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This article first appeared in The Edge Financial Daily, on April 25, 2016.

 

KUALA LUMPUR: After several delays, Middle Eastern retailer LuLu Group International is expected to commence operations of its first store in Malaysia in May or at the latest by early June, in time to capture the Hari Raya shoppers, said sources.

The Edge Financial Daily has learnt that the LuLu outlet, which will be located near Masjid India in Jalan Munshi Abdullah, has already held its pre-opening prayers and is believed to be stocking the shelves. The store is located within the CapSquare Retail Centre that will be renamed Jakel Square. The development of Jakel Square is being undertaken by textile retailer and wholesaler Jakel Group’s property arm.

“They (LuLu) plan to open the first store before Ramadan,” a source said.

LuLu’s store is expected to occupy 250,000 sq ft (23,226 sq m) of net lettable area (NLA). This space is about 2½ times larger than Tesco Mutiara Damansara’s hypermarket space of 96,875 sq ft, but slightly smaller than department store Aeon Mid Valley’s retail space in Mid Valley Megamall, which spans about 330,000 sq ft in NLA.

When news of LuLu’s entry into Malaysia first surfaced in mid-2014, reports indicated that the retailer had planned to build 10 hypermarkets in Malaysia with an estimated investment of US$200 million for the first five stores. However, it is now learnt that its first store here will be LuLu’s Hypermarket & Department Store, which is a hypermarket cum department store.

The choice of a hypermarket-and-department-store format creates some confusion as to the rules that would be applicable to LuLu.

Malaysia has strict guidelines on foreign players opening their hypermarket operations in Malaysia. A foreign hypermarket operator needs to divest 30% of its stake to a local partner within three years of entry. However, that rule does not apply to foreign operators of department stores in Malaysia.

It is also interesting to note that the opening of the LuLu store comes at a time when several retailers, particularly foreign hypermarket players, have started to consolidate their operations given the weak economic sentiments and low consumer confidence.

Retail Group Malaysia, which tabulates retail sales data for Malaysia Retailers Association, said the supermarket and hypermarket category posted only a 1.7% growth in 2015, with the final quarter of 2015 — traditionally a strong quarter for retailers — contracting by 1.7%. Retailers in this sub-sector are expecting to see yet another retail sales contraction in the January to March 2016 period of 0.9%.

The not-so-rosy economic sentiment has started to affect retailers here. Three foreign hypermarket players in Malaysia have started to consolidate their businesses since last year.

GCH Retail (M) Sdn Bhd, a unit of Singapore’s Dairy Farm International Holdings Ltd, saw several stores close. From a total of 156 stores at the end of 2014, the retailer had 145 stores by the end of 2015.

Japanese hypermarket operator Aeon BiG, which bought over Carrefour’s operations in 2013, had already closed three stores in the past year — in Axis Pandan, Ampang; in Rahang, Seremban; and in 1st Avenue Mall in George Town, Penang.

Earlier this month, British retailer Tesco Stores (M) Sdn Bhd said it was going to downsize six of its outlets starting with its store in Cheras, on the back of a slowdown in the retail sector and a shift in consumers’ buying behaviour.

Meanwhile, LuLu’s opening, which has been scheduled for just before the festival shopping period in June and July, is expected to augur well for the retailer if Jakel Mall’s performance in the past year is anything to go by.

Jakel Mall opened it doors on Feb 19, 2015. Within a year, it welcomed 300,000 families or 700,000 people at the department store. It experienced a peak in patronage the month preceding Hari Raya. Jakel Mall, which retails textiles, occupies 330,000 sq ft, while another 220,000 sq ft of its retail space have been allocated for a food court and smaller retailers.

The Jakel Square project is also Jakel’s maiden foray into property development. Jakel, via a company known as Hajra Properties Sdn Bhd, took over CapSquare Retail Centre from Bandar Raya Developments Bhd and some individual owners for RM300 million. Apart from the Jakel Mall, there will also be a four-star hotel targeted to open at end-2017 or mid-2018.

It was reported that the Jakel-LuLu partnership will see yet another LuLu hypermarket opening in Shah Alam, Selangor, at a development that will also comprise three residential blocks.

The Edge Financial Daily learnt that LuLu is already in talks with various parties for some new stores, with possible openings in Bangi, Selangor; Johor Baru, Johor; and Kota Baru, Kelantan.

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