PETALING JAYA: The retail sector is set to continue expanding in the second quarter of this year (2Q26), albeit more moderately, with consumer spending providing support while higher costs and cautious sentiment weigh on momentum.
Malaysia Shopping Malls Association president Phang Sau Lian noted that there are already early signs of softer spending being observed among retail players.
“This is amid concerns over fuel supply sustainability until June and the shift towards work-from-home arrangements for government servants, which may reduce mobility and mall traffic,” she told StarBiz.
Phang further noted that tourist arrivals have seen some softness from long-haul markets, with reports of hotel booking cancellations due to travel uncertainties.
“In response, the Tourism Malaysia director general, together with industry stakeholders, suggested shifting focus towards India and broader Asian markets, which continue to show stronger and more resilient travel demand.
“This is expected to help cushion the overall impact on retail,” she said.
Quarter-on-quarter, Sunway Malls group managing director HC Chan said he is remaining “cautiously optimistic” about the retail front, going into 2Q26.
“We see a 3% growth largely due to our diversification of tenant mix, continued strong performance from the northern region and resilient performance from our central and southern regions, respectively.
“In particular, areas out of the Klang Valley that are underserved, where Sunway Malls have gained a foothold, will see good upside.
“The sales performance of our northern mall, Sunway Carnival, is as good as any Tier-1 mall in the Klang Valley, with sales per sq ft in the three-digit range.”
Nevertheless, Chan admits that tensions in the Middle East have had some impact on the local retail industry.
“Certainly, the situation in the Middle East has created uneasiness and affected travel from the region as travellers adopt a cautious stance.
“However, we see the Asian region’s travel has somewhat remained steady with no noticeable impact yet on tourist arrivals from that region.
“The cost of travelling resulting from fuel surcharges has increased, and we begin to see changes in flight frequency due to supply concerns.”
In the longer term, Chan believes that tourist arrivals will be impacted.
“We also expect these effects will be prolonged, even after the end of the conflict, as oil supply normalisation will take some time.”
Meanwhile, Phang said Malaysia’s retail sector grew modestly in 1Q26, supported by Chinese New Year and early Hari Raya spending.
“Footfall remained resilient, driven mainly by domestic shoppers, particularly in experiential segments such as food and beverage (F&B), entertainment and fashion.”
However, she added that more cautious consumer behaviour is emerging after the peak festive season, with shoppers focusing on essentials and value-driven purchases.
“While the direct impact of the Middle East conflict in 1Q26 was limited, rising oil prices and global uncertainties have begun to affect sentiment and discretionary spending.”
Furthermore, Chan said Sunway Malls experienced a strong growth of 6% year-on-year (y-o-y) in 1Q26 in terms of sales performance, despite headwinds from the Middle East war.
“For Sunway Malls, the sales performance has been resilient and healthy throughout the quarter.
“The growth has been largely driven by upside from fashion at 11.2%, home and living at 7.6%, supermarkets at 8.9%, F&B at 6.2% and jewellery with double-digit growth of 23.4%.”
Moreover, Chan said anchor tenants also performed well, registering 6.1% (in 1Q26) compared to the same period last year.
“Most retail sub-sectors have performed remarkably due to sustained demand from the longer festive period, with Chinese New Year falling in February and Hari Raya in March.”
So far, Chan said the petrol and diesel subsidies have helped insulate the full effects of the Middle East conflict.
“However, this is more of a lag issue in which Malaysia had managed to buy time from the conflict fallout.
“Persistent headwinds and prolonged uncertainty will dampen sentiments and escalate costs.
“It is important the conflict is resolved as quickly as possible. We are watching these developments closely.”
In the meantime, Phang said the overall outlook remains cautiously positive, supported by domestic consumption and regional tourism.
“If the Middle East conflict prolongs and drives up fuel and logistics costs, adding to inflationary pressure, the Malaysia Shopping Malls Association hopes for continued engagement with the government to ease cost pressures, including consideration of a temporary suspension or a review for a lower sales and service tax to support overall resilience.”
Citing data from Retail Group Malaysia, Phang said the industry is expected to grow 4.4% in 1Q26 and moderate to around 3.3% in 2Q26, y-o-y.
“As 2Q26 is traditionally a slower quarter after two major festive periods, coupled with added pressure from higher fuel costs, mall operators are expected to review and strengthen cost management strategies to sustain performance.”
Meanwhile, TA Research in a recent report said it expects domestic consumption in 2026 to remain broadly resilient, underpinned by a stable labour market, civil servant wage adjustments and ongoing fiscal support measures, including targeted cash assistance and initiatives outlined under Budget 2026.
“Relatively benign credit conditions and sustained household spending on essential goods should continue to anchor demand for staple food products.
“While Malaysia’s macro-outlook remains sensitive to fluctuations in global energy prices, downside risks are partially mitigated by its status as a net energy exporter, which provides a natural hedge via stronger commodity-linked export revenues and currency support.”
The research house said targeted fuel subsidy mechanisms will help to cushion the immediate impact of cost inflation on consumers.
“This will thereby moderate demand erosion and smoothen pass-through dynamics across the value chain.”
TA Research said consumer staples companies remain well-positioned to navigate the current environment, supported by their pricing power, entrenched distribution networks and inelastic demand profiles.
“These factors enable selective cost pass-through and margin preservation, reinforcing the sector’s appeal as defensive earnings play amid heightened geopolitical uncertainty and potential risk-off sentiment.
“Key downside risks include prolonged geopolitical tensions, which could weigh on economic growth and dampen domestic consumption; higher-than-expected input costs arising from sustained supply chain disruptions; and the potential removal or reduction of fuel subsidies, which may erode consumers’ purchasing power.”
