THERE was a time when a sale at a downtown department store would clog the roads in the city with traffic, but sadly, this has become a thing of the past.

With rising costs and global growth slowing, the average Malaysian can no longer afford to go on shopping sprees.

But if retailers are worried about this, they are not letting it show. The latest Malaysia Retail Industry Report, which compiles estimates from members of the Malaysia Retailers Association, shows a higher projected growth in retail sales of 4.9% this year — an upward revision compared with an earlier estimate of 4.5% in March.

The increased confidence of retailers could be attributed to their performance in the first quarter of the year. During the January to March period, the retail industry achieved a better-than-expected growth in retail sales of 3.8% from 2.6% a year ago.

Given that the Hari Raya festivities are taking place this month, retailers are also projecting a higher growth rate of 5.5% for the second quarter.

However, not everyone is convinced of a rosy outlook this year. Savills Malaysia head of retail services Murli Menon describes the current sentiment in the retail market as one of “conservative optimism”.

“The retail market [is] still a bit sluggish, [with] no major growth spike seen so far in the first half of the year,” he tells The Edge.

One of the retail categories that continues to show healthy growth is athleisure fashion, in which clothes designed for workouts are used for casual wear, Murli observes.

Apart from this, he cites the food and beverage (F&B) and beauty or wellness with beauty sectors as growth areas. “The [beauty or wellness with beauty] sector has seen a number of brands venturing into mono-brand free-standing stores, contributing to the overall growth of the category,” he says.

“While there has been significant growth in the F&B sector with the entry of new concepts and brands, we expect some consolidation going forward, given the high level of competition in each sub-category.

“This makes it difficult for the smaller players to survive, unless they have a very niche and differentiated offering. The service and dining experience will also be a significant differentiating factor that will determine the sustainability of operators in the long run,” he adds.
 

A closer look at the retail numbers

Further dissecting the 2Q2019 forecasts by retailers, the Malaysia Retail Industry Report shows that the pharmacy and personal care sub-sectors are projected to grow 15.2% during the quarter while other speciality retail stores are expected to grow 10.8%.

The only sub-sector that is forecast to see a decline in growth during the quarter is supermarket and hypermarket, which is expected to see a 7.4% contraction.

Department stores, which recorded a marginal 0.8% growth in 1Q2019, are projected to recover strongly in 2Q2019, with a growth of 7.2%.

Murli says department stores have not been able to keep up with the preferences of the market and consumers.

“The younger generation of shoppers and millennials tend to look for shopping experiences that are more relevant to them, that they can relate to. They are also more exposed to internet shopping and social media, and thus expect much more in terms of shopping experience. They look for brands that resonate with values that they subscribe to.

“If convenience were the only edge or advantage of department stores, they would lose out to online shopping, which is far more convenient, especially in the current scenario and [with the] trend of high internet and mobile usage,” Murli explains.

In order to stay relevant, department stores need to address their display level and quality, shopping experience, service and range of key offerings, he points out.

“Department stores have also been affected by the trend of beauty brands moving into stand-alone free-standing stores in the malls because they are then able to offer a better brand experience. This has resulted in significant growth in terms of sales for the beauty or cosmetics category as a whole. Hence, this trend is expected to continue in the days ahead.

“Supermarket players are becoming more dynamic and flexible in terms of size and offerings, based on the catchment they are operating in. This is again critical for them to stay relevant and continue to be a desirable alternative to online shopping, which can offer only convenience,” says Murli.
 

What the retailers say

Parkson Holdings Bhd, one of the country’s leading retail groups, highlights that its department stores in Malaysia recorded same-store growth of about 5% in 1Q2019, which surpassed the 0.8% growth stated in the report.

“The retail industry is very dynamic and constantly evolving. Hence, in order to stay relevant to our shoppers, we have to differentiate ourselves from others and offer what our customers want,” a company spokesperson tells The Edge.

“The group will continue to diversify its brand portfolio and enhance the lifestyle elements in its merchandise selection to attract millennials and customers who seek quality lifestyle choices,” the spokesperson says.

Parkson operates 44 stores each in Malaysia and China, 15 stores in Indonesia and five in Vietnam. It exited the retail scene in Myanmar last December.

“With the current economic landscape, the group is not aggressively opening new stores but will consider doing so if suitable locations become available. We will continue to monitor and review our non-performing stores,” says the spokesperson.

Kristy Yong, the executive director of women’s fashion brand, Ms. Read, opines that the real litmus test for all retailers will be the July to September quarter as there are no major festivities in store.

“The first two quarters of the year had Hari Raya and Chinese New Year spending. So, how the business performance will pan out in the second half [of the year] will differ by sector and [depend on] the respective nature of businesses.

“But what I’ve observed is that consumers have become more discerning with their purchases. While being more careful with their spending, they still want newness and a great value proposition. So, brands need to rise to the shift in consumer spending by seeking the customer truth through the use of internal and external data,” says Yong.

“At the end of the day, it comes down to the right product at the right price and the right time, all packaged in a seamless online to offline experience,” she adds.
 

The impetus for consumer spending

Some quarters opine that Bank Negara Malaysia’s decision in May to cut the overnight policy rate (OPR) to 3% would help boost consumer spending as they believe this would inject more disposable income into consumers’ pockets.

Socio-Economic Research Centre executive director Lee Heng Guie points out that during the 2008/09 global financial crisis, when the OPR was slashed by 150 basis points from 3.5% in 2008 to 2% in 2009, private consumption growth gained strong traction and grew 6.5% in 2010 from 0.7% in 2009.

“The recent cut in the OPR is seen as a pre-emptive step to cushion domestic demand against the lingering spillover effects of the slowing global economy, including trade tensions. It helps to provide some relief in servicing loans for highly leveraged borrowers,” he tells The Edge.

Given the strong 7.6% growth in private consumption in 1Q2019, and with inflation remaining subdued and jobs and wages holding up, Sunway University Business School economics professor Dr Yeah Kim Leng is of the view that consumer spending could exceed the official forecast of 6.6%, and even inch closer to the short-term trend of 7% per year.

“With investment approvals on the rise, thus auguring well for the job market, consumer sentiment will be less at risk of being negatively impacted by the global slowdown expected this year,” he says.

Finance Minister Lim Guan Eng announced last week that the approved foreign direct investments (FDIs) for all sectors jumped 73.4% year on year to RM29.3 billion in 1Q2019.

The approved FDIs are expected to create more than 41,200 jobs for Malaysians, of which 22,970 employment opportunities would be in manufacturing and 18,000 in the services sector.

With more jobs created, raising the income levels of Malaysians, this would hopefully increase their spending power, which would, in turn, boost private consumption and economic growth.