Competition, survival of the retail sector


  • Business
  • Saturday, 15 Jun 2019

Richard Chan, Building Managers Association of Malaysia committee member and Malaysian Association for Shopping and High-Rise Complex Management past president

THE intensifying competition within the burgeoning retail property market will see more malls and shopping outlets diversifying their product offerings as they try to stay competitive and fight for survival.

Malaysian Association for Shopping and High-Rise Complex Management past president Richard Chan says the food and beverage (F&B) segment, which tends to be one of the more resilient sectors during an economic slowdown, has been seeing steady growth in occupancy levels over the years.

“Ten to 15 years ago, F&B used to take up between 8% and 12% of a mall. Today, it can range anywhere between 30% and 40%,” he tells StarBizWeek.

Commenting on the performance of the retail sector so far his year, Chan says that the F&B segment has “generally performed well”.

“There are outlets that have closed down, but on the hold, this segment, compared to say, fashion, has been steady,” he says.

Savills Malaysia in its Asian Cities Report on the Kuala Lumpur retail sector for the first half of 2019 says the presence of more retail malls in Greater KL is expected to further dilute the market as most malls will be offering similar goods and services.

“This means that retailers will continue operating their businesses in a challenging environment. F&B offerings remain the main crowd-pullers – attracting footfall while providing venues for social as well as economic interaction.”

Chan says that increasing the number of F&B operators within a mall, despite its popularity, can also be detrimental.

“When you have too many, it can lead to duplication and end up killing some of the businesses there.”

On the outlook for the sector, Chan expects the third quarter of the year to see a bit of a slowdown due to the lack of any festive holidays.

“The retail sector is cyclical and with Hari Raya just over, we expect the third quarter to be a little quiet. Things should pick up towards the end of the year especially with holidays such as Deepavali and Christmas.”

Savills Malaysia, meanwhile, says Millennial shoppers are poised to be the biggest spenders in future.

“The Millennial population in Malaysia (aged between 19 and 35) in their prime spending years is estimated to account for 29% (9.4 million people) of the total population in the country. Retail is no longer solely about e-commerce versus physical stores.

“It is a combination of both, providing millennials with in-store experiences along with the ease of shopping online. The days when retail malls could depend on big, popular brands to attract shoppers are now gone.”

The property consultancy says total retail supply increased 3.1% year-on-year in 2018, pushing up total retail stock to 64.3 million sq ft, with suburban areas maintaining the highest market share (82%) in Greater KL.

“New supply of retail space increased by two million sq ft in 2018, bolstered by seven new completions, five of which are located in the suburbs and the remaining two within KL City.

“These developments include Parkson M Square (350,000 sq ft), Evo Mall (240,000 sq ft), KL Eco City Mall (250,000 sq ft), Eko Cheras (600,000 sq ft), Kiara 163 (300,000 sq ft),

Shoppes @ Four Season Place (200,000 sq ft) and GMBB (109,000 sq ft).”

Savills Malaysia says incoming mall supply in Greater KL is projected to grow at a compound annual growth rate of 7.6% from 2018 to 2022.

“Despite consumers’ cautious approach to retail spending, new mall openings continue unabated. Greater KL will see 4.8 million sq ft of lettable retail space completed; major projects are Tropicana Gardens Mall in Kota Damansara and Central i-City in Shah Alam.”

In its recent report, Retail Group Malaysia (RGM) announced that it is revising upwards its 2019 growth forecast for the country’s retail sales to 4.9% from 4.5% previously, following the better-than-expected growth rate in the first quarter and a pick-up in the second quarter.

Despite weak internal and external economic environment, the higher growth expected during the second quarter of 2019 was mainly due to the Hari Raya period. This largest festival in Malaysia is celebrated earlier this year compared to 2018, the report says.

RGM is maintaining the retail sale growth rate for third quarter at 3.9%.

Chan says performance of the local retail sector in the first half of this year was slightly better or on par with the same period in 2018.

“I think we need to resolve whatever political issues that we’re facing, as it’s linked to the performance of the economy.”

RGM says all retail sub-sectors recorded improvements during the first quarter of 2019, except for the department store sub-sector, which performed “below” expectations.

The report also says although the super/hypermarket sub-sector saw a negative growth at -2.3%, it was “better” than an earlier March estimate that the sector would experience a -7.6%.

Chan however felt that the hypermarket performed better than expected.

“Usually in an economic slowdown, hypermarket sales tend to go up, because people go for more lower-priced items.”

Savills Malaysia says the average occupancy rate of retail malls in Greater KL increased slightly to 87.8% in 2018 (87.6%: 2017), though it was still below the 90% mark set in 2015.

“Well-established, prime regional malls and megamalls have effectively maintained high footfall, sustaining average occupancy in excess of 90%.

“Small and mid-sized neighbourhood malls which are more than 20 years old have been able to maintain solid occupancy of above 85%. Their strength lies in their locations, which are all in densely populated areas.”

Meanwhile, Savills Malaysia says the prime retail index remained unchanged at 227 points in 2018.

“Prime rents for malls in KL City such as Suria KLCC and Pavilion KL are said to have hit a high range of RM220 per sq ft per month and RM110 per sq ft per month.

“In the suburbs, 1Utama and Sunway Pyramid commanded the highest average prime rent of RM55 per sq ft per month, whereas Mid Valley Megamall commanded rents as high as RM80 per sq ft per month. Given the large amount of retail supply, rental discounts in new projects have restricted rental growth in non-prime areas.”

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