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How You Can Understand a Retail Business

shopping

It is not always the case where individual investors can come across a business that they can connect with on a personal level, but retailers are one such type of business.

In general, retailers give investors an opportunity to experience their businesses up close and personal. Some of the retailers we can find in Singapore include Dairy Farm International (SGX: D01), Courts Asia (SGX: RE2), Challenger (SGX: 573), Sheng Siong Group (SGX: OV8), The Hour Glass (SGX: E5P), Aspial (SGX: A30), Osim (SGX: O23) and FJ Benjamin (SGX: F10).

Let’s take a look at how you can gain a better handle on understanding retailers from an investor’s perspective

Shopping

You can learn a lot by just shopping in the stores,. It can give you an understanding of the stores’ layout, the merchandising mix and their pricing strategy. You can also check out the shopper traffic in the stores and even the buying pattern of customers. Are the customers focusing on finding bargains in Sheng Siong or looking for a personalized service and unique jewelry in an Aspial’s branch?

You might even benefit from talking to the store’s staff by understanding how they feel about working for the company.

All told, however, like every shopping experience, the most important question you should be asking is, “How do you feel being a customer of the store?” Has it been a bad experience, or do you feel like you coming back for seconds?

The Great Singapore Sale

Understanding a company’s promotional strategy can also give you an insight on how the company drives traffic to its stores and earns profits.

It might be a warning sign for you if find a company trying to unload its merchandise at deep discounts in a bid to clear its inventory. This is more significant for companies with short product cycles such as Challenger and FJ Benjamin, which are in the electronics and fashion retailing businesses respectively.

Same Store Sales

Another good data point for you to utilise is a company’s same store sales trend. There are two ways retailers can boost their revenue: 1) by increasing the number of stores, or 2) by improving sales within existing stores. Same store sales growth indicates that a company is improving its operational efficiency within existing stores by generating more sales, a much better sign than just adding new stores.

Foolish Summary

Although there is never a fixed method for analysing businesses, a retail operation is one of the few examples where investors can gain a first hand experience in dealing with the company.

The next time you buy a new high-end watch at an Hour Glass branch or shop for daily groceries at Sheng Siong’s supermarkets, it might be beneficial to look at more than just what you are buying.

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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 Stanley Lim doesn’t own shares in any companies mentioned.