malay01

Malaysia: Can strong growth in the retail sector last?

THE retail sector, with sales growth expected at 13.1% this year after falling 2.3% in 2021, is expected to stay buoyant for the time being, amidst risks of high inflation, interest rate hikes and possible global recession.

With Malaysia’s broad subsidisation policy keeping inflation down, retail sales are surging partly on a low-base effect as many purchases were deferred in the last two years and many businesses were disrupted by the Covid-19 lockdowns.

For the time being, the retail sector can sustain its growth although high inflation and recession may reduce consumers’ disposable income and spending.

If it is withdrawals from the Employees Provident Fund (EPF) that had buttressed consumers’ disposable funds, strong retail sales may not be sustainable, said former Inter-Pacific Securities head of research Pong Teng Siew.

Besides the low base effect, pent-up demand in the first half of 2022, with two back-to-back quarters of festivities, also contributed to strong retail sales.

Beyond 2022, it is reasonable to expect that revenue growth will normalise, said Maybank Investment Bank Research analyst Jade Tam.

Other positive factors included a marked improvement in mobility and signs of recovery in private consumption, while international tourists have picked up at a stronger-than-expected pace.

The gradual recovery in the labour market, though still not yet reaching pre-pandemic levels, will further boost domestic recovery prospects, said HSBC Asean economist Yun Liu.

Festivity-driven spending is expected to support retail sales in the second half of 2022, mitigated by the negative impact of rate hikes and rising inflation, said CGS-CIMB Research in its research note.

Since the end of 2021, shopping traffic has been back to pre-pandemic 2019 levels, especially at large shopping centres such as Mid Valley Megamall, Suria KLCC, Pavilion KL, One Utama, Sunway Pyramid and IOI City Mall.

Consumers are also buying non-essential goods and dining at good quality cafes and restaurants.

Purchasing power may have dropped due to higher costs of living; consumers are seeking discounts and promotions by retailers and food and beverage (F&B) outlets to maintain their quality of life.

However, occupancy and rental rates at shopping centers may only recover to 2019 levels by next year, said Retail Group Malaysia managing director Tan Hai Hsin.

Due to retail oversupply, many new shopping centres that opened in the last few years were not able to achieve high occupancy in their first year of opening.

Shopping centres that had relatively low occupancy rates in 2019, did well during the lockdowns as many consumers had to shop at supermarkets closest to them.

Now that the shopping behaviour of consumers is back to normal, the traffic at these malls have fallen back to their low 2019 levels.

With consumers back to physical stores, retailers in the fashion and fashion accessories as well as personal care (skincare and cosmetics) are enjoying double-digit recovery.

But grocery operators, after robust sales in the last two years of lockdowns, are seeing their business normalise at 2019 levels.

Since the first lockdown in March, 2020, groceries had been enjoying very good sales; many consumers who had started selling food from home, frequented these groceries for supplies.

But the majority of consumers are back to their usual lifestyles, and the business at groceries has normalised.

Since the reopening, new trends have emerged in the setting up of:

> New F&B outlets including fine dining restaurants, cafes, food kiosks, bubble tea shops and cloud kitchen with dining areas.

> More ready-to-eat convenience stores such as CU, 7-Eleven Café, Family Mart, eMart24 and KK Concept Store.

> First overseas stores in Malaysia, as the new supply of high quality shopping malls such as Lalaport, Pavilion Bukit Jalil, The Exchange TRX and 118 Mall, have also encouraged foreign retailers to set up shop in Malaysia.

Recent examples are Tsutaya (Japan), DonQ (Japan) and Gordon Ramsay Bar and Grill (Britain).

> Flagship stores in shopping centres. Many manufacturers and distributors are setting up showcases and showrooms in shopping centers, for example, Mercedes Benz in One Utama and Samsung Senheng Experience Store at Four Seasons Place.

More malls, brands and tenancies are opening by end of 2022, as sales are expected to almost double compared to the first quarter of 2022, said IOI Malls general manager Dylan Chan.

For example, IOI City Mall Phase 2, with 700 retail outlets and set to be the largest mall in Malaysia, is targeting to open this month.

With rapid retail growth, sustainability has become a key concern in planning, designing and operating malls as community hubs.

Such practices include adaptation of solar panels, community farming, green parks inside malls, rainwater harvesting, cashless carparks, food waste composting and the setting up of recycling centres in the malls.

Meanwhile, lingering concerns on inflation and higher interest rates, should not materially impact discretionary spending at retail malls; higher interest rates are likely to impact purchases of large ticket items, said Sunway Real Estate Investment Trust (REIT) CEO Datuk Jeffrey Ng.

The positive retail momentum at Sunway Malls is expected to sustain in the second half of 2022, supported by healthy economic growth, sustained domestic consumption, a gradual pick-up in international travel and new income contribution from Sunway Carnival Mall (new wing) following its launch in June, 2022.

Sunway-REIT also owns Sunway Pyramid Shopping Mall, Sunway Putra Mall and SunCity Ipoh Hypermarket.

Sunway Malls have enjoyed 10 months of uninterrupted recovery sales at 100% since the fourth quarter of 2021.

Against improving domestic activities, the second half is expected to bode well for Sunway Malls, with recovery in sales for the third quarter of 2022 to sustain at 115%, and 107% in the fourth quarter, said Sunway Malls and Theme Parks CEO Chan Hoi Choy.

Personal consumption is a key driver in the growth of Malaysia’s gross domestic product; it is vital that we look into other factors for sustainable growth of the retail sector especially after the money from EPF savings is used up.

Yap Leng Kuen is a former StarBiz editor. The views expressed here are the writer’s own.

Source: https://www.thestar.com.my/business/business-news/2022/08/22/can-strong-growth-in-the-retail-sector-last