This article first appeared in The Edge Malaysia Weekly on July 19, 2021 - July 25, 2021

WHATEVER little glimmer of hope retailers had of a recovery this year is fading fast following the most recent Enhanced Movement Control Order (EMCO) in several parts of the country because of the spiralling daily new Covid-19 cases.

From an initial projection of 4% growth, the industry is now expecting a minuscule expansion, if any, owing to the interminable and unprecedented duration of movement restrictions and retail shutdowns.

Needless to say, this will further delay Malaysia’s recovery to levels achieved in 2019, observes Retail Group Malaysia managing director Tan Hai Hsin. “Based on our June report (Malaysia Retail Industry Report, June 2021), Malaysia’s retail industry should grow by 4% this year. This [projection] had taken into consideration MCO 3.0 but not [the more recent] FMCO and EMCO,” he tells The Edge.

Earlier, the retail industry had anticipated reasonable growth after a very bad 2020.

“But it seems we are facing great challenges in achieving even a decent recovery. The retail growth rate may be slowed by 1% to 2% this year, depending on the developments over the next two months,” he cautions.

“If the growth rate is only 1%, it means Malaysia’s retail industry growth in 2021 will be as bad as in 2020.”

The government instituted a stricter EMCO in major sub-districts in Selangor and 14 localities in Kuala Lumpur from July 3 to July 16. Several areas in other states including Perak, Pahang, Melaka, Terengganu and Sabah have also been placed under EMCO. With the exception of a few retail categories such as groceries and pharmacies, all other retail segments have been told to shut down during the period.

Tan observes that inconsistent tightening and relaxation of the rules by the federal government are confusing and not helping the situation. Alarming levels of infections are also not helping, as the country posted its highest ever daily new Covid-19 cases of 13,215 on July 15.

As 60% of the country’s retail sales is derived from the Klang Valley — the most densely populated area, but also the most badly hit by the pandemic — the impact on the industry is much greater.

In 2020, retail sales growth contracted by a depressing 16.3% over 2019. The biggest dip since the Asian financial crisis 22 years ago, retailers only managed to ring up RM90 billion in sales last year compared with RM107.5 billion in 2019.

“Malaysia’s retail sales have turned from bad to worse,” Tan points out. He believes that with all the urban areas of Selangor under EMCO and cases continuing to rise, it will be no surprise if the EMCO is extended by another two weeks.

Similarly, he observes that while only a limited number of residential areas in Kuala Lumpur are under EMCO now, the number of new daily cases in the capital has been climbing. “There is a possibility that the entire city will be placed under EMCO for at least two weeks,” he says.

If this were to transpire, the retail turnover during this period would be similar to that of MCO 1.0 last year, which saw a drastic decline in sales, says Tan.

Last Thursday night, the government announced that the EMCO in all localities in Kuala Lumpur would be lifted on July 16. However, a retailer tells The Edge that his store, which is located in a non-EMCO area in KL, had not been allowed to operate during the EMCO and he is unsure if the lifting of restrictions will make any difference.

Tan estimates that a recovery in retail sales growth to 2019 levels will be pushed back by a year at best from an earlier projection of 2023. “Conservatively, it will most likely be 2024.”

Although some retail segments are allowed to operate during the EMCO period, Tan believes that all retail stores have been badly hit. And retail businesses that refuse to transform themselves by investing in e-commerce facilities could be fatally damaged.

He points out that many businesses in Malaysia continue to conduct their business using WhatsApp as a temporary measure to survive while others have chosen to close down temporarily until the government lifts the lockdown measures.

In addition, many retailers continue to insist on cash terms, even though online shopping has become a major channel of distribution for goods and services. “This has been proven time and time again over the past 1½ years in Malaysia and around the world,” Tan stresses, cautioning retailers not to ignore this reality, although he does not think that online shopping will totally replace physical stores.

Given the current situation, Tan anticipates that all retail categories are at a great risk of closure, including businesses exempted from the lockdown. “Similar to 1998, we may now see large chain stores collapse. We may also see more foreign retailers give up on the Malaysian market [and exit],” he says.

On whether retailers are better prepared this time around after experiencing the March 2020 lockdown, Tan observes that “it is no longer a big surprise for them [but] Malaysian retailers had never experienced a severe pandemic before which resulted in retail stores being forced to shut down for a long period of time. It did not happen during the 1986 economic recession, 1997/98 Asian financial crisis and the 2008 global financial crisis”.

The current situation is also worse than during MCO 1.0 as the government’s financial assistance is not as comprehensive this time around. Moreover, whatever cash reserves the retailers had prior to the pandemic have been depleted.

But despite the retail gloom, some segments are thriving. These include mini-markets and convenience stores, as well as stores that specialise in fruit, meat, seafood and snacks.

Dollar stores also continue to be popular, as well as parcel and courier services. Examples include Posstore, which Tan describes as being very aggressive, Parcelhub, J&T Express, Line Clear Express and Yunda Express.

On the food and beverage front, some outlets have called it a day. But new ones are also opening.

Meanwhile, many are heading to the goldsmith and jewellery shops to take advantage of fluctuating gold prices.  

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.