Retail pick-up expected in Q4


  • Business
  • Saturday, 01 Oct 2016

Thriving ones: The IOI Resort City in Putrajaya. Some malls are said to be still thriving especially the good, established ones

Festive holidays and year-end sales to boost market

THE local retail sector is expected to see a slight pick-up in sales in the final quarter of this year following what observers felt was a “mellow” third quarter.

Savills Malaysia managing director Allan Soo says the fourth quarter of the year tends to be a time that retailers usually look forward to, given the festive holidays and year-end sales during the period.

“Year-on-year, we expect a slight growth due to pent-up demand, given that the gap with the last big holiday season (Hari Raya) was bigger this year,” he tells StarBizWeek.

Soo says the local retail sector will benefit from tourist arrivals, which is expected to remain encouraging towards year-end.

Malaysia Retail Chain Association (MRCA) immediate past president Datuk Liaw Choon Liang is more cautious about the outlook for the fourth quarter.

“The fourth quarter initially starts off quiet but tends to pick up in December. But the outlook remains challenging. There are a lot of shopping malls out there and the overall retail sentiment has been soft,” he says.

Malaysian Association for Shopping and High-Rise Complex Management past president Richard Chan concurs that the fourth quarter tends to see a pick-up in sales.

“For the last 10 years there was a pick-up in the fourth quarter and this year should be no different. Whether or not it will be higher than last year, will be hard to say.”

Tourism boost: Soo says the local retail sector will benefit from tourist arrivals.
Tourism boost: Soo says the local retail sector will benefit from tourist arrivals.

In its report in August, Retail Group Malaysia (RGM) said the Malaysian retail industry’s fourth-quarter growth rate estimate remained at 5.5%, taking into consideration the growth of 1.3% achieved during the same period a year ago.

It said the projected retail sales growth rate of Malaysia’s retail industry in 2016 is expected to remain at 3.5% or RM99.5bil in value.

Liaw says business so far this year has been challenging, with sales in the third quarter still subdued despite Hari Raya falling within the quarter.

“It has been challenging this year and the third quarter has not performed. It did not do well despite Hari Raya.”

Soo however says that the Hari Raya festival was “fantastic” in Johor Baru due to the ringgit/Sinapore dollar factor.

Liaw says retailers are still feeling the ripples of the goods and services tax (GST), which was introduced on April 1, 2015.

“Even after a year, we thought that things would pick up. It also doesn’t help that there are many shopping malls, especially with new ones coming up all the time.

“It can actually be detrimental to retail chain operators. With more malls, newer outlets within a particular chain can affect older ones, says Liaw.

Chan believes that sentiment is mostly driven by perception.

“When one person says it’s bad, a lot of people will jump on the bandwagon and think the same way. But if times are challenging, retailers should use it as an opportunity to work harder and smarter.”

Based on reports, about 40 malls would be entering the market in Greater Kuala Lumpur by 2020, of which a dozen would have a net lettable area of one million sq ft.

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.

Chan admits that the local retail sector has seen a slight dip in occupancy and rental rates, but adds that its “nowhere near alarming levels.”

“Some malls are still thriving, especially the good, established ones. In fact, I know of some retailers that have been enjoying double-digit growth!

“With that said, I don’t think that there should be a freeze on the construction of malls because demand is still there!”

Believing: Chan says sentiment is mostly driven by perception.
Believing: Chan says sentiment is mostly driven by perception.

Chan was refering to reports that there have been calls for the construction malls in the country to be frozen.

On Wednesday, it was reported that the state government has no plans to freeze the construction of retail and shopping complexes in Johor especially in Iskandar Malaysia.

Johor Housing and Local Government committee chairman Datuk Abdul Latiff Bandi reportedly said it would send a wrong signal to investors if the state government was to adopt the measure.

He said developers would have conducted in-depth studies before deciding to build a retail complex as one of the components in their mixed development project.

Abdul Latiff said it would be good for consumers as having more shopping complexes around meant more choices of goods or products. He added that if the state authorities were to impose a limit on the number of retail shops and shopping complexes, it could lead to a monopoly or push up prices of certain goods.

Apart from catering to Iskandar Malaysia, Abdul Latiff said the shopping complexes also attracted those from Singapore, as well as other districts in Johor such as Batu Pahat, Muar and Kota Tinggi.

Khong & Jaafar group managing director Elvin Fernandez says the retail market in Greater Kuala Lumpur was somewhat strong until early 2015.

