An Overview of Malaysia Retail Industry

by Tan Hai Hsin, Managing Director, Retail Group Malaysia- 

RETAIL MARKET IN 2015

The growth rate of Malaysia retail industry in 2015 is expected to increase by 2.0%.

This will be the lowest annual growth rate since 2009 (refer to table below). The total retail sales turnover for 2015 is expected to be at RM 96.7 billion.

Table: Retail Sale Growth Rates of Malaysia, 2006-2016

Source: Retail Group Malaysia

For the first quarter of 2015, Malaysia retail industry recorded a growth rate of 4.6% in retail sales, as compared to the same period in 2014.

Retail sales performance during the first 2 months of 2015 was below expectation despite Chinese New Year festival, employees received bonuses and the distribution of BR1M 4.0.

Malaysian consumers were confused by the different public messages on the prices of retail goods and services after March 2015. Malaysians were hesitant to spend more despite lower petrol prices and electricity charges.

Consumers’ spending rose sharply during the last 2 weeks of March. This was because of more announcements made by private sector on the prices of retail goods and services from April 2015. Retailers of big-ticket items were also clearing their old stocks aggressively with large discounts. Majority of retailers still needed to use heavy discounts to encourage consumers to buy before the introduction of Goods & Services Tax (GST).

For the second quarter of 2015, Malaysia retail industry recorded a poor growth rate of -11.9% in retail sales, as compared to the same period in 2014. This quarterly result was the worst quarterly retail growth rate since the Asian financial and economic crisis in 1998.

The introduction of GST affected all retail sub-sectors (from retailers selling grocery, fashion and fashion accessories, electrical & electronics, foods and beverages and overseas travel) since 1 April 2015.

Consumers had been holding back on their purchases to observe the price movements of the retail goods and services. They were also waiting for more promotions by the retailers.

Due to GST and weak Ringgit, costs of living rose since 1 April 2015. Thus, reduced the spending power of Malaysian consumers further.

For the third quarter of 2015, Malaysia retail industry recorded another lower-than-expected growth rate of 1.6% in retail sales, as compared to the same period in 2014.

Malaysian Bumiputras returned to shop for their festival 2 weeks before Hari Raya in July. However, the retail sales were still discouraging as compared to previous year.

The political development in Malaysia affected retail sales indirectly during the third quarter. The political situation was affecting the consumer sentiment level and buying mood of Malaysian consumers. As a result, they were spending less.

For the last quarter of 2015, the estimated retail growth rate was 3.8%, as compared to the same period in 2014.

The weak Ringgit performance during the last several months of 2015 had resulted in higher import costs. Higher import costs affected all retail sub-sectors. Higher retail prices since September 2015 had further deteriorated the purchasing power of Malaysian consumers.

Malaysia retail industry had yet to recover from the negative impact of Goods & Services Tax (GST) on consumers’ spending. The unexpected drop in Ringgit value worsened it.

RETAIL DEVELOPMENT TRENDS

Foods & beverages outlets have been one of the most vibrant trades during Malaysia economic uncertainty for the last 1 year.

The rapid growth of coffee cafes, bakery cafes, fine-dining restaurants, overseas chain restaurants and food trucks has proven that urban Malaysians are still willing to spend on good foods or dine in nice environment despite the increasing cost of living.

Since 3 years ago, there has been an explosion of independent coffee cafes in Malaysia. New coffee cafes are opened almost every week in Klang Valley. They are also a new trend in Penang Island, Johor Bahru, Ipoh, Malacca, Kuantan, Kota Kinabalu and Kuching.

Nice bakery cafes are still growing and spreading throughout the country. In Klang Valley, more people are willing to pay more than RM10.00 for a loaf of gourmet bread.

The liberalisation of Malaysian retail sector in recent years continues to encourage more foreign retailers to invest and set-up their retail stores within shopping malls in Malaysia.

New fashion retailers opened first outlets in Malaysia during the last 2 years include Blackbarrett, Desigual, MCM, Tory Burch, Halston, Pisidia, Under Armour, Piquadro, Palladium, SPAO, MIXXO, WHO.A.U, etc.

New foods & beverages outlets opened first outlets in Malaysia during the last 2 years include Nana’s Green Tea, Johnny Rockets, Red Lobster, Fatburger, Quiznos, Jamaica Blue, Longhorn Steakhouse, Olive Garden, Coco Ichibanya, t-Lounge, Ilao Ilao, 4Fingers, etc.

Other overseas retailers opened their first store in this country include Spotlight, Hamley’s, innisfree, Kare, Index Furniture Mall, HomePro, Tony Moly, Yubiso and several others.

