Consumer goods may see another round of price increase if the ringgit continues to weaken
THE rooster year will greet consumers with higher selling prices, particularly for electronic and electrical products as well as mandarin oranges.
The selling price of consumer electronic and electrical goods, which has already experienced three rounds of price increase since 2016, is likely to go up further should the ringgit continue to weaken.
Star Electronics Sales & Services (SEC) managing director Joseph Hon notes that in 2016, the selling price of wholesalers and importers had already gone up twice by 5-10% each time.
“In January, there was another 5-15% hike. The price increase from importers and wholesalers impacted most of the popular models, which are the entry models. They are priced from RM1,000 onwards compared to RM800 to RM900 in 2016. There has been an average of 20% increase for entry models since mid-2016.
“Importers raise the selling prices because of the higher import cost due to a weaker ringgit, which made it difficult for them to give discounts to retailers. If the ringgit were to weaken further, there would be another round of price increase,” Hon says.
According to Hon, the retail sector was hardest hit from October to November in 2016. The Hari Raya sales were down by 20% compared to the previous year.
But sales picked up slightly during Christmas in comparison to the first half of the year.
The top selling products of 2016 were LED televisions, air-conditioners, refrigerators and washing machines, says Hon.
In 2016, SEC generated RM62mil in sales, registering a 3.7% improvement over 2015.
“However, margins decreased by 8.7% compared to 2015 due to intense competition. We are expecting a flat year for 2017,” he says.
According to Hon, the company is maintaining its budget for advertising and promotion programmes for 2017 at RM2mil.
“Any reduction in the budget for advertisements and promotions will affect business. Since GST was implemented in 2015, we have held over fifty promotions a year compared to over 20 prior to 2015.
“In 2015, the sales of SEC dipped by RM10mil, making it the worst year in the company’s history.
“Some of our competitors in the market have already closed their outlets in Penang,” Hon adds.
According to Ban Hin Bee general manager Wilson Yeoh, margin erosion is expected to worsen in 2017 as retailers will not be able to adjust their prices despite the higher import cost due to price pressure and competition.
“The pricing of certain new products such as small home appliances and LED television which have arrived for 2017 has gone up by 5-10% so far.
“We expect more price hikes in future due to higher importation and manufacturing costs. There will be price adjustments after Chinese New Year for the other consumer electronic and electrical products.
“The price adjustments would be slight, but there would still be margin erosion,” he says.
Still, Ban Hin Bee, which currently has nine outlets in Penang, has plans for expansion this year.
It opened its ninth store in Bukit Mertajam in mid-2016.
Other consumer products such as mandarin oranges are also seeing higher retail prices due to a smaller harvest in China.
Chop Tong Guan Sdn Bhd (CTG), a leading fruit importer in the country, is bringing in 5,000 tonnes of mandarin oranges under the brand name Tian Tian for Chinese New Year.
“This shipment is worth about RM28mil compared to RM25mil in 2016 even though the amount of oranges for both years are more or less the same.
“It is a small crop for mandarin oranges in China this year because of the unfavourable weather in the last half of 2016. The price is therefore higher than last year,” says CTG managing director Koay Swee Aik.
Compounded by the weakened ringgit, which makes import cost higher, the retail price of mandarin oranges is now about 10-20% higher.
“Despite the increase in prices, the response from consumers is still strong as mandarin oranges are still affordable and popular,” he says.
Due to the small harvest in China, the importation of mandarin oranges into Malaysia is expected to decline by 10-15% this year.
CTG imports mandarin oranges from farms in Yong Chun, Fujiian.
According to a Nielsen Global Survey of Consumer Confidence and Spending Intentions, Malaysia recorded a stable consumer confidence level in the third quarter of 2016 with an increase of only two index points to 89 percentage points compared with the second quarter of 2016.
Although Malaysia was ranked number 30 as the most confident country globally, it was the lowest in the South-East Asia region and it continued to be pessismistic about the future.
The survey involved more than 30,000 respondents with Internet access in 63 countries.
Consumer confidence levels above and below a baseline of 100 indicate degrees of optimism and pessimism respectively.