Chart of the Day: Retailers, restaurateurs bogged down by exorbitant rental costs

Rents eat up 20% of revenue for some players.

Retailers and restaurant operators in Singapore are weighed down by extremely high leasing expenses. This chart from Maybank Kim Eng shows that listed consumer companies such as Jumbo, Tung Lok and Soup Restaurant are bedevilled by high rental costs, with rents eating up a fifth of total revenue for Soup Restaurant.

For Tung Lok, rents take up 15% of total earnings. Other players spend less than 10% of their revenue on rents, but are still impacted by high wage costs.

"The pain of high business costs is more acute for companies not faring that well in revenue terms, such as the Tung Lok Group and Soup Restaurant. Unlike Sheng Siong, there is no relief, as both wages and rentals are equally high," said Maybank Kim Eng's report.

The difference between the two camps appears to boil down to sales. The higher their revenue, the better they appear positioned to handle high costs. That’s just simple mathematics, but it brings up a troubling issue. If consumption ever dips so slightly, costs for even those which are doing well now could catch up. This makes it imperative for
them to break into bigger external markets, such as what Jumbo has done
and what Sheng Siong will soon be doing.

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