PETALING JAYA: There's nothing like a good bargain and savvy consumers are always on a lookout to stretch their money.
Although consumer spending in Malaysia is generally considered healthy, Retail Group Malaysia Sdn Bhd (RGM) feels that it is not up to expectations.
Managing director Tan Hai Hsin said consumer confidence was low and the increasing cost of living was a major concern.
Take home pay of the Malaysian working population has not been affected very much during the last one year despite the current economic condition. But their purchasing power has dropped due to the increasing cost of living.
Thus consumers have relatively less money to buy retail goods and services and need to pay more for the same goods and services, he told StarBiz by e-mail.
RGM estimates the retail industry to grow at 6% for the last quarter of this year. RGM, which released the Malaysia Retail Industry Report on behalf of the Malaysia Retailers' Association recently, expects growth of 5.1% in the third quarter.
Retailers are not expecting the retail growth rates achieved during the first half of the year to be sustainable in the third quarter, the report said.
RGM added that the retail industry expanded 9.5% during the first half of this year despite rising interest rates and falling consumer confidence.
For the first and second quarters of 2006, the retail industry grew 9.6% and 9.2% respectively.
Retail sales during the first two quarters of this year managed to outpace gross domestic product growth over the same periods. The national economy expanded by 5.5% and 5.9% during the first and second quarters of this year respectively, RGM said.
The supermarket and hypermarket sub-sector was the best performer among the retail sub-sectors with 18.3% growth during the first six months of this year. This sub-sector registered 15.2% and 21% growth in the first and second quarters of 2006 respectively.
The department store-cum-supermarket sub-sector was the next best performer, expanding by 9.6%.
RGM has also revised upwards the retail sales growth rate for this year to 7.5%. For next year, it has a forecast of 8%.
Tan said in order to attract shoppers, many retailers irrespective of size, had been using price discounts.
Of course, low price means low profit margin. Retailers without strong financial resources will soon find themselves unable to keep their businesses going. Many small retailers have had to close shop as they were not able to continue offering competitive prices, he added.
Tan said the price war among hypermarket operators had involved major supermarket operators such as Jusco and The Store.
The price war among the hypermarket and supermarket operators in the Klang Valley had been going on for the last few years and had spread to Penang and Johor Baru in the last one year or so.
The price war started a few years ago due to competition. They fight for market share as more hypermarkets and supermarkets are opening in the same localities.
However, over the last one year, they engaged in a price war to maintain market share due to increasing inflation,'' he said.
The consumers are probably having a field day as competition increases among retailers, enjoying low prices and getting more value for money.
These hypermarket and supermarket operators are getting more shoppers and sales. However, their profit margins have been affected, Tan added.
He said hypermarkets and supermarkets were still expanding aggressively in Malaysia to grow their business.
A few years ago, they were trying to open more outlets in the east coast. They have been exploring Sabah and Sarawak over the past one year. Recently, they have been trying to penetrate small towns in Peninsular Malaysia with population of between 200,000 and 300,000, he said.
On the possibility of new players entering the retail scene, Tan said he did not expect many of the major foreign grocery and department store operators to come in in the next few years although several foreign players, including Wal-Mart, had been studying the local market.
He said the new players might not necessarily pose a threat to the small retailers.
Small retailers will suffer if they continue to compete directly with the big boys, so they must position themselves by offering niche products and excellent customer services. Unfortunately, many traditional provision and sundry shops in our cities have failed to reinvent themselves, he added.