Malaysia’s retail industry heads into the final stretch of 2025 with more momentum than many had predicted just months earlier.
Retail Group Malaysia’s (RGM) latest Retail Industry Report shows that the sector not only weathered a volatile year — it outperformed expectations with a stronger-than-forecast third quarter, sustained consumer spending and a clearer outlook heading into 2026.
Yet the deeper story is not just one of resilience. It is one of recalibration.
Across categories, Malaysians are reorganising their spending behaviour in response to rising costs, shifting policies and a labour market at its strongest in years.
For marketers and retailers, this moment offers both clarity and challenge: consumer confidence is holding, but loyalty is no longer guaranteed.
A Better-Than-Expected Q3 Signals Underlying Strength
Malaysia’s retail industry recorded 4.9% growth in Q3 2025, nearly double the 2.6% that retailers had projected earlier in the year.
This surge is remarkable given the policy turbulence that unfolded between July and September — from a new electricity tariff structure and expanded Sales and Services Tax (SST) to higher luxury taxes and the enforcement of the minimum monthly wage for micro-employers.
Layered on top of this was Bank Negara Malaysia’s surprise move to cut the Overnight Policy Rate (OPR) to 2.75%. For many households, this translated into calmer financial expectations even as grocery and discretionary prices rose.
Critically, RGM highlights the impact of government cash assistance.
The expanded Sumbangan Asas Rahmah (SARA) initiative saw more than 13 million Malaysians redeem RM100credits at over 4,100 retail stores nationwide by end-September, injecting approximately RM11 billion in purchasing power directly into the retail economy.
At the same time, the reduction of RON95 petrol to RM1.99 per litre eased transport-related cost pressures for over 16 million Malaysians.
These fiscal buffers, combined with strong labour fundamentals, explain why retail spending held firm even as prices continued climbing.
Labour Market Confidence Underpins Consumption
The macroeconomic backdrop shows a country with rising economic momentum. Malaysia’s national economy expanded by 5.2% in the third quarter, supported by strong private and public investment.
Inflation remained low at 1.3%, helped significantly by stable administered prices across essentials such as cooking gas and fuel.
Most importantly for retailers, unemployment held at a healthy 3.0%, and labour force participation rose to a historic high of 70.9%.
When more Malaysians are working — and feel securely employed — discretionary spending becomes less vulnerable to short-term price movements.
This influence is visible in the stable 5.0% private consumption growth in Q3, which forms the backbone of Malaysia’s retail performance.
Sub-Sector Performance Reveals Changing Consumer Priorities
RGM’s breakdown of retail sub-sectors shows a market diverging in two directions: everyday essentials are thriving, while big-ticket and niche segments continue to falter.
Strong Performers in Q3 2025:
Consumers are clearly willing to spend on essentials, value-driven purchases and categories tied to personal expression and social life.
Weak or Negative Performers:
These numbers reveal a consumer base that is becoming more selective.
Big-ticket purchases are being deferred, and discretionary categories not tied to necessity or personal well-being are under pressure.
For marketers, this underscores the importance of value narratives, category innovation and retention-led strategies over broad-based promotions.
Q4 Outlook: A Festive Lift, but Not for Everyone
Retailers project a 5.0% growth rate for Q4 2025, fuelled by school holidays, festive shopping, interstate travel and improved consumer sentiment.
Notably:
However, department stores, specialty stores and furniture/electronics retailers expect continued contraction. For these segments, the year-end bump will be more muted, reinforcing structural challenges already evident over the past two years.
As RGM notes, Malaysian consumers will continue spending during the holiday period — but they are prioritising reasonable pricing, value-driven offerings and experiences that feel worth their money.
2026: Growth Opportunities Exist, But So Do Cost Pressures
RGM forecasts 4.0% retail growth in 2026, aligning closely with national GDP projections. The report identifies two major forces shaping next year’s retail landscape: rising costs and rising opportunities.
Cost Challenges Include:
• Rising cost of living for consumers
• Higher operating costs for retailers
• Inflation rising moderately to between 1.3% and 2.0%
• E-invoicing rollout (Phase 4) for businesses with RM1–5 million turnover
• New employer and employee contributions for non-Malaysian workers
These structural cost shifts will test margin resilience, especially among small to mid-sized retailers.
Opportunity Catalysts Are More Powerful Than in Previous Years:
Tourism alone could reshape retail geography, reviving malls, high streets, and tourist towns whose footfall patterns have not fully normalised since 2020.
With Chinese New Year in February and Hari Raya in March, Q1 2026 could be unusually strong for fashion, F&B, pharmacy, beauty, and travel-related retail.
F&B: A Tale of Two Realities
Food and beverage operators still face rising food prices, labour costs and rental pressures. But long weekends in September lifted restaurant and café sales to +2.1% in Q3, outperforming earlier predictions.
Kiosks and stalls, suffered a steep –22.0% decline, reflecting cost sensitivity in lower-ticket casual dining.
Both segments expect a Q4 recovery — +5.0% for restaurants/cafés and +7.7% for kiosks and stalls.
Malaysia’s retail sector is proving resilient.
The real test in 2026 will be whether brands can convert resilience into momentum.
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