Retail sector expects slim growth(update)

GEORGE TOWN: Due to the softening economic climate, the country's consumer products and retail sector is expected to achieve a slight growth this year, buoyed by a stronger ringgit that allowed for cheaper imports of raw materials and promotional programmes.

In a recent report, Credit Suisse AG expects the 2011 gross domestic product in Malaysia to drop to 4.6% from 5.3% as the Western world is plunging into a recession, with Asia remaining highly sensitive to economic developments in the United States and Europe.

With the exception of Courts (Malaysia) Sdn Bhd, which is expecting a strong double-digit growth this year, branded consumer goods manufacturers such as Pensonic Holdings Bhd and established northern region-based retailer of consumer electronic products like Star Electronics Sales and Service Sdn Bhd are expecting either slight or flat growth this year.

Companies involved in the production of food and beverage products such as Spritzer Bhd and CAB Cakaran Corp Bhd, however, are expecting higher growth in sales.

Pensonic managing director Dixon Chew said in a challenging economic climate it was the branded consumer products manufacturers and established retail brand names that were able to sustain and grow their business.

“As consumers are more cautious on their spending, Pensonic will launch more sales in the country in the second half to improve over last year's corresponding period, aiming for moderate growth,” he told StarBiz.

“A strong ringgit has eased the cost of our imported raw materials, especially from countries such as Vietnam whose currencies had weakened against the US dollar.”

Star Electronics managing director Joseph Hon said the second half of the year was not expected to be good, compared with last year's corresponding period.

“The sale for 2011 is expected to be maintained at last year's level, which was about RM76mil.

“A stronger ringgit makes it easier for suppliers to give discounts, allowing us to launch more promotional programmes with competitive prices, mitigating the impact of a softening market,” he said.

“Our experience so far is that three days of promotional sales can generate sales equivalent to one whole month of business.”

Star Electronics presently has 19 outlets in the northern region.

Courts, more bullish of the Malaysian economy, expects full-year sales to grow by 24%.

“Courts' performance is on track and this was reflected through our healthy performance during the Hari Raya season in August.

“We expect our full-year sales to grow 24% compared with last year due to the high confidence level of Malaysian consumers,” Courts country director Chris Yong said.

According to the latest Consumer Confidence Index reported by Nielsen via its global online survey, the online consumer confidence in Malaysia rebounded five points to an index of 110 in the second quarter of 2011, its highest level since the third quarter of 2006.

“The expansion plan is on track, which will see our store expansion in high-traffic shopping malls as well as mass market areas.

“We have allocated about RM35mil investment to open eight new stores, refurbish 12 existing outlets, and relocate three stores.

“The target is to open 95 stores in the country over the next five years, from 56 presently,” he said.

Consumer electronic products such as televisions, notebooks, smart-phones and cameras continue to generate 70% of the sales for Courts, followed by furniture products, which have enjoyed good take-up rate from customers.

Meanwhile, CAB managing director Chris Chuah said the group expected double-digit growth in sales this year for its processed frozen food and broiler meat business.

“The tourism industry will drive orders in the second half, as the festive holidays draw closer,” he said.

CAB's domestic sales generate about 80% of the group's revenue.

Spritzer managing director Lim Kok Boon said the group had to date this year produced 150 million litres of mineral and drinking water, due to an expanded capacity, which is equal to the volume produced in 2010.

“Our margins had been eroded due to rising production costs and the difficulty to pass the cost to customers and stay competitive,” he said.

The BMI Malaysia Retail Report for the final quarter 2011 forecasts that total retail sales will grow from RM182.44bil in 2011 to RM279.83bil by 2015.

“A low unemployment rate, rising disposable incomes and a strong tourism industry are key factors behind the forecast growth,” the report said.

OCBC Bank (Malaysia) Bhd emerging business head Wong Chee Seng said it expected growth for revenue and loans outstanding for the SME sector to improve over last year, hovering over the double-digit region.

In the first half of 2011, OCBC approved more than RM2.5bil in loans to SMEs involved in the wholesale and retail sectors, marking a high double-digit percentage increase over the same period in 2010.

On the global retail scene Reuters reported Monday that the deteriorating outlook for the world economy, and what retailers can do to cope, are likely to be the dominant themes at the annual World Retail Congress in Berlin this week.

Executives from companies including France's Carrefour, Britain's Kingfisher, Neiman Marcus and India's Reliance Industries, will be discussing a slide in consumer confidence across Europe and the United States.

Shoppers are curbing spending amid fears major economies are falling back into recession and a sovereign debt crisis in the euro zone could spark another financial markets meltdown.

Retailers are traditionally wary of stepping into the political arena for fear of alienating some of their customers. But as the outlook deteriorates, they may become more vociferous in calling for policymakers to take action to boost growth, such as easing monetary policy or slowing down the pace of austerity measures.

Planet Retail research director Robert Gregory thought much of the focus at the three-day conference would also be on how companies can cope by, for example, maximizing their potential in still growing subsectors like online retailing and tapping relatively undeveloped markets, like those in Africa.

"Multichannel and best practice will be among the major talking points," he said, referring to store-based retailers' attempts to integrate their businesses with the internet.

It will not all be doom and gloom either, as retailers will be present from fast-growing markets like India and Brazil.

India's Reliance Retail said last week it saw same-store sales rising 20 percent this fiscal year.


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