Small costs add up to a big impact on retail stores

Minister for Trade and Industry (Trade) Lim Hng Kiang recently said that rental costs are not punitive and that retail rentals have fallen over the years (Rent 'makes up small part of costs'; March 4).

In retail, direct and indirect manpower costs take up about 25 per cent of revenue; marketing adds another 10 per cent.

Not all stocks are sold, and need to be written off. For a good retailer, that would be about 10 per cent.

In total, excluding rental, these costs already take up about 45 per cent of revenue.

Rents for small and medium-sized enterprises in retail, as a share of total business costs, are said to have dropped from 32 per cent in 2011 to 30 per cent in 2015.

Yet, when this percentage is included in the total business costs, total overheads come up to between 75 per cent and 77 per cent of sales.

The effect is that retail prices are 25 per cent to 30 per cent higher than at shopping destinations overseas, with only a few proven products selling well and so-so service, as there are no margins to offer good pay for better service staff.

The result: High prices, fewer interesting products and mediocre service - all factors that kill Singapore's image as a shopping paradise.

What about online stores?

Although there are lower rentals, owners pay more for marketing to drive traffic to their sites, and higher logistics costs.

Although online stores took some sales away from physical stores, they did not kill retail here. High rentals did.

Andrew Koh

A version of this article appeared in the print edition of The Straits Times on March 11, 2017, with the headline 'Small costs add up to a big impact on retail stores'. Print Edition | Subscribe