Moderate retail growth seen

  • Property
  • Saturday, 21 May 2016

After one year of implementing Goods & Services Tax (GST), Malaysian consumers are still holding back on spending.

Industry takes a while to adjust to GST regime

THE Malaysian retail sector is expected to grow moderately in the current (second) quarter of this year, despite getting off to a slow start in 2016.

Retail Group Malaysia (RGM) managing director Tan Hai Hsin says that while RGM does not have an estimate for the second quarter, he reckons that performance will be positive compared with the same period in 2015.

“During the second quarter of 2015, the Malaysia retail industry performed poorly due to the goods and services tax (GST). In that quarter, the retail industry dropped by 11.9%. This was the worst quarterly retail growth rate since 1999,” he tells StarBizWeek.

Malaysian Association for Shopping and High-Rise Complex Management past-president Richard Chan admits that growth will be marginally better in the current quarter versus the same period in 2015.

“In the second quarter of last year, GST was implemented (on April 1) and it took a while for retailers and consumers to adjust. So this (second) quarter will be better than last year.

“We don’t expect tremendous growth – maybe between 2% and 3%,” he says.

Tan believes that the increase in retrenchment rate and companies downsizing (including those within the manufacturing, finance, insurance and oil and gas industries) will slow down the growth of the Malaysian retail industry further.

“The removal of subsidy on 25kg bags of wheat flour from March 1, 2016 and the huge increase in foreign worker levy for all key economic sectors in March may lead to another round of price increases of retail goods and services in the second quarter.

“The 3% cut in Employees Provident Fund contribution from March is also not expected to contribute significantly to overall retail sales in the second quarter of 2016.”

On the bright side, Tan says that Ramadan will begin in June, pointing out that this should stimulate retail sales during the last month of the second quarter.

Chan says that in spite of the poor consumer sentiment currently, he believes that the local retail sector is still “resilient.”

“We survived the first quarter. There were no disasters, in that there were no retailers that closed down - just a slow down in business. Cinemas have improved a lot since the end of last year, probably because there have been big movies releases.

“The food and beverage (F&B) sector has also been doing well. Fashion may have taken a bit of a hit.”

He adds that some high-end retailers have also been prospering.

“Some people are still buying six-figure items like there’s no tomorrow,” he says, adding that the upcoming Hari Raya festive holidays will be a boost to the local retail sector.

Tan says that the increase in minimum wages from July 2016 is not expected to have a significant impact on the retail industry.

“The retail sector has a direct relationship with the economic performance of our country. When our economy improves, consumers will buy more. When our economic outlook remains weak, consumers will stay cautious.

“For 2016, we do not expect the retail sector to drive the economy. Nevertheless, we expect the services and F&B sectors to contribute to a better growth rate in the private consumption component of the Malaysian economy.”

He says that F&B outlets have been one of the most vibrant trades during the Malaysia economic uncertainty for the last one year.

“The rapid growth of coffee cafes, bakery cafes, fine-dining restaurants, overseas chain restaurants and food trucks has proven that urban Malaysians are still willing to spend on good foods or dine in nice environments despite the increasing cost of living.

Tan says the services sector (including online banking services, online airline ticket, online hotel booking, online movie ticket, food delivery service, home repair services and Uber) will enjoy a sustainable growth rate this year.

“Another sector that will continue to grow this year is online retail sales. More and more brick-and-mortar retailers are setting up online channels to get consumers to spend.

“Many Malaysians are also using social media platforms to launch their products and services from handmade cupcakes and soaps, costume jewellery, limited edition clothing and many more.”

According to the National Property Information Centre’s (Napic) 2015 Property Market Report, the retail sub-sector recorded a slight improvement in occupancy from 81.8% in 2014 to 82.4% in 2015, with a take-up rate amounting to more than 8.39 million sq ft.

Higher take-up spaces were observed in Selangor, with more than 2.15 million sq ft, while Sarawak and Penang each secured more than 1.07 million sq ft.

Apart from Kelantan which recorded negative take-up rate, all other states were positive.

The performance of the three components that form a shopping complex were also commendable – hypermarkets (92.1%), shopping centres (80.8%) and arcades (75.9%).

Shopping centres accounted for 51.3% of the total shopping complexes and 72.1% of the total existing retail space in the country.

As at end-2015, there were 148.86 million sq ft of existing retail space from 932 shopping complexes.

There were a further 64 complexes with 16.25 million sq ft in the incoming supply category and 38 complexes with 11.09 million sq ft in the planned supply segment.

Selangor dominated the existing retail space, while Kuala Lumpur dominated the incoming and planned supply segments.

According to Tan, the performance of the retail sector in the first quarter of this year was not encouraging. “At this moment, RGM is still compiling results from various retailers. The final result will be out at the end of May.

“Based on our current estimate, the first quarter fell -0.4%. This estimate took into consideration the higher pre-GST sales during the same period a year ago as well as the weak Chinese New Year sales in February 2016.”

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Business , Retail , Q2 , Tan Hai Hsin


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