THE SHOPPING CENTRE MARKET

The main challenges for Malaysian shopping centres in 2015 had been reduced consumers’ spending and rising operation costs.

Due to the introduction of Goods & Services Tax (GST) in April 2015, Malaysian consumers held back their spending despite sustainable disposable incomes.

Shopping traffic of shopping centres dropped significantly during the first 2 months since the introduction of GST. Nevertheless, they are still crowded during peak hours on weekdays and on weekends.

The increased operation costs of shopping malls in Malaysia had hurt its bottom line. Higher costs were contributed from increased electricity tariff, GST as well as higher charges by service providers (security, cleaning, car parking, maintenance, etc.) of the shopping centres.

The successful ones are mostly likely to remain popular with queue of retailers wanting to join. Shoppers will continue to visit these popular shopping centres due to their wide rang
es of offerings.

The already poorly occupied shopping centres will remain so with great challenges ahead to lift the occupancy rates.

The old shopping centres will face pressure from the new ones. They need to refurbish in order to meet today’s shoppers’ needs. If they do not do so, they will loose tenants moving to new shopping centres.

The new shopping centres will face financial challenge in order to attract new tenants. To attract tenants, they need to lower their rental rates in order to lure them.

Strata-titled shopping centres will face challenges to re-invest themselves in order to meet the market changes due to multiple ownerships.

VIRTUAL SHOPPING

Malaysians are active in online shopping. But the transaction amount is still low as compared to the entire retail industry. Online retail sales only accounts for less than 2.0% of total retail sales in Malaysia. Services (telco services, banking services, movie tickets, government services, etc.) account for the largest portion of online shopping.

More and more brick-and-mortar retailers in Malaysia now offer online shopping facility. This trend covers almost all retail sectors – international luxury brands, fashion clothes, fashion accessories, gifts, toys, books, electrical & electronics, furniture, hardware, buildware, grocery, foods and beverages, etc.

At the same time, more online retailers in Malaysia are setting up physical stores. Zalora.com.my has a permanent premise at Mitsui Outlet Park. The well-known Christy Ng Shoes has set up her showroom in Damansara Utama. Popular Facebook Fatbaby ice cream has set up an ice cream parlour in Subang Jaya.

F Block and Aurora are two good examples of retailers offering both physical stores and online shopping sites at the same time.

Even though we have one of the highest credit card ownerships and one of the highest smartphone ownerships in the world, online shopping in Malaysia will not replace physical store any time in the near future.

THE RETAIL PROSPECTS OF 2016

Retail Group Malaysia forecasts 4.0% growth rate for Malaysia retail industry in 2016.

Budget 2016 announced in end October 2015 did not offer sufficient policies and incentives to stimulate domestic consumers’ spending in the first half of 2016. In the Revised Budget 2016 announced in end of January, Malaysian government reduced the Employee EPF contribution by 3% from March 2016. This is supposed to contribute RM 8 billion private spending during the year.

Increases in prices of toll rates (started in October 2015) and rails’ ticket prices (started in December 2015) have increased the cost of living of Klang Valley working population, the largest contributor to Malaysian retail market. Higher transportation costs will also lead to another round of increases in prices of retail goods and services during the first quarter of 2016 due to higher business operation costs.

Malaysian currency is not expected to improve back to 2014 level in the first half of 2016. This will add more pressure to importers of raw materials, semi-finished goods and finished goods that are meant for final consumption by Malaysians. Another hikes in prices of retail goods and services from the second quarter of 2016 will result in further deterioration of spending power of Malaysian consumers.

The electricity tariff rebate for Peninsular Malaysia has been reduced from 2.25 sen per kWh to 1.52 sen per kWh for a period of 6 months from 1 January 2016. This has resulted in high cost of operators for businesses, including shopping centres. The business operators are likely to pass their burden to consumers with high retail prices.

Despite lower purchasing power, Malaysian consumers will continue to visit shopping centres in 2016. High shopping traffic is expected during weekends, eve of public holidays, public holidays, school holidays, festivals and annual sales events organised by Ministry of Tourism.

Large and regional shopping malls in Malaysia which are able to offer wide variety of goods and services will continue to attract the most shoppers. They will continue to draw large amount of shoppers on both weekdays and weekends.

Malaysian government is targeting 30.5 million tourist arrivals with expected tourism receipts of RM 103 billion in 2016. Tourists from China do not need to apply for Malaysian Visa from 1 March 2016. This should attract 8 million Chinese tourists to visit Malaysia this year.

The weak Ringgit will also encourage not only more regional tourists (including Singapore, Indonesia, Thailand and Brunei), but also international tourists to travel to Malaysia for holiday and shopping in 2016.