Cover Story: Retail blues

This article first appeared in The Edge Malaysia Weekly, on March 26, 2018 - April 01, 2018.
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THINGS have been far from good for the retail industry in Malaysia. Indeed, the month of February alone saw three major retail operators in the country consolidate their operations.

On Feb 28, GCH Retail (M) Sdn Bhd, which operates hypermarkets and supermarkets under the Giant, Cold Storage, Mercato and Jason’s brands, ceased operations at Giant Bachang Melaka Mall, while department store Parkson Holdings Bhd put up the shutters at Sungei Wang Plaza, Kuala Lumpur — where it had operated for 31 years — on Feb 25. Just 3km away, department store-cum-supermarket AEON Co (M) Bhd shut several of its cosmetic counters at Quill City Mall at the end of February.

The past year, meanwhile, witnessed the exit of some foreign brands, including South Korea’s Bulgogi Brothers and Tous les Jours, and the local franchise of the US-based Bubba Gump.

The recent closing down of retail businesses, however, is not unique to Malaysia. According to American financial and business news website Business Insider, the US was rocked by record-high store closures last year and will see more than 3,600 closures this year, including of Toys ‘R’ Us, GAP and Walgreens stores.

What is the prognosis for Malaysia? Will its retail sector, besieged by poor consumer sentiment in the past two years, continue to consolidate? Industry players contacted by The Edge say things look better for the retail market this year compared with 2017, but the worst is not over yet.

“There are still many uncertainties,” says Retail Group Malaysia Sdn Bhd (RGM) managing director Tan Hai Hsin.

In its March report, RGM — which tabulates retail data on behalf of the Malaysia Retailers Association (MRA) — revised downwards its retail growth projection for this year to 4.7% from an earlier forecast of 6%. The industry grew a mere 2% last year, less than the estimated 2.2% projected just three months ago. Last year’s projection was revised downwards three times as retail sales indicated a much slower recovery than expected.

“The year 2016 was the worst, 2017 was a recovery year. As for 2018, at the moment, it is looking positive but we do not know how things will turn out for the rest of the year,” concurs AEON Co executive director Poh Ying Loo.

Nevertheless, he says, the group remains hopeful that a more stable ringgit and recovery in oil prices will bring positive cheer to the nation.

Tan points out, “Domestically, the cost of living is still rising and our ringgit is still not strong. Of course, in the last few months, CPI (Consumer Price Index) growth has slowed and the ringgit’s value has improved. But we cannot celebrate yet because there is still a lot of work that needs to be done to strengthen our economy.

“Externally, there are concerns about the economic performance of other countries — Asean, China and the US — on which we rely heavily to absorb our exports. Although there is no clear indication of an economic crisis in these major countries, there is also no indication that it will not happen anytime this year.”

He adds, “Malaysia’s retail market is still undergoing consolidation. We have continued to witness the closure of established overseas and local retailers throughout the country since January.”

It is worth noting that in 2016, Mydin Mohamed Holdings Bhd posted its first-ever loss in its 60-year history. The retailer acted quickly, consolidating its operations last year with the sale of MyMydin Sdn Bhd — which operates 48 MyMydin convenience stores — to Jubilee Games Sdn Bhd in order to focus on its hypermarket and emporium business. Currently, the retailer is seeking a buyer for its premium supermarket chain, Sam’s Groceria.

Nevertheless, Tan points out that retail outlet closures of both local and foreign chain stores happen every year for various reasons: reduced consumer spending, intense competition, wrong product offering, wrong concept or even disputes with the principals.

“The weak Malaysian currency (since 2015) had also led to poor investment returns for foreign retailers. Some parent companies closed their Malaysian outlets because their returns had turned negative due to an unfavourable exchange rate,” he explains.

AEON Co’s Poh, meanwhile, acknowledges that the industry-wide consolidation is ongoing but he expects fewer retail outlet closures this year.

When asked to comment on the current situation, Sunway Malls & Theme Parks CEO H C Chan highlights that the closures in Malaysia have involved mostly Western retail brands.

