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3 Important Investing Insights You Should Know About the Asian Retail Industry

From time to time, there will be annual reports that are worth. One such report could be from Hour Glass Ltd  (SGX: AGS) for the annual shareholder’s letter written by the luxury watch retailer’s chief executive Henry Tay.

Now, it is possible that you do not own shares of Hour Glass, but the observations Tay makes in his letter may still be well worth considering as it discusses the future and significant impacts on the Asian retailing scene.

Here are three important observations he made.

On the rising importance of Chinese shoppers:

“Even with its multitude of domestic challenges, in 2015, China displaced the United States as the world’s largest economy. Additionally, the combined wealth of Asian high-net-worth individuals [HNWI] will for the first time in modernity, exceed those HNWIs in America.

By 2022, China’s middle class will have grown to 630 million, half its population, and by 2030, Asia will account for two thirds of the world’s middle class. Five years from now, the number of Mainland Chinese travellers will double to reach 200 million per annum, increasing the absolute quantum of the travel retail spend.”

In 2013, tourists from China were the second largest in terms of arrivals to Singapore and the biggest contributor to tourist receipts. The inflow of tourists into Singapore may affect real estate investment trusts (REIT) like CDL Hospitality Trusts (SGX: C38U) and Starhill Global Real Estate Investment Trust (SGX: P40U).

Both REITs own significant properties along Singapore’s popular shopping belt, Orchard Road. As such, the ability of Singapore to attract the growing middle class from China (whom Tay referred to) could be important.

In the case of CDL Hospitality Trust, any drop in tourist arrivals may in turn affect the amount that its hotels are able to charge per room.

On the question, Is online shopping eating the brick and mortar world:

“Will bricks and mortar retail still be a viable business model in ten, twenty years? What of omni-channel retailing? Which are the key partners we should be aligning ourselves with? Where are the most valuable customers going to come from in the next 20 years?”

In this quote, Tay pondered about the future of Asian retailing and its changing landscape. The  questions here may well be concerns that apply to retail REITs like Starhill Global REIT and Suntec Real Estate Investment Trust (SGX: T82U) among others.

In Suntec REIT’s recent Annual General Meeting, the trust’s management team talked about using loyalty programs to attract more foot traffic to its properties. Others, like suburban retail malls owner Fraser Centrepoint Trust (SGX: J69U) may be looking to shift its rental sources toward food and restaurants as these are less sensitive to the threat of online shopping as compared to say clothing and electronics.

And speaking of potential new business partners, Hour Glass recently revealed that it had began selling products from a company that many may not yet connect with luxury watches, the iPhone maker Apple Inc. The product in question is Apple’s Apple Watch Edition and they’re sold in Hour Glass’s upscale Malmaison outlet.

On global pricing and the death of the “Chinese Premium”:

“The PRCs today are also no longer prepared to pay what we term as ‘The Chinese Premium’.

The action of the Swiss Central Bank and the rightsizing of demand to the world’s new consumption reality was an opportunity for many brands to ‘reset’ their global retail prices, bringing markets closer in line with one another. My opinion is that this action signals a recognition that the world has become one gigantic shopping centre. That the consumer’s access to technology and hence global pricing information is readily available and most important is that regardless of nationality, they demand honesty and equity in how they are treated as global shoppers.”

The global competitive landscape may also be flattening where companies in Singapore may soon be competing at a global scale whether they choose it or not – or as Tay would put it “the world has become one gigantic shopping centre.”

As an investor, we have to think beyond our own shores and figure out how global companies may find its way here and compete. This may be outside the retail landscape, but services like Uber and GrabTaxi have begun to make their mark on the transportation industry in Singapore, posing problems for incumbents.

Tay’s thoughts that I have shared, while addressed to the issues and opportunities confronting Hour Glass, have much broader applications. In fact, they may be important perspectives to be considered in the overall investing thesis for any retail-related company you’re looking at.

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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 Chin Hui Leong owns shares in Suntec REIT and Apple.