to make investing decisions just based on such reports.

Retail sales reports for February 2012 had showed a decrease of 0.4% in consumer spending for the food & beverage industry. But for the quarter ending March 2012, F&B retail-outlet operator Breadtalk (SGX: 5DA), with its Din Tai Fung restaurants and Breadtalk stores, actually saw its revenue increase by 27% from the prior year’s quarter.

For those who focused their attention on retail sales for technological gadgets, last November and December saw year-on-year decreases of 4% and 12% respectively. Should Challenger Technologies (SGX: 573) investors have been worried about the company’s sales in their eponymous Challenger stores throughout the island? The answer’s “No’” – Challenger posted a 13% year-on-year increase in revenue for the second half of 2012, so any worries from investors were unfounded.

To be fair, these big-picture retail sales numbers can sometimes give us a rough clue about how a company’s performing. A good example would be Hour Glass (SGX: E5P). The company runs retail stores selling luxury watches and ended up with revenue in 2012 that was unchanged from 2011. This more or less fell in line with how the Watches & Jewellery sector was doing as a group – they endured a difficult 2012 as there was a total of six months’ of declining year-on-year monthly sales figures.

But, as investors, we must recognise that each company is in its own unique situation.

Economic reports dealing only with Singapore might be less useful for local companies that have significant operations outside our island. Take Breadtalk as an example – at the end of 2012, only 18% of its 686 outlets of restaurants, food atriums and bread-stalls were located in Singapore.

There are other examples. Retailer Dairy Farm International (SGX: D01) will probably not be affected by Supermarket Retail Sales reports as much as Sheng Siong (SGX: OV8). The former runs Giant supermarkets in Singapore, but that’s only less than 1% of the company’s total retail store-count of around 5,700 around the globe. In contrast, Sheng Siong, which runs its name-sake supermarkets, is a pure local-play.

Foolish Bottom Line

Economic reports such as the Retail Sales Index released by the Department of Statistics are useful, but as investors, the focus should predominantly be with what individual companies are doing. A big picture scan can sometimes lead to misleading conclusions.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.