Malaysia Retail Industry Faces Slowdown

Malaysia’s retail sector faced a challenging second quarter of 2025 as higher living costs, import-driven price hikes, and global trade tensions dampened consumer spending.

According to the latest Malaysia Retail Industry Report, retail sales contracted 3.0% year-on-year compared to a 0.6% growth in the same period of 2024, missing market expectations of a 1.0% decline.

The first half of 2025 posted a modest 1.5% growth, reflecting cautious consumer sentiment despite an early Hari Raya Aidilfitri celebration and resilient private consumption. Supply chain disruptions and higher import costs due to the U.S. tariff war pressured prices of non-essential goods and services.

Key Trends

Shrinking Sales: The retail sector experienced a 3% decline in the second quarter of 2025, a sharper fall than initially projected, indicating weakened consumer spending.

Rising Living Costs: Higher costs for essentials like groceries, fuel, and utilities have forced households to cut back on non-essential purchases, particularly in urban areas.

Revised Growth Forecasts: Initial forecasts for 2025 growth were lowered to 3.1% by the Retail Group Malaysia, down from an earlier projection of 4.3%.

Impact of Inflation and Tariffs: The ongoing US tariff war and increased utility charges have driven up retail prices, further pressuring consumer budgets and retailers’ margins.

Shift to E-commerce: The growing prominence of e-commerce continues to drive digital integration, forcing retailers to adopt new strategies for digital fulfillment and data-driven planning.

Technological Advancement: Investments in automated distribution centers and AI-powered demand forecasting are creating a competitive advantage for larger chains and enabling them to capture more market share.

Focus on Value and Efficiency: Retailers are focusing on value-creation strategies, including private-label expansion, precision pricing, and hyper-local supply chains, to protect margins and meet shopper price sensitivity.

TABLE 1: YEAR ON YEAR PERCENTAGE CHANGE IN RETAIL SALES (WEIGHTED), 2024/25

Source: MRA/ MRCA/ Retail Group Malaysia

National economy remained robust

Malaysia’s GDP expanded 4.4% in the second quarter, mirroring the first quarter’s pace. Private consumption rose 5.3%, while investment grew strongly – private investment climbed 11.8% and public investment advanced 13.6%.

Inflation eased slightly to 1.3%, and the unemployment rate improved to 3.0%, compared to 3.1% in the previous quarter.

Factors Behind the Slowdown

Several structural and external factors converged to pressure the sector. Persistent global supply chain disruptions raised the cost of imported goods, while the prolonged U.S. tariff war escalated input costs for retailers reliant on international sourcing. Domestically, wage growth failed to keep pace with rising living costs, squeezing household budgets.

Moreover, competition among retailers intensified, especially with the rise of e-commerce platforms offering aggressive promotions and fast delivery. Physical retailers struggled to maintain margins while matching the pricing and convenience of online rivals.

Challenges and Opportunities

Consumer Confidence: Weakening consumer confidence, linked to high living costs and personal debt, is the main challenge impacting spending power.

Adoption of Digital Tools: The integration of AI and automation in core retail processes, such as merchandising, category management, and pricing, is a key trend shaping the sector.

Market Consolidation: The technology gap is widening, potentially leading to consolidation as larger, well-capitalized players leverage technology to gain an advantage over smaller independents.

TABLE 5: MALAYSIA RETAIL INDUSTRY QUARTERLY GROWTH RATE, 2025

(e)- estimate

Source: Retail Group Malaysia

Outlook for rest of 2025

Despite the second-quarter setback, retailers remain cautiously optimistic about the remainder of the year. The Malaysia Retailers Association forecasts a 2.6% rebound in Q3 2025, buoyed by mid-year festivities and anticipated improvements in consumer sentiment. Mini-markets and convenience stores are expected to lead the recovery with projected growth of 9.3%.

The full-year retail growth forecast has been revised down from earlier expectations but still points to an overall 2.7% expansion for 2025, assuming global economic conditions stabilise and consumer confidence improves.

While the outlook suggests a mild recovery, risks remain. Prolonged geopolitical tensions, further tariff escalations, or a slowdown in global trade could weigh on imports and consumer sentiment.

Additionally, the ongoing shift toward digital commerce will continue to challenge brick-and-mortar stores, compelling them to innovate and enhance customer experiences to stay competitive.

Based on the Malaysia Retail Industry Report – September 2025. This report is provided as a service to members of the Malaysia Retailers Association (MRA) and the Malaysia Retail Chain Association (MRCA) by Retail Group Malaysia.