Department store closures to abate as labour woes stabilise

Occupancy costs have already peaked.

Singapore’s retail scene has been rattled by a wave of department store closures in the first half of 2015. Although the spectre of continued store consolidation still haunts Singapore, CIMB analysts are optimistic that the downsizing wave will finally subside in H2.

This is because labour issues are stabilising while occupancy costs have already peaked, the report said.

“With all firms expected to have complied with the reduced DRCs by Jul 2015, we believe that firms have consolidated in anticipation of this and expect further store closures stemming from the labour shortage to abate in 2H15,” CIMB noted.

“Our view on slowing consolidation rests on our belief that occupancy cost has peaked. Occupancy cost has been creeping upwards, but we believe it needs to peak, as further increase in occupancy costs given the weak retail environment is unsustainable and could cause further consolidation, in our view. We think lower occupancy cost has to come from a combination of improved tenant sales and lower rent,” the report added.