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NRA Capital Pte Ltd

Written by: NRA Team

Wednesday 29 Oct 2014

Consumer Services - Industry Review

Everyone loves shopping

Everyone loves shopping

Retail focused companies listed on the Singapore Stock Exchange. For this report, we will be focusing on three categories that better reflect the companies’ underlying business – Food and Beverage, Department Stores and Lifestyle. We define retail as businesses that have a physical store front where customers can purchase goods and services. 
A good place to start – largest companies by market capitalisation. A good proxy for the three respective sectors would be the biggest companies by market capitalisation. Dairy Farms International and Sheng Siong would give investors exposure to the defensive groceries business in the F&B segment, Metro Holdings and Parksons Retail in the more cyclical department stores segment and finally, Osim International and The Hour Glass in lifestyle that taps on Asia’s growing health & wellness and luxury market. 
Shift from West to East. Asia’s middle class is expected to triple over the next decade to at least 1.5 billion, making up more than half of the world’s middle class, and marking a significant shift in the global drivers of growth within the consumer services sector. The sector is largely driven by population growth and rising incomes especially in China, India and Indonesia, which make up the engines driving regional economies as they continue to industrialise and urbanise. 
Singapore’s retail scene driven by tourists’ spending. Given Singapore’s small domestic demand due to our small population, retail growth has largely been driven by tourists and business travellers, with most of them coming from regional countries which account for the largest arrivals to the country as well. Travel & Tourism expenditure contributed around 11% of Singapore’s economy, while tourists spent S$23.5bn on their visits here. 
Key risks is competition from online shopping. There is no doubt about growth in the Asian region. However, investors will have to keep track of progress of alternative means of delivering products to the end consumers – specifically online shopping. Even with the explosive growth of online shopping in the past decade, there will still be a need for physical shops to cater to preferences of shoppers for certain products. 

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