Friday 29 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on November 30, 2020 - December 6, 2020

WHILE store closures paint a picture of total gloom and doom for the retail and mall industry, it may not be as bad as initially thought. It appears that certain retailers are continuing to expand and are opening in malls, and the beneficiaries include malls in secondary towns.

Indeed, news of the closure of 160-year-old Singapore-based Robinsons in Shoppes at Four Seasons Place and The Gardens Mall shocked the market and called into question the fate of other retailers. This was compounded by the news of closures of Singapore-based brand We The People store at Intermark Mall and Hong Kong-based one-Michelin-star restaurant Xin Dau Ji at EkoCheras Mall.

But equally surprising was last week’s report that Sunway Malls had managed to get 200 tenants to open across all seven of its malls, outnumbering the number of closures.

Kluang Mall in Johor is yet another example of a mall in a secondary town that has managed to attract new tenants even during this challenging period. “Since March, Kluang Mall has gained a dozen new tenants and several more are in the pipeline,” says Tey Fui Kien, CEO and executive director of Tenaga Nusantara Sdn Bhd, the owner and operator of the mall.

She adds that store closures made up less than 5% of its net lettable area (NLA). As at mid-November, the occupancy at this 358,280 sq ft NLA mall stood at 98%.

Retail Group Malaysia (RGM) managing director Tan Hai Hsin tells The Edge that the reason retailers are expanding this year is the same as that during an economic downturn. “They know Covid-19 will not last forever. Things will return to normal after a period of time.”

He also points out that there is no solid evidence indicating that physical stores have no future. “And this was proved around the world when stores were allowed to reopen [after the lockdowns].”

Moreover, with interest rates at an all-time low, investors are using this opportunity to invest in retail businesses to generate better returns. “Certain retailers are using this opportunity to invite ordinary people to put money into investment schemes to expand their stores nationwide,” says Tan, citing the examples of LaundryBar and Baloy.

There are also many retail shops, hair and beauty salons, service centres and food and beverage (F&B) outlets that have been put up for sale. Malaysians have taken this opportunity to invest in these businesses minus the headache of setting up shop from scratch, he adds.

There is supply for every demand

Tan observes that pop-up stores are mushrooming. “During this period of pandemic, shopping centre landlords have been leasing empty retail lots to retailers with short-term leases of one month and up to a year at attractive rental rates.”

Tenancies are typically for three years.

“This is a temporary win-win measure. It helps landlords to fill up empty shops with some rental income and assists the retailer in expanding with low financial commitment,” Tan notes.

He adds that while pop-up stores are not in vogue, they will also not disappear.

Other businesses that are continuing to expand include mini-markets, convenience stores, yoghurt drink players and service-oriented tenants such as those in health and beauty, discount stores, trendy cafés and restaurants, and soy-based dessert stores.

“Delivery service companies (or courier service centres) have been springing up everywhere across the country since the pandemic started,” he says, citing the example of Parcelhub at Mid Valley Megamall and Mydin Masai.

Nevertheless, Tan expects overall closures to still outnumber new openings. “This is more due to the current oversupply of retail space rather than Covid-19,” he points out.

RGM had forecast that some 51,000 retail stores in the country would shut over the next few months.

When asked if there was a common denominator among those who were adding more outlets, Tan says, “The common factor is their products and services are still in demand during this period. Consumers are still willing to visit the physical stores for these goods and services.”

He cites the trend of young Malaysians visiting “beautiful” cafés to show off on their social media accounts.

Moreover, because these businesses and their products are in demand, they are able to negotiate better rental rates and terms in the current weak market.

According to the Malaysia Shopping Mall Association (PPK), both existing and new tenants are being offered different forms of attractive perks, whether in the form of fit-out, financial assistance, rent-free periods or marketing assistance programmes. Other offers include free promotional space and free parking to attract and increase footfall.

“Rental discounts are tailored to the tenants’ needs. Different trades require different schemes, and programmes need to be tweaked, depending on which phase of the Movement Control Order (MCO) is being implemented,” says PPK president Tan Sri Teo Chiang Kok.

Mall recovery could take up to a year after MCO ends

Teo says between July and September, malls nationwide experienced a steady recovery of up to 70% to 80% footfall. But when the third wave of Covid-19 infections hit, business began to deteriorate from October. “Currently, it is much worse than at the start of the MCO, with footfall down to between 10% and 20%.”

The situation, he says, was compounded by the unclear standard operating procedures (SOPs) and reports of unfair and sometimes arguable enforcement owing to unclear rules that caused needless panic and fear and kept people away from shopping and patronising F&B outlets. “There is an urgency for the SOPs to be improved and to remove uncertainties and undue fear.”

On the performance of malls in secondary towns, Teo says, “Malls in secondary towns are faring better than those in the central business districts.”

Generally, consumer traffic depends on the phase of MCO we are at, travel restrictions and the number of people allowed in one car. Teo hopes that with the states of Kedah, Melaka, Johor and Terengganu having entered the Recovery MCO phase from Nov 21, footfall will gradually return.

“Retailers all over the country are facing tough times with weak demand. Before the current Conditional MCO was imposed, we were optimistic that the economy would recover sufficiently by mid-2021. Now, with this deep drop in confidence, this target would most likely be end-2021, barring any other unforeseen spikes in Covid-19 cases, as it is estimated that malls would need a minimum of eight to 12 months to recover after the MCO has been completely lifted.”

 

 

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