Post Financial Meltdown – What The Malaysian Retail Industry can Expect in 2009

By Tan Hai Hsin, Retail Group Malaysia

The Rest of The Year
The second half of year 2008 was an uncertain period. New things, good and bad, happened every day from around the world and within Malaysia. Today we saw record low oil price, tomorrow we heard 20,000 job cuts by a MNC in United States, the next day we read government had allocated billions of dollars to rescue an industry, few days later we were told a major bank went bankrupt. Malaysian consumers are confused and unsure. At this moment, the world financial crisis has not changed the consumers’ spending significantly in Klang Valley, the largest retail market in Malaysia. We still see shoppers everywhere in shopping centres during weekend. We still see people buying bulky items such as furniture at major retail stores. We are aware of the current global crisis and we are worry about our future. But this crisis has not directly affected Malaysia in a large extent yet. As long as there are no major job cuts and salary cuts, Klang Valley shoppers will not react drastically.

This is not so in some parts of Malaysia. Export-oriented factories in northern region have started to reduce its employees’ working hours. Retrenchment took place in some plants as well. Penang is the fourth largest retail market in Malaysia. Recession in Singapore has also affected retail sales in the southern part of our country. Singaporeans are spending less in Johor Bahru and Malaysians working in Singapore have also become cautious in their spending. Johor is the second largest retail market in Malaysia after Klang Valley. Malaysia retail industry grew about 7.0% during the first 9 months’ of 2008. Retail sales in last quarter of the year will be below expectation. Year end with festivals and holidays will still encourage consumers to spend as long as their salary remains, companies are still paying bonuses and their jobs’ prospects are still bright. Retail sales growth rate for the whole year is estimated at 5.0%, as compared to estimate made 6 months ago at 7.0%.

The Coming New Year
We had been projecting retail sales growth rate of Malaysia at 8.0% for 2009. This has now become unrealistic. Since Malaysian government has revised downwards its GDP growth for next year from 5.4% to 3.5%, we have reduced our forecast of retail sales in 2009 to be 5.0%. During the Asian financial crisis that took place 10 years ago, retail sales declined sharply by 20% in 1998. However, we are not expected to experience such retail crisis in 2009. our saving all along. Thus, any further cut in spending is unlikely at this very moment. Retail sales began slowing down since the June fuel price hike. Thus, the slow sales in retail industry now were not only due to the current global financial crisis, but also to the higher cost of living and stagnant salary income. The fifth reduction in fuel prices will improve consumer confidence level. Consumers can relax more on the much reduced fuel prices. Even though most consumer goods’ prices have maintained, we expect it to drop in the near future in response to the drop in fuel prices. The RM 7 billion economic stimulus package is not expected to have an immediate impact on consumers’ spending.

Allowing employees to reduce their EPF contributions by 3% will increase their take-home pays. But this extra money is not expected to convert to retail sales as most of it will be saved. The November 4th revised budget also allowed hypermarkets to extend their business hours to 11pm on weekdays and 1am on weekends. This will not boost spending, but offer more choices for shoppers to travel to their favourite grocery stores. Furthermore, the 10% toll discount on midnight travel on North South Expressway and North-South Expressway Central Link will not lighten the financial burden of highway users.

A potential interest rate reduction by Bank Negara in the immediate future will also unlikely to lead to higher retail spending. Learning from the consumers’ shopping behaviour and patterns during the last 10 years, consumers’ confidence level has a strong correlationship with consumers’ willingness to spend. The ‘feel good factor’ is critical. Putting money into our people’s pockets do not necessary mean they will spend. If they do not feel good about their future, they will not part the money for retail goods and services, they will save it or invest it. As long as Malaysian government is able to stabilise its economy, ensure sufficient public spending and maintain low inflation rate, our consumers will continue to spend on retail goods and services. Malaysian consumers continue to look for bargain on basic necessities, to shop for value-for-money comparison goods, to demand for services (such as telecommunication, health and beauty), to dine outside their homes and to travel for relaxation.

Retailers and Shopping Centres Moving Forward
Many retailers have put on hold their expansion plan due to the future uncertainties. On the other hand, national chain retailers and retailers with strong brands are prepared to increase their store numbers. At the same time, the rising cost of operation has threatened the bottom lines of retailers. They have been cutting operation costs to save profit. Retailers will resume their expansion plan once shoppers returned with more purchases. More investment in new retail start-ups will be made when the local economic environment improved. In Klang Valley, many shopping centres have been planned and currently under-construction. 1 Shamelin, Plaza RAH, Bangsar Shopping Centre Phase 3, Subang Avenue, The Empire, USJ Nineteen, First Subang, IOI Mall extension, Harbour Place, Wangsa Walk, Parkson Setapak, Suria KLCC Phase 2, Ue3, Vision City, Lot G (KL Sentral), The Paradigm, Subang Parade Phase 2, etc. are expected to open in the next few years. More hypermarket-anchored shopping centres have also been planned in Klang Valley and around the country. It is getting harder to lease retail shops in shopping centres. It is also getting harder to achieve almost 100% occupancy rate for new shopping centres upon opening. This is evidence from shopping centres opened during the last 2 years in Malaysia.

Similar to the last crisis in 1998/ 1999, shopping centre owners have to work closely with retailers. Shopping centre owners need to recognize the important role of retailers in bringing shoppers into the shopping centres. Shopping centre owners also need to foster a close relationship with its shoppers. Mr. Tan Hai Hsin is the managing director of Retail Group Malaysia, an independent retail research firm in Malaysia. Retail Group Malaysia has been publishing retail industry performance data used widely by retailers and the government during the last 10 years.