“In fact, many of the retail centric real estate investment trusts were doing quite well and with double digit rent reversions each year.

“With the economic slowdown and the imposition of GST and slower consumer spending from the first half of 2015, the retail market has also slowed down substantially and the retail sector now is coming to a stage where it resembles the office market, which has been in an oversupply condition for more than three years and with conditions not looking upward at the moment.

Rental growth

Elvin says the well-established malls will no doubt continue to perform well, although at a lower pace of rental growth and occupancies.

“In the last two years, there has also been a substantial amount of new supply coming into the market and the newer malls are generally more affected because the competition between them is fairly intense as they try to lure tenants into their centres.

“All in all, while a well-managed and established shopping mall in Greater KL can secure a net yield of 6% and slightly above, the malls that have come in cannot reach those levels.”

He says the newer malls can at best get a current nett yield of close to 4% and will have to work very hard to move towards this sustainable required benchmark net yield of 6% in the next few years.

“Some may succeed. Many may not. This will bring us to the next issue of a potential buyer entering the market who may not be quite happy with receiving less than the benchmark yield of 6% net per annum.

“The way out for the new malls is that the seller will have to value his asking price by guaranteeing rental yields over the next one to five years and the main issue in guaranteeing rentals is what if you cannot reach that sustainable level of rents required? This is where the market is.”

Soo says that some developers have actually been postponing the launch of their malls in light of the tough economic conditions currently.

RGM in its report in August said it expects Malaysia’s retail industry to grow by 5.9% in the third quarter of this year, mainly attributed by the timing of the Hari Raya holidays.

The retail association says growth would also have been spurred by the Minimum Wages Order 2016 that was implemented on July 1.

“For civil servants in Malaysia, the minimum wage increased to RM1,200 per month. This has raised the average purchasing power of the Malaysian working population to some extent.”

It says the Pokemon Go app that was launched in Malaysia in August had also attracted more visitors to shopping centres and retail outlets throughout the country.

“Nevertheless, it is not expected to contribute significantly to retail sales. Food and beverage outlets and grocery stores located near to Pokestops will benefit the most from this craze,” says RGM.

Mall operator Sunway Malls, in a statement following the launch of Pokemon Go said the app had actually spurred traffic and sales numbers at its shopping centres locally.

Meanwhile, RGM says in its report that retailers in the fashion and fashion accessories sector expected their business to slow down again, with a positive growth of only 0.2% during the third quarter of 2016.

It adds that retailers in the pharmacy and personal care sub-sector are expecting to maintain their recovery with a growth of 11.4% during the third quarter.

One industry observer meanwhile says that the launch of new cars, especially local makes the likes of Proton and Perodua, would boost retail sales in the final months of this year.

“The launch of Perodua Bezza in July, and new Proton Persona and Saga in August and September, will certainly spur spending, especially as these cars are targeted at the mass market,” he says.

Meanwhile, Khong & Jaafar, in a report comprising Napic data, says the retail submarket in the Klang Valley is relatively stronger than the office market, adding that this is mainly because consumer spending has continued unabated despite the past few years of global volatility.

“But this sub-market also has shadows of looming oversupply and questions on the further continuation of support from shoppers if inflation accelerates and erodes purchasing power, or if the regulator crimps household spending to control the increase in household debt.

“But a well-managed retail centre by its inherent sophistication (than an office building) has better strength to tide over temporary downturns because once a shopping centre captures the loyalty of a target segment of clientele, usually through a prolonged period of astute mall management, it is extremely difficult for newcomers to dislodge it.”

Not withstanding this, Khong & Jaafar says the retail subsector is presently undergoing a revolution with the advent of on-demand and online shopping portals.

“With e-commerce becoming a much larger part of the economy, certain subsegments of the retail market particularly the fashion, beauty, health and electrical sub-segments of trade are expected to experience a dent in physical consumer spending.

“However, it is not anticipated that there will be a steep decline in demand for bricks-and-mortar malls as consumers are still likely to have the need to go out to the physical world of retail.

“Nonetheless, in order to stay relevant, shopping malls would need to gradually evolve to provide points of difference over the internet shopping experiences.”

Khong & Jaafar says that products and services provided must not only provide a unique and exciting experience for consumers, it should also boost innovation to stay ahead of competition.

“Moving forward, it is anticipated that most malls will evolve gradually from providing a shopping destination for consumers, to providing a lifestyle offering with food and beverage, entertainment and family oriented thematic spaces.”

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