Why AsiaPac retailers are in trouble

Singapore and the region's other economies are slowing down as is spending.

The increasingly sluggish economies in Asia-Pacific, as a consequence, are also dampening the credit outlook for the region's retailers for the next six to 12 months, reports Standard & Poor’s Ratings Services said in a new report

"Standard & Poor's base-case scenario is for real GDP growth to slow in emerging markets such as China and Indonesia in 2012," said Standard & Poor's credit analyst Makiko Yoshimura. "At the same time, however, we expect retailers' growth prospects to remain stronger in these countries than in Europe and the U.S., backed by increasing numbers of middle-income earners and accelerating urbanization," she added.

S&P said there are two main downside risks to the sector outlook.

"First, lower employment and household income caused by slumped exports could increase the likelihood of a drop in the performance of retailers in the region; with the possibility of credit quality then being undermined if significant investment in capacity takes longer to recoup than we expect. Second, intensifying competition as retailers move increasingly online is likely to hurt margins. In Japan particularly, intensifying competition will likely lead to industry consolidation and change the industry landscape, in our view," it said.

"Significant differences in consumer demand across the region are likely to persist under our baseline economic forecast. In China, retail sales growth has weakened since the last quarter of 2011, with same-store sales dropping to high single-digit growth this year from mid double-digit growth in 2011. In mature markets such as Australia and Japan, we expect depressed consumer sentiment in the latter months of 2012, reflecting ongoing uncertainty over the economy. This comes despite the economic rebound in these countries after natural disasters--including floods in Australia and the earthquake and tsunami in Japan in 2011. In a downside case, we anticipate that a slowdown in China would have a flow-on effect for Asia-Pacific economies that have strong trade relations. Lower employment and household income caused by the global economic slump and dampened exports would increase the likelihood of a drop in the performance of retailers in the region," it added.