Competitiveness and cost behaviour: evidence from the retail industry

Purpose - With a particular emphasis on corporate strategies for innovation, the purpose of this paper is to examine how cost behaviour operates under conditions of strong competition in the retail industry. Design/methodology/approach - Retail companies listed on the Indonesian, Singaporean and Malaysian capital markets are studied using the regression analysis method. Findings - The findings of this study show the sticky behaviour of changes in the selling, general and administrative (SGA) costs when companies are under competitive pressure. When sales increase, SGA costs will increase; however, when sales decline, SGA costs evidently increase. This is especially true for retail companies which have suffered a decrease in their sales of less than 7 per cent, but experienced positive sales growth in the previous period. The suggestion would seem to be that competition leads to greater aggression and the contemporary real options theory bears this out. Research limitations/implications - This study only uses data from retail companies listed on stock exchanges in Singapore, Indonesia and Malaysia. Practical implications - The type of industry, the extent of the competition and the corporate strategy employed might influence the extent of cost stickiness. Therefore, the users of financial statements need to understand these factors. Originality/value - While previous studies incorporated a variety of industries, this paper focuses on examining cost behaviour amid the competitive pressure from recent phenomena in the retail industry. The study provides empirical evidence for supporting the contemporary real options theory. When an industry experiences competition, investing in an uncertain situation will add value to a company, even if it causes sticky cost behaviour. This result contributes to the literature on cost behaviour and strategy management.