Blog

SINGAPORE retailers expect another tough year as consumer demand may be dampened or diverted in 2025.

Analysts expect the retail industry to grow only modestly – and that is barring any major adverse events.

One reason is that consumer sentiment may weaken amid greater geopolitical and economic uncertainties, not least as US president-elect Donald Trump takes office on Jan 20.

Moody’s Analytics economist Heron Lim expects growth of about 3.5 per cent for retail sales value, and 1 per cent for volume this year.

But these estimates, he added, are “highly contingent on Singapore staying on the sidelines of the likely US-China trade war”.

DBS group research executive director Andy Sim is “cautiously hopeful” for 1.5 per cent growth in retail sales, excluding motor vehicles.

Lower inflation and real wage growth in 2025 would help, provided there is no external shock to the markets, said Sulian Tan-Wijaya, executive director for retail and lifestyle at Savills Singapore.

She noted that consumer confidence has been subdued, with higher mortgage rates eroding some discretionary expenditure in Singapore.

Singapore Retailers Association (SRA) vice-president Pang Fu Wei noted that retailers in the Republic expect 2025 to be “negative or challenging”, as an extension of the past year’s rough conditions.

Besides soft demand, other problems are high rents and manpower shortages.

“Retailers can’t even get sufficient manpower to run (their) physical stores,” said Pang. “For online, no Singaporean wants to work in a warehouse environment, which is what happens when you digitalise and sell online.”

Guillaume Sachet, partner for corporate transformation at KPMG in Singapore, observed that businesses must remain agile in the face of global economic uncertainties and evolving consumer preferences.

Challenging landscape

For the first 11 months of 2024, overall retail sales value grew 1.6 per cent, according to Singapore Department of Statistics data.

But this was largely supported by motor vehicle sales, with more Certificates of Entitlement being released, noted Lim.

Excluding motor vehicles, retail sales value for the first 11 months actually fell 0.7 per cent, while volume fell by nearly 2 per cent.

DBS’ Sim believes that the soft retail sales volume in 2024 was largely attributable to three categories: wearing apparel and footwear; watches and jewellery; and computer and telecom equipment.

These accounted for over a third of overall retail sales volume, excluding motor vehicles.

For wearing apparel and footwear, as well as computer and telecom equipment, the fall was likely due to a high base effect, he added. These two categories enjoyed brisk sales during the Covid-19 pandemic.

For watches and jewellery, the luxury watch market “moderated” last year due to a variety of factors, such as lower resale prices and prolonged high interest rates tempering speculative demand, said Sim.

Spending elsewhere

Even if consumer demand is not dampened in 2025, it may be diverted.

Another reason for sluggish sales in 2024 was the continuation of “revenge travel”, with Singaporeans still going overseas extensively and spending their money abroad. Analysts believe this will continue well into 2025.

Rather than a trend, National University of Singapore (NUS) senior lecturer of marketing Samer Elhajjar believes that extensive outbound travel has now become entrenched in Singapore.

“People actually prefer to go (overseas) to spend money, to enjoy the experience, to explore, to discover. I think that’s actually part of the culture,” he said.

KPMG’s Sachet added that the strong Singapore dollar is a key enabler, as it enhances Singaporeans’ purchasing power overseas.

“Consequently, this has continued to exert pressures on domestic retail sales, (and) may present an ongoing challenge for local retailers,” he said.

Spending by inbound visitors has not made up for the shortfall.

“Tourists’ spending has helped, but not quite enough to make up for the lack of spending by locals who prefer to spend when they travel abroad,” noted Savills’ Tan-Wijaya.

If locals continue to travel as fervently as in the last two years, Singapore “will probably need a resurgence of Chinese tourist spending to help lift retail sales”, she added.

SRA’s Pang noted that Singapore’s tourist receipts in the third quarter of 2024 were at 81 per cent of pre-Covid levels. This was a decline from 92 per cent in the first half of the year, according to tax refund company Global Blue.

In contrast, Singaporeans’ spending in Japan – a favourite destination – was up nearly 67 per cent in 2023, compared with pre-Covid 2019, showed data from the Japan National Tourism Organization.

This is set to grow. In the first 11 months of 2024, there were 16.2 per cent more visitors from Singapore arriving in Japan, compared with the year-ago period.

More broadly, outbound departures from the Republic were up 12.5 per cent for the first 10 months of 2024, compared with the year-ago period.

Added SRA’s Pang: “With Singaporeans being so mobile, everyone I know now shops overseas.”

Spending online

Shoppers in the city-state are also spending online – and some of this goes to foreign companies.

Foreign e-commerce giants such as Shein and Taobao have further intensified competition for local retailers, said DBS’ Sim.

“Local players who have seen success are those that continue to innovate and differentiate themselves in terms of both product and marketing,” he added, citing examples such as fashion retailer Love Bonito, gaming-chair maker Secretlab and TWG Tea.

Online retail sales as a proportion of total sales peaked in 2021 during the pandemic and have been trending down, though they remain higher than during the pre-Covid period.

While local e-commerce players gained customers due to the pandemic, the question is how they can attract more, now that consumers can shop either online or offline, said Hannah Chang, associate professor of marketing, from Singapore Management University.

NUS’ Dr Elhajjar observed that local e-commerce platforms may find it difficult to have an edge over their competitors without resorting to discounts or seasonal offerings.

The predictability of mega sales events that now occur every month – such as Singles’ Day on Nov 11, Black Friday in late November and 12.12 on Dec 12 – may also cause consumer fatigue and “reduce the fear of missing out”.

The way forward, Dr Elhajjar believes, is to mix the online experience with the offline one.

This comes as a majority of Singaporeans exhibit “hybrid shopping behaviour”, noted KPMG’s Sachet. He cited a KPMG survey where half the respondents said that they are comfortable shopping both online and offline, but tend to make more purchases online.

Savills’ Tan-Wijaya said that successful retailers are the ones with “robust omnichannel sales strategies”.

Post-Covid, people do still enjoy shopping in physical stores, for an experience they cannot get online, she added.

Higher costs

Notably, the 1.6 per cent growth in sales value, for the first 11 months of 2024, came on the back of a mere 0.1 per cent rise in sales volume.

The gap between volume and value implies that retailers “had to adjust their prices upwards to maintain their profitability, but are in fact moving fewer products than in 2023”, said Lim.

“For the average consumer here, it means they are paying higher prices for goods.”

Yet retailers themselves face higher costs, particularly for rent and labour. And not everyone has been able to pass these on.

“While some brands and categories are able to increase prices, the vast majority of retailers are actually running more sales and promotions than ever,” pointed out Pang. “Gross margins are down with no meaningful uplift in revenue.”

And while Singapore marks its 60th year of independence in 2025, there may not be much of a celebratory boost.

Analysts believe that retailers may capitalise on the occasion with SG60 promotions or themed products, similar to during SG50.

However, SRA’s Pang does not think more promotions will “drive top line”, as customers already enjoy discounts almost every month due to online marketplaces.