Can strong retail growth last?


THE retail sector, with sales growth expected at 13.1% this year after a 2.3% decline in 2021, is expected to remain buoyant for the time being, amid risks of elevated inflation, rising interest rates and a possible global recession.

With Malaysia’s broad subsidy policy keeping inflation low, retail sales are rising partly on a low base effect, as many purchases have been postponed over the past two years and many businesses have been disrupted by the Covid-19 closures.

For now, the retail sector can maintain growth even though high inflation and recession may reduce disposable income and consumer spending.

If it was withdrawals from the Employees Provident Fund (EPF) that bolstered funds available to consumers, strong retail sales may not be sustainable, said the former head of research at Inter-Pacific Securities, Pong Teng Siew.

In addition to the weak base effect, pent-up demand in the first half of 2022, with two consecutive quarters of festivities, also contributed to the strength in retail sales.

Beyond 2022, it’s reasonable to expect revenue growth to normalize, said Jade Tam, analyst at Maybank Investment Bank Research.

Other positive factors include a marked improvement in mobility and signs of recovery in private consumption, while international tourists have picked up at a faster pace than expected.

The gradual recovery in the labor market, even if it has not yet reached pre-pandemic levels, will further strengthen the outlook for a domestic recovery, said Yun Liu, an economist at HSBC Asean.

Holiday spending is expected to support retail sales in the second half of 2022, tempered by the negative impact of rate hikes and rising inflation, CGS-CIMB Research said in its research note.

Since the end of 2021, commercial traffic has returned to pre-2019 pandemic levels, especially in major malls such as Mid Valley Megamall, Suria KLCC, Pavilion KL, One Utama, Sunway Pyramid and IOI City Mall.

Consumers also buy non-essential goods and dine in good quality cafes and restaurants.

Purchasing power may have fallen due to the rising cost of living; consumers seek discounts and promotions from retailers and food and beverage (F&B) outlets to maintain their quality of life.

However, mall occupancy and rental rates may not return to 2019 levels until next year, said Tan Hai Hsin, managing director of Retail Group Malaysia.

Due to excess retail supply, many new malls opened in recent years have not been able to achieve high occupancy in their first year of operation.

Malls that had relatively low occupancy rates in 2019 performed well during the closures as many consumers had to shop at supermarkets closest to them.

Now that consumer shopping behavior has returned to normal, traffic in these malls has fallen back to its low level of 2019.

With consumers returning to physical stores, retailers of fashion and fashion accessories as well as personal care (skincare and cosmetics) are experiencing a double-digit recovery.

But grocers, after robust sales over the past two years of lockdown, are seeing business normalize to 2019 levels.

Since the first confinement in March 2020, the grocery store has recorded very good sales; many consumers who had started selling food from doorstep frequented these grocery stores to stock up.

But the majority of consumers have returned to their usual way of life and the grocery store trade has normalized.

Since the reopening, new trends have emerged in the implementation of:

> New F&B outlets including gourmet restaurants, cafes, food kiosks, bubble tea shops and cloud kitchen with dining spaces.

> More ready-to-eat convenience stores such as CU, 7-Eleven Café, Family Mart, eMart24 and KK Concept Store.

> First foreign stores in Malaysia, as the new supply of high-quality malls such as Lalaport, Pavilion Bukit Jalil, The Exchange TRX and 118 Mall, has also encouraged foreign retailers to set up shop in Malaysia.

Recent examples are Tsutaya (Japan), DonQ (Japan) and Gordon Ramsay Bar and Grill (Great Britain).

> Flagship stores in malls. Many manufacturers and distributors set up storefronts and showrooms in malls, for example, Mercedes Benz at One Utama and Samsung Senheng Experience Store at Four Seasons Place.

More malls, brands and rentals will open by the end of 2022 as sales are expected to nearly double from the first quarter of 2022, IOI Malls chief executive Dylan Chan said.

For example, IOI City Mall Phase 2, with 700 outlets and expected to be Malaysia’s largest mall, is expected to open this month.

With the rapid growth of retail, sustainability has become a key concern in the planning, design and operation of shopping centers as community centers.

These practices include adaptation of solar panels, community agriculture, green parks inside shopping malls, rainwater harvesting, cashless parking, composting food waste and setting up recycling in shopping malls.

Meanwhile, lingering concerns about inflation and rising interest rates are not expected to have a material impact on discretionary shopping mall spending; higher interest rates likely to impact bulky item purchases, Sunway Real Estate Investment Trust said (REIT) Datuk CEO Jeffrey Ng.

The positive business momentum of Sunway Malls is expected to continue in the second half of 2022, supported by healthy economic growth, sustained domestic consumption, a gradual recovery in international travel and a further contribution to revenue from Sunway Carnival Mall (new wing) following its launch in June 2022.

Sunway-REIT also owns Sunway Pyramid Mall, Sunway Putra Mall and SunCity Ipoh Hypermarket.

Sunway Shopping Centers have had 10 months of uninterrupted sales of 100% recovery since the fourth quarter of 2021.

Amid improving domestic business, the second half of the year should bode well for Sunway Malls, with sales recovery for the third quarter of 2022 holding steady at 115% and 107% in the fourth quarter, Chan Hoi said, CEO of Sunway Malls and Theme Parks. Choi.

Personal consumption is a key driver of Malaysia’s gross domestic product growth; it is critical that we look at other drivers of sustainable retail sector growth, especially after the EPF savings money runs out.

Yap Leng Kuen is a former editor of StarBiz. The opinions expressed here are those of the author.


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