“Closures in the US would have material consequences not only there but also in other parts of the world where the brand is present, including Malaysia. We have also seen principals filing for bankruptcy in their home countries, resulting in the closure of their Malaysian operations.

“Of course, there are also closures when businesses are no longer viable. This is the norm in the industry but what has grabbed the headlines is the severity and number of closures in recent months. We need to closely monitor the ‘shake-up’ to see if it continues or if it has reached the tail end.”

Chan remarks that the group is cautiously optimistic and sees a recovery on the retail scene, barring unforeseen circumstances. “There will be a lag between headline numbers and sentiment on the street. The main concern is how long it will be and whether it will affect all the subsectors of retail,” he says, adding that headline evidence points to a recovery in the global economy.

Sunway owns and operates five malls in the country with a total net lettable area (NLA) of 4.7 million sq ft.

 

It is not all doom and gloom

RGM’s Tan also strikes an optimistic note, commenting that while there have been closures of both foreign and local retailers, there have also been openings and the entry of new brands.

“Malaysia continues to attract many foreign retailers, some of which are entering the market for the first time. Based on our record, 63 foreign brands from 14 countries opened their first store in Malaysia last year. They include HLA, Dome Sky, Chizu, Chicken Up, Koi, Wingstop, Paul, Kiss the Tiramisu and Sergent Major,” he says.

And in the first three months of this year alone, he adds, 10 foreign brands from eight countries, including Off-White, Cold Stone, Nene Chicken, Forty Hands Café, Sunny Queen and Tai Croissant, opened their stores in Malaysia.

It was reported in January that Sweden’s Hennes & Mauritz AB (H&M) will close 170 stores worldwide — the highest number in two decades — but the retailer will also open 390 new stores.

It is comforting to know that Malaysia will not be a casualty of H&M store closures but a beneficiary of its expansion. H&M Singapore & Malaysia communications manager Abby Wee tells The Edge that there are no plans to close any of the stores in Malaysia because there is no need to. “We will be opening new stores in Malaysia this year but at this point in time, we are unable to share further information on that,” she says.

H&M has a total of 37 stores in Malaysia at present, after opening eight last year.

Meanwhile, AEON Co will be opening AEON Mall Kuching on April 20. It has already opened two Maxvalu supermarkets so far and is likely to open yet another this year.

As for Parkson, it will be opening a store in Bangi this May, although it has closed down three underperforming stores in the past seven months — at Megamall Kuantan (closed in September 2017), Melaka Mall (December 2017) and Maju Junction Mall (January 2017) — apart from its Sungei Wang Plaza store. The stores in Megamall Kuantan and Melaka Mall had been operating for over a decade.

There were 42 Parkson stores in Malaysia as at end-2015, 44 at the end of 2016 and 45 at the end of last year. The group has maintained its total retail NLA at about five million sq ft since 2016.

 

Looking beyond local shoppers

Another bright spot for the retail sector is tourist spend, which reached a record-high last year. Out of RM82.2 billion of foreign exchange receipts from tourists, RM26.87 billion was spent on shopping, representing 32.7% of total spend.

If RGM’s data — total retail sales of RM99.8 billion last year — is anything to go by, foreign spend accounted for a quarter of retail sales. RGM tabulates and extrapolates data from 120 MRA members with 6,000 stores that represent about 20% of total retail sales.

In 2016, foreign tourists — described as those who stay at least one night — splurged RM26.03 million, out of the total of RM82.09 billion spent here, on shopping. By comparison, foreigners spent just RM18.6 billion on shopping in 2012.

Sunway’s Chan remarks that foreign tourists are important to the group as they make up a fifth of visitors to Sunway Pyramid during the peak seasons.

Interestingly, malls are not the only beneficiaries of tourist zones but also convenience stores. KK Group of Companies group chief executive Datuk K K Chai tells The Edge that the highest same-store growth — of up to 12% — was chalked up by KK Mart outlets in tourist zones.

With foreign tourist receipts targeted to reach RM168 billion by 2020, foreign spending on shopping could reach a whopping RM50 billion in just a few years, providing retailers with much-needed consumer support, at least in the tourist zones.

 

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