Thursday 28 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on March 22, 2021 - March 28, 2021

HAVING experienced its worst year ever in 2020 since the Asian financial crisis 22 years ago, the local retail industry could take up to four years to recover to 2019 levels, even if a potential surge in sales from revenge shopping materialises.

Last year, the country’s retail sales contracted by 16.3%, ringing up a mere RM90 billion in sales, versus RM107.5 billion in 2019, as consumers stayed home and retail outlets remained shut for the greater part of the year.

“The fastest time to reach the same sales level as 2019 will be in 2023. Conservatively, it will most likely be in 2024,” Retail Group Malaysia’s (RGM) managing director Tan Hai Hsin tells The Edge, attributing the pace of recovery to the domestic rate of infection and economic recovery.

Retailers will continue to face challenges this year, he says. “Recovery is highly dependent on the government’s ability to reduce the number of daily positive cases as well as government policies on movement restrictions and social distancing. Vaccination of the majority of the population in Malaysia will take some time. Therefore, movement restrictions and social distancing measures will continue to be enforced for a period of time. These factors affect shopping traffic.”

Because the pandemic also led to a reduction in salary for many workers, coupled with cautious consumer spending because of the soft economy, average spend per person has also declined.

“With less income, you will buy fewer goods. In an economic downturn, you will not indulge in high-priced retail items,” Tan points out, noting much fewer people were out last year, whether to the stores, workplace or restaurants. Not being allowed to celebrate festivals also meant consumers shopped less. Exacerbating the situation is the lack of domestic tourist spend, given the travel ban on interstate movement.

In 2019, domestic tourists spent RM39 billion on shopping and foreign tourists, RM28.94 billion. The sums spent amounted to 37.8% and 33.6% respectively of total domestic expenditure of RM103.2 billion and foreign earnings of RM86.1 billion from tourists.

In 2015, when a 6% Goods and Services Tax (GST) was introduced, consumers held back on spending after front-loading on purchases and it took about a year for spending to normalise.

Discussions about the reintroduction of the GST have resurfaced recently, although government officials assure that the consumption tax will be imposed only when the economy is on surer footing. Some argue a GST comeback could delay the recovery of the retail industry and place a burden on retailers.

Tan does not think retail sales will suffer as much the second time around as they did in 2015, as Malaysians were not familiar with the tax then. “They were confused on the price changes. They stopped buying for a short period of time and watched the price changes. During that period, retailers were confused as well. It required many operational changes.

“In the event that the GST is brought back in the near future, Malaysian consumers and retailers will be able to adjust quickly,” he says, but concedes it could be both an administrative nightmare and additional cost for retailers.

“This consumer tax should not be introduced until the economy and the retail market have fully recovered from the Covid-19 pandemic.”

On online shopping’s contribution to the pace of retail growth, Tan says most bricks-and-mortar retailers have already launched their online shopping facility, as Covid-19 has forced them to pay attention to online shopping platforms. “After the first MCO (Movement Control Order) was imposed in March 2020, they had invested more effort and money in this technology. Online shopping has become another major channel of distribution for retail goods and services in Malaysia.”

RGM’s retail data already includes online sales by bricks-and-mortar retailers.

Meanwhile, the latest Malaysia Retail Sales Report (March 2021) released recently by RGM on behalf of the Malaysia Retailers Association and Malaysia Retail Chain Association (MRCA) showed that most retail sub-sectors contracted by double digits in 2020, with department store and fashion accessories shrinking the most, at 38.3% and 37.9% respectively.

Tan expects the segments to fully recover by 2023 or 2024.

“Both retail sub-sectors are still relevant in the current retail market. They are expected to grow further when the pandemic has been brought under control. The success of fashion retailers is dependent on their product offering and strong management control.

“Uniqlo Malaysia has a very strong and user-friendly online shopping platform. Yet, consumers still queue up in front of their physical stores located throughout the country,” he points out.

He also cites the example of Louis Vuitton, which has an online store that ships directly to Malaysia. “However, queues are still found almost every day at all their outlets.”

As for the performance of pharmacy and personal care businesses, which contracted 11.8% despite being one of the businesses that has been allowed to operate even during the MCO, Tan explains: “This is similar to grocery store performances during Covid-19. Even though they have been allowed to open since the first MCO in March 2020, consumer spending has been reduced because of reduced income.

“When the majority of the population was forced to stay at home, the demand for personal care products also dropped. For a certain period of time, personal care stores (such as The Body Shop, Sasa, The Face Shop and Etube House) were not allowed to open. Thus, their sales were badly affected even though they were able to sell online.”

Conversely, one of the two retail segments that grew last year was furniture, furnishings, home improvement and electrical and electronics (see table). “Work from home boosted demand for furniture suitable for office work at home as well as electronic gadgets such as laptops, smartphones and other supporting accessories.”

With the majority of the population being stuck at home, Tan says, more people did more home cooking or started food services from their home. Consumers also found time to decorate their homes. “Thus, the high demand for kitchen appliances, kitchen equipment and home furnishings.” Other items that saw demand improve were nursery and stores selling flower and plants, while home schooling led to demand for computer, tablets and other electronic gadgets.

‘Freedom euphoria’ brings back the crowds, but concerns remain

Malls have become busy once again since the lifting of the Movement Control Order (MCO) on March 5 in several states and federal territories, including Selangor and Kuala Lumpur. But crowded malls do not necessarily equate with bumper retail sales.

“Since the end of MCO 2.0, shoppers have begun to return [to the malls], especially over the past two weekends because of ‘freedom euphoria’,” Malaysia Shopping Mall Association (PPK) president Tan Sri Teo Chiang Kok tells The Edge, but adds that it is still too early to read the trend.

He also points out the “humongous hike in fines to RM10,000” may be a deterrent to consumers who want to venture out, thus hindering chances of a retail recovery.

“Although the crowd was evident, in order to comply with the SOP, shops can admit only up to 40% capacity. This has not only reduced the opportunity for sales but also created queues outside shops, with many potential patrons bypassing the shops.”

Teo also says that, based on car park records, the average number of hours spent at a mall has been shortened by an hour, and that the average time spent at larger malls is between three and four hours.

What is the focus of mall goers? According to Teo, apart from shopping for essentials, most of the business appears to be at food and beverage outlets.

Cinemas, which were only recently allowed to operate, are enjoying a pent-up demand for movies. “But it is also too early to gauge any trends,” he notes.

Nevertheless, Teo says malls are confident of a return of shoppers and normalisation in the near future, with the vaccination programme already in place and a continuous downward trend in new Covid-19 cases. “We thus advocate that the government be more precise in its daily reports and provide numbers related to neighbourhoods rather than broad-brush numbers based on states.

“The daily reports on vaccination progress, coupled with decreasing infections daily, have boosted public confidence and optimism, which will, in turn, boost shopping footfall,” he says.

PPK — the association he heads — hopes that SOPs continue to be improved and become more practical so that uncertainties can be removed, including subjective interpretation of the law by enforcers. Better SOPs will create an atmosphere of confidence and put shoppers at ease, he adds.

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