Chan: Malaysia’s tourism sector has been a bright spot for the country and a boon for the retail industry.
PETALING JAYA: Industry experts remain cautious about the outlook for Malaysia’s retail industry in the second half of 2025 (2H25), amid ongoing global and domestic pressures.
Malaysia Shopping Malls Association president Phang Sau Lian noted that geopolitical tensions and tariff wars have redirected more foreign businesses and goods to Malaysia.
“While this presents opportunities, it also intensifies competition. Local retailers and mall operators must improve competitiveness and productivity to stay resilient,” she told StarBiz.
Domestically, Phang said the rising cost of doing business continues to weigh heavily on the sector.
“The upcoming expansion of the sales and service tax (SST) next month to cover rental and leasing of commercial spaces, construction services, beauty services and selected food items is particularly concerning.
“These areas are core to mall operations and tenant services. The added tax burden could lead to margin erosion, delayed tenancy, higher consumer prices and, ultimately, inflationary pressure across the retail sector.”
Malaysia Shopping Malls Association (PPKM) president Phang Sau Lian hopes to bring more new players and brands into local retail market
Phang said additional cost pressures from electricity tariff hikes, higher minimum wages and subsidy removals are forcing many retailers and mall operators to cut back on marketing and expansion plans, which will impact overall mall vibrancy.
“At the same time, concerns are rising over the labour market, especially with recent announcements of staff layoffs by key companies like Petroliam Nasional Bhd, which could reduce consumer confidence and spending,” Phang said.
Sunway Malls chief executive officer HC Chan concurred that businesses will adopt a cautious stand, given that cost pressures remain elevated, in particular due to the expanded SST and a host ofupcoming national rationalisation measures.
“Certainly, consumer sentiment is foreseen to be continuously muted and subdued, given the heavy presence of uncertainty. It is certainly a very challenging time for all.
“However, there are bright spots in the retail sub-sectors, as some Asia-based intellectual property-related toys and homegrown food and beverage (F&B) brands have shown resilience and bucked the trend.
“They have fared tremendously well and registered high growth. These categories are expected to continue to drive retail sales performance.”
On the sector’s performance so far, Phang said the retail industry began 2025 on a cautious footing.
“Chinese New Year sales were softer due to the short festive gap following Christmas and year-end promotions, limiting consumer spending recovery.
“Hari Raya sales also fell below expectations, as many households prioritised back-to-school expenses that coincided with the festive season, tightening overall disposable income.”
Chan concurred that businesses will remain cautious, especially with cost pressures staying elevated – notably due to the expanded SST and a host of upcoming national rationalisation measures.
Phang said a major challenge has been the continued rise of unregulated online platforms offering ultra-low prices without the same tax or compliance obligations, putting physical retailers at a disadvantage.
“At the same time, the rising cost of doing business – driven by electricity tariff hikes, subsidy rationalisation and higher wage commitments – has placed significant pressure on profit margins, particularly for small and mid-sized retailers.”
She added that global uncertainties such as tariff hikes and supply chain disruptions have further impacted business strategies, prompting a shift toward market diversification and operational efficiency.
“Despite these challenges, retail segments such as F&B, entertainment and lifestyle experiences have remained resilient, particularly in malls that have invested in asset enhancement, refreshed tenant mix, targeted consumer engagement activities and continuous effective marketing programmes.”
On the performance of the retail industry in 1H25, Chan said the sector faced strong headwinds from two fronts, namely rising business costs and lacklustre consumer spending, both of which had dampened retail performance.
“With Chinese New Year falling earlier in January, the shortened sales period and the lower-than-expected Hari Raya sales performance had left the retail sector without much buffer or room to manoeuvre.
“As the second quarter saw the escalation of the tariff wars, the volatility and uncertainty sent shockwaves across the globe, fuelling further cutbacks on discretionary spending by corporations and consumers,” he said.
Nevertheless, Chan said Malaysia’s tourism sector has been a bright spot for the country and a boon for the retail industry.
“There has been a 21% year-on-year (y-o-y) increase in visitor arrivals for the first four months of this year. This has been a major catalyst.
“Sunway Malls is seeing some benefits of these arrivals, depending on the mall’s locality, with Sunway Velocity Mall seeing a large influx of Chinese travellers.”
For Sunway Putra Mall, Chan said the group is seeing a significant increase in Indian travellers, as well as other nationalities at its Sunway Pyramid mall.
“However, the retail industry is predominantly driven by domestic consumption. Tourism (impact) is still very location-specific,” he says.
Phang also acknowledged that Malaysia recorded a strong increase in tourist arrivals in early 2025, with 6.7 million international visitors in the first two months alone - a 31.3% y-o-y increase.
“This growth has been supported by visa-free access for Chinese nationals and continued visa exemptions for Asean and selected Western countries.
“While the increase in arrivals is encouraging, the boost to retail spending has been moderate and selective.”
Phang noted that malls located in prime tourism zones – such as city centres, hotel districts and border-entry areas – have seen some uplift, particularly in categories like wellness, souvenirs and F&B.
“However, the overall impact on nationwide retail has been limited. There are two main reasons: first, a substantial number of Malaysians are travelling overseas and they tend to spend more while abroad, diverting domestic consumption.
“Second, not all tourist arrivals translate into meaningful spending. Many are short-stay visitors or budget-conscious travellers.
“In short, while tourist arrivals have improved, the retail sector has seen only modest gains, concentrated mainly in key tourist areas.
“Broader retail growth is still driven by domestic demand,” she concluded.
