Malaysia’s Retail Sector Stumbles in Q2, Hopes for a Rebound in H2

By The Malketeer 

Sluggish Q2 Performance as Retail Growth Falls Short

Malaysia’s retail industry experienced a significant slowdown in the second quarter of 2024, recording a mere 0.6% growth in retail sales compared to the same period in 2023, according to the latest Malaysia Retail Industry Report.

This performance starkly contrasts with the 1.7% growth anticipated by the Malaysia Retailers Association (MRA) and Malaysia Retail Chain Association (MRCA), falling short of estimates by a notable 65%.

The disappointing Q2 figures follow a strong start to the year, with retail sales jumping 7.8% in the first quarter.

However, various factors, including rising prices and less enthusiastic festive season spending, have contributed to the slump.

Despite an influx of foreign tourists attracted by the favorable currency exchange rates and visa-free entry from China and India, the pre-festive sales for Hari Raya Aldilfitri were underwhelming, with much of the expected spending having been recorded in Q1.

Divergent Trends Among Retail Sub-Sectors

While the overall retail sector struggled, some sub-sectors managed to buck the trend. The personal care sub-sector emerged as the best performer in Q2, with a robust growth rate of 7.6%.

Similarly, the mini-market, convenience store, and cooperative segment grew by 7.0%, benefiting from sustained consumer demand.

On the other hand, traditional department stores reported a drastic decline, with sales shrinking by 13.8%, marking it as the worst-performing sub-sector.

Fashion and fashion accessories saw a modest recovery, growing by 3.1%, while the pharmacy sector slowed to a 2.5% growth rate.

However, the overall picture for many sub-sectors remains bleak, with furniture, home improvement, and electronics witnessing a decline of 4.6%.

Economic Context and Consumer Behaviour

Despite the weak retail performance, Malaysia’s broader economy showed resilience, growing by 5.9% in the second quarter, driven by strong private consumption, a positive labour market, and robust export growth.

Private consumption rose by 6.0%, reflecting sustained consumer spending, although inflation crept up slightly to 1.9%.

The fluctuating inflation rates—rising from 1.8% in April to 2.0% by June—have pressured consumer spending, especially in essential categories such as food, housing, and personal care.

This inflationary environment has compelled Malaysian consumers to tighten their belts and prioritise essential over discretionary spending.

Optimistic Forecasts for H2 2024 Despite Uncertainties

Looking ahead, the MRA and MRCA remain cautiously optimistic, forecasting a 3.6% growth rate for Q3 2024.

This optimism is bolstered by anticipated recovery across several sub-sectors, including department stores and supermarkets, which project a 7.3% growth, and the fashion sector, which expects a 7.4% increase.

However, challenges remain.

The lingering impact of the Israel-Palestine conflict has adversely affected several international retail brands and F&B franchises with perceived ties to Israel. Additionally, rising living costs, driven by increased service taxes and fluctuating diesel prices, continue to weigh heavily on consumers.

Tourism and New Policies: Silver Linings for Retail Recovery

The Malaysian government’s initiatives, including visa-free entry for Chinese and Indian tourists, have led to a significant boost in foreign tourist arrivals—up by 194% and 89.3%, respectively, compared to the same period in 2023.

The government is targeting 27.3 million tourists and RM102.7 billion in receipts for 2024, which is expected to provide a much-needed lift to retail businesses in major cities and tourist hotspots.

Further support comes from new fiscal measures, such as increased remuneration for civil servants and ongoing cash handouts under the Sumbangan Tunai Rahmah Programme, which could stimulate spending in the latter half of the year.

The Path Forward: Navigating Challenges to Achieve Growth

As Malaysia’s retail sector navigates through a complex landscape of challenges, including rising costs, geopolitical uncertainties, and changing consumer behaviours, the industry remains hopeful for a rebound in the second half of 2024.

Retailers will need to stay agile, adapt to evolving market conditions, and leverage opportunities from increased tourist arrivals and government support to achieve the projected growth rates.

For the remainder of 2024, the key to recovery will lie in tapping into the growing consumer base, managing operational costs effectively, and innovating to meet changing consumer demands.