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1 Key Challenge for Retail Stocks in Singapore

Christmas is closing in, but shopping dollars are shifting online.

This could be a threat to traditional brick-and-mortar retail companies. Online payments specialist Paypal Inc. estimates that Singaporeans will be spending $4.4 billion online this year.

The shift in consumer behaviour toward shopping online could be due to greater convenience, better variety, and/or lower prices.

As such, it may be important to consider a traditional retailer’s ability to handle the challenge from online retail if and when you’re looking at one as a potential investing opportunity.

Bricks versus Clicks

Brick-and-mortar retailers that are listed on the Singapore Exchange would include companies such as Parkson Retail Asia Pte Ltd (SGX: O9E)Metro Holdings Limited (SGX: M01)Isetan Singapore Ltd  (SGX: I15) and F J Benjamin Holdings Ltd (SGX: F10).

Isetan Singapore had highlighted the challenge of managing the online shopping trend in its latest annual report:

“In Singapore where there are many technologically savvy customers and the internet penetration rate is high, we have also seen more players joining the e-commerce bandwagon. All these developments mean that competition for the consumer dollar is getting more intense.

Customers are now more exposed to merchandise in other countries as it is getting cheaper to make overseas trips. The rising number of technologically savvy consumers also means that they know more about products and can compare prices more easily.”

The challenges appear to be hitting home. Apple Inc’s iPhone was first released in 2007 and interestingly, since the launch of the smartphone, revenue for Isetan Singapore has barely moved.

Other traditional retailers, like Metro Holdings, are starting to embrace the online approach. In its latest annual report, Metro Holdings touched on its progress on the online front:

“For FY2015, Metro registered over 417,000 unique visitors and over 666,000 visits to its website while its online shopping store – Metro Online, was launched in January 2015 to allow shoppers who prefer the convenience of shopping online to make their purchases over the web. Metro Online has over 1,200 products available.”

However, in a like manner to Isetan Singapore, Metro Holding’s current revenue still sits below its 2007 mark. It remains to be seen if the latter’s online efforts are able to gain traction and drive growth in revenue and ultimately, profits.

Foolish takeaway

According to IDA Singapore, the mobile penetration rate here stood at almost 150% in 2014. In other words, the majority of Singaporeans are likely to possess a mobile device that is able to make transactions online.

So, where does this leave brick-and-mortar retailers?

For the quartet of retailers above, the answer does not seem to be clear yet. But, difficulties are surfacing. As such, as investors, we might want to consider how a retailer is able to embrace the challenge of consumers flocking to the internet for their shopping needs and turn it into an opportunity. Some ways that traditional retailers can do so could be in the form of in-house services or an omni-channel approach.

In my opinion, the online shopping trend is here to stay for the long run. Brick-and-mortar retailers may want to face up to the challenge sooner rather than later.

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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 Apple Inc.