SMEs

Rising rents, tighter financing put pressure on retailers' cash flow

Singapore

LOCAL lifestyle and design retailer Naiise's reported payment troubles may be a sign of liquidity challenges facing the retail sector at large.

The Singapore Business Federation's (SBF) latest national business survey released last week showed that 43 per cent of Singapore companies in retail and hospitality reported a credit crunch in the past few months, the highest percentage among the sectors surveyed. Of those companies, more than half are in retail.

In addition, fourth-quarter data from the credit bureau showed payment delays in the retail sector worsened quarter on quarter, in a sign that retailers' cash flows may be squeezed on both ends.

Going by the industry players that The Business Times spoke to, rising rents and tighter financing, coupled with declining retail sales, may be putting pressure on cash flow.

"Banks will look at retailers' balance sheets and inventories, among other things. If they are not doing well, banks will cut the amount they give out. Right now, retailers are not doing well," said R Dhinakaran, president of the Singapore Retailers Association, when asked about retailers' access to financing.

The sector has been in a quagmire, with government figures last November showing a 10-month slide in sales.

Vending machine operator Royal Vending has not had any trouble securing credit, however, as it is a cash company and has been operating for about 25 years, said its managing director, Jae Teo.

But other businesses without such credentials will find it harder to do so, as banks are "business people" too, she noted. "This credit crunch is purely business."

One local lender, Hong Leong Finance, had in its third-quarter result filings last year said it "has been writing new loans selectively" given sluggish economic conditions.

When asked if the conservative stance is extended to the retail sector, its president, Ang Tang Chor, said Hong Leong has been "prudent in writing new loans selectively" given the economic conditions locally and globally.

But he added that Hong Leong has rolled out a seasonal business loan scheme for the Chinese New Year season, which can provide retailers with additional short-term loans "to bridge their funding needs to purchase goods to meet higher sales demand".

Industry players also flagged rent as a key factor compounding cash flow issues. In particular, rents form a significant proportion of costs, and have been on the rise.

Latest data from the Urban Redevelopment Authority showed that rents of retail space in Singapore's central region rose 2.3 per cent in Q4 of 2019, following the same rate of increase in the previous quarter.

In reference to the survey findings, SBF chief Ho Meng Kit said: "They struggle with higher property rentals more than other sectors."

Royal Vending, which also allows businesses to promote or sell their products using its vending machines, has seen a pick-up in enquiries from retailers looking for a more affordable way to sell.

"From what we see from the clients we support, the root of the problem is costs, a huge chunk of which lies in rental," said Ms Teo.

KC Group, which owns beauty businesses, and Mothercare shared that they continue to see landlords hike rents despite a less-than-rosy outlook.

"Even last year, when the economic situation was quite tough, the rental situation didn't adjust in tandem with the market outlook," said KC Group director Bernard Ng, adding that one particular landlord had even tried to raise rental by 25 per cent.

Typically, leases are long term, and rents are paid through automatic transfers. When it comes to the crunch, retailers left with no choice will therefore have to delay payments to suppliers' instead, Ms Teo said.

In response to queries, Lendlease, which manages malls like Paya Lebar Quarter and Jem, said it has "processes in place to manage rental payments". So far, there has not been any increase in late rental payments, the landlord added.

Frasers Property said it was unable to comment.