Insight - Retail sector mildly positive on 2021

Surviving the pandemic: A file picture showing shoppers at the Kenanga Wholesale City before the MCO came into effect. The number of store closures among small retailers is quite low despite the lockdown, according to Tan.

THERE is no respite from the coronavirus which has again pummelled some of the big names in retail.

With the 162-year-old Robinsons shutting down in Malaysia and Singapore, two of Britain’s best known retailers, Debenhams and Arcadia with brands such as Topshop and Dorothy Perkins, have collapsed.

Their collapse sends reverberations across the country; operating a total of 600 stores, they had anchored malls and main streets across Britain for decades.

While in Malaysia, retail sub-sectors are expected to rebound next year, the outlook is tempered with caution.

Things can change again should there be, for example, a fourth wave of pandemic, another movement control order (MCO), a change in the ruling political party or a new cluster in a major shopping mall.

Against the government’s projected growth of 6.5% to 7.5% next year, retail sector growth is estimated at 4.9%.

That is based on the historical relationship between retail and gross domestic product (GDP) growth rates, but the actual growth rate may change if that bullish GDP projection is not met.

Over the last two weeks, even with more than 1,000 Covid-19 infections daily, the crowds have returned to major shopping malls in the Klang Valley.

“This may be good news for retailers, but the sector can be greatly impacted if suddenly, a cluster develops in a major shopping centre and the MCO is re-enforced due to a surge in the number of infections, ’’ said Retail Group Malaysia (RGM) managing director Tan Hai Hsin.

Since the MCO started, about 5% of shopping centre tenants surveyed by RGM, and 10% of ground floor shop office tenants, have closed down.

The rate of closures is expected to accelerate from October when the loan moratorium period ended.

“Based on current economic and market conditions, the rate of closures should peak next month, and is likely to be speeded up by this second Conditional MCO.

“We still expect closures after June next year, when most of the financial assistance given by the government and banks will end, ” he said.

Of the total retail supply, about 15% or 51,000 stores are projected to close down due to Covid-19.

Retail sales for the third quarter fell 9.7% compared with declines of 30.9% in the second quarter, and 11.4% in the first quarter.

In the third quarter last year, retail sales had grown by 1.8%, said RGM, which bases its surveys on interviews with members of the Malaysia Retailers Association.

For the last quarter, RGM expects retail sales to drop 18.2% against its original estimate of a dip of 2.5%, due to the prolonged CMCO.

For the whole of 2020, it projects the Malaysian retail industry to contract by 15.8% compared with its original forecast in September, of minus 9.3%.

While retail successes are mostly company specific, short term trends do help to push up certain trades like convenience stores, courier service centres, shops selling yogurt drinks, discount (RM2 and RM5) stores and trendy cafes.

These trends involve, among others, the rise of online shopping leading to higher demand for courier services; reduced purchasing power resulting in more customers visiting discount stores; and the pursuit of a healthy lifestyle as more people go for yoghurt drinks where earlier, bubble tea was popular.

The pace of economic recovery, opening of selected country borders by early 2021 and the prolonged restriction on movement in the Klang Valley, will impact the performance of the retail sector next year.

While the Klang Valley is a critical retail market for Malaysia, foreign tourists have been a significant contributor to the retail markets in this region, as well as Penang, Melaka, Johor Baru and Sabah.

Smaller retailers may be expected to close shop first but Tan, in his survey, found many independent retailers still surviving.

“I thought most closures will be from small retailers due to their limited financial resources. Upon the recovery MCO (RMCO), I began visiting commerce centres and shopping malls that are dominated by independent retailers. To my surprise, most of them are intact.

“At GM Klang Wholesale City and Kenanga Wholesale City, there are thousands of small retailers among whom the number of closures is quite low, even with the lockdown in Klang, ’’ he said.

There are also many independent retailers at commercial centres in Bandar Baru Sri Petaling, Cheras Traders Square, Subang Jaya SS15, Taman Tun Dr Ismail, Desa Sri Hartamas and Jalan Kepong.

Many shops that were vacant there after the MCO, had been taken up by new operators during the RMCO period.

These retailers are not expected to be significantly affected yet by this second round of CMCO, said Tan.

Big retailers that have inflated prices, may have priced themselves out of the market as consumers who still maintain their basic incomes, have turned cautious.

Smaller retailers as well as discount stores may have found their niche catering to those with less to spend.

Besides customer demand, a major factor for survival is retail strategy in a difficult environment.

Yap Leng Kuen is the former business editor of StarBiz. Views expressed here are the writer’s own.

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