Consumer Sector - RHB Invest 2016-08-24: Confessions Of a Shopaholic

Consumer Sector - RHB Invest 2016-08-24: Confessions Of a Shopaholic 2 BREADTALK GROUP LIMITED 5DA.SI DAIRY FARM INTL HOLDINGS LTD D01.SI SHENG SIONG GROUP LTD OV8.SI

Consumer Sector - Confessions Of a Shopaholic 2

  • GSS 2016 has just ended. This year, the sale was extended to a 10-week event from the eight weeks seen in the past 12 years. However, we think the prime years of the GSS are past, as consumers no longer feel the hype for this event. 
  • In this report, we highlight the demise of the GSS through our 10-week channel checks at Singapore’s shopping enclaves as well as the key trends underway in the retail scene.

When great discounts do not bring great traction. 

  • Despite the extension of the Great Singapore Sale (GSS) this year, the shopping mood in the country remained tepid. During our channel checks at various shopping districts this year, shopper traffic has visibly reduced. We think this is mainly due to: 
    1. Weak consumer sentiment from concerns over the economy and job security; 
    2. The GSS becoming irrelevant with more promotional seasons available online.

Needs unique selling points to survive. 

  • Faced with a myriad of competition online and a difficult operating environment, we noticed that many offline retailers – especially in the footwear and apparel sub-sectors – are downsizing or exiting Singapore.
  • However, we believe that brands that are able to create unique selling points will survive well, as consumers continue to search for a novelty and differentiated experience. This is evident in the top fast-fashion players – eg Uniqlo and H&M – that continue to be footfall-magnets due to their product technologies and innovation. Amongst our coverage, we favour BreadTalk (BREAD SP, BUY, TP: SGD1.45) for its constant innovation and willingness to experiment.

Omni-channel is the future. 

  • More retailers are finding it hard to measure up with the high cost of rent and competition from the online space. As such, we expect more brands to move into omni-channel retailing in the near future, where digital platforms are integrated with offline retailing. This allows retailers to operate less physical stores while providing a seamless shopping experience.
  • Whilst e-commerce has not hit supermarkets in a big way, we believe that online grocery shopping and click-and-collect options will become more popular over the next decade. This is given the high female labour participation rate and strong internet penetration in Singapore.

We are negative on discretionary retailers, but prefer food & beverage (F&B) and grocery retail players. 

  • According to a report by PricewaterhouseCoopers (PWC), 38% of Singaporeans only began online shopping in the last three years. This is relatively low when compared with China, where > 80% of respondents have been shopping online for > 3 years.
  • Hence, we think the threat from e-commerce is just emerging in Singapore and the outlook for traditional retailers will continue to be challenging, especially in the discretionary, non-consumables space. F&B and grocery retailers continue to be our preferred picks in the sector.

Putting supermarkets into context.

  • So far, consumers are still more comfortable with buying non-consumable goods online, such as apparel, footwear and electronics.
  • Supermarket players in Singapore are less affected by the rising popularity of e-commerce. According to our channel checks, online grocery sales only constitute about 1-2% of the total industry. We think pure online grocers are not able to gain sufficient scale to beat traditional brick-and-mortar players in the near term.
  • However, with the rising female labour participation rate in Singapore, we believe that online grocery shopping will thrive in the long run. Currently, the Big 3 supermarket players in Singapore – NTUC FairPrice, Dairy Farm (DFI SP, BUY, TP: USD8.60) and Sheng Siong (SSG SP, BUY, TP: SGD1.12) – already have online shopfronts. NTUC FairPrice further introduced a click-and-collect option in 2014, with 44 different locations available for collection.
  • We expect to see rising popularity of online grocery shopping over the next decade. With the long working hours in Singapore, we think the click-and-collect option will be increasingly popular. At the moment, most of the offline supermarkets are already operating 24 hours. We think they would have the competitive edge in developing the click-and-collect option. The ability to check and return the goods on the spot would also promote increased usage of the online grocery site.

Juliana Cai RHB Invest | http://www.rhbinvest.com.sg/ 2016-08-24
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