The retail sector is expected to grow by 6% next year



AFTER two difficult years, the Malaysian retail sector is gearing up for a much-needed recovery in 2022.

Retail Group Malaysia (RGM) in its latest report on the retail industry in Malaysia predicts a growth rate of 6% for the industry next year. “The Malaysian retail industry is eagerly awaiting a recovery from the nearly two-year covid-19 pandemic. However, few challenges remain.

The report notes that the number of daily positive cases still remains worrying. “A potential fourth wave pandemic is haunting Malaysian retailers. Non-essential Malaysian retailers cannot afford another forced closure of physical stores.

“A new, recently discovered variant of Covid is now spreading rapidly across the world. This will affect economic recovery globally as well as in Malaysia.

RGM points out that the Malaysian government has decided to delay the country’s transition to the endemic phase due to the uncertainties created by the new variant.

“The arrival of foreign tourists may be affected due to the current development of the virus. This will affect retail businesses that relied on leisure travellers.

“The recent spike in prices for many consumer goods may continue into next year. The rising cost of living will affect the purchasing power of Malaysian households in 2022.”

RGM says it expects the local retail industry to gain momentum in terms of recovery by the end of this year.

“For the fourth quarter of 2021, the estimated growth rate has been revised upwards from 12.7% (estimated in September 2021) to 18.3%.

“Retailers are hoping retail sales will increase in December this year due to two major upcoming festivals, namely Christmas and Chinese New Year.”

Fitch Solutions, in a recent report, meanwhile said that retail sales in Malaysia have been severely impacted by the Covid-19 pandemic and resulting restrictions.

“Over 2021, retail sales increased by 4.3%, but this is exaggerated by the weak base effect created in 2020, after retail sales contracted by 5.3%.

“These high-frequency data suggest that retail sales in Malaysia have still not returned to pre-Covid-19 levels.”

Comparing retail sales in 2021 to 2019, Fitch Solutions says sales remain at 1.2%.

“Malaysian authorities continued to implement strict restrictions in 2021, largely in line with the increase in Covid-19 cases.

“Higher vaccination rates are needed for these two to be decoupled and allow for a broader recovery in retail sales from 2022,” he says.

Meanwhile, RGM has revised down its retail growth projection for 2021 to 0.5% from 0.8%, initially.

“In September this year, RGM estimated a growth rate of 0.8% in retail sales for 2021.

“However, this projection needs to be revised down again, taking into account weaker-than-expected growth in the third quarter, as well as a revision of the estimates in the fourth quarter.”

For the third quarter of 2021, RGM reports that retail sector growth fell 27.8% year-on-year.

“Retailers in Malaysia operated under strict social distancing measures under the Recovery Movement Control Order (MCO) during the same quarter a year ago.

“On the other hand, most retailers were forced to close during the first half of the third quarter of 2021.

“The enhanced MCO was applied in large parts of Selangor and parts of Kuala Lumpur from July 3, 2021 and ended on July 16, 2021.

“Retail businesses in Malaysia’s largest retail market have been hit hard during this critical time.”

RGM notes that from August 16, 2021, more retail businesses under the first phase of the national stimulus plan have been allowed to open.

“When the government eased restrictions on the number of passengers in a vehicle, as well as the travel distance limit on August 21, 2021, commercial traffic in major shopping malls gradually returned.”

Additionally, cinemas, entertainment centers and beauty salons were allowed to open from September 9, 2021 for fully vaccinated people, RGM says.

“However, most of these businesses only started opening to the public a week or more after they finalized standard operating procedures with the relevant government departments.”

Regarding the performance of the various retail sub-sectors, Fitch Solutions notes that supermarkets, hypermarkets and department stores were allowed to operate even during the strictest Covid-19 related restrictions.

“As such, sales performance has been positive, but not as good as specialty food, beverage and tobacco stores.”

From January to September 2020, Fitch Solutions reports that supermarket, hypermarket and department store sales increased by 1.8% year-on-year (yoy).

“Growth over 2021, at just 0.6% year-on-year, was more stagnant, but still at a much higher level than that of 2019, the pre-Covid-19 environment.

“Comparing 2021 sales to 2019, retail sales were 2.4% higher than pre-Covid-19 levels.”

Fitch Solutions says the food, beverage and tobacco sub-sector has been one of Malaysia’s best performing segments throughout the pandemic.

“Due to the Covid-19 pandemic and its economic impact, consumers quickly shifted their spending towards essential items, to ensure their needs were met during times of lockdown and restrictions.

“As Malaysia experiences increasingly severe virus waves in 2021, this focus has continued throughout the year, with sales up 4.1% YoY (for the period of January to September).

Additionally, Fitch Solutions says the consumer electronics category was another outperforming sector in Malaysia, largely due to consumers adapting to the new reality of Covid-19 restrictions.

“This category includes sales of computers, video game consoles, telecommunications equipment, audio and video equipment. Sales of these have been hit quite hard in 2020 (January to September), contracting by 7.5% year-on-year.

“However, as consumers adapted to spending more time at home, items from this consumer category were critical to entertainment spending.

“As such, there has been a healthy rebound in sales in 2021, growing 9.5% year-over-year.”

Consequently, Fitch Solutions reports that sales in 2021 were 1.3% higher than sales in 2019, the pre-Covid-19 environment.

Meanwhile, household goods sales have performed poorly during the pandemic, says Fitch Solutions.

“Sales contracted 11.6% year-on-year in 2020 as physical stores selling these items were forced to close under the most stringent restriction levels.

“While sales rebounded somewhat in 2021, increasing 9.5% year-on-year, this was primarily the result of a weak base from which to grow.”

Comparing 2021 to pre-Covid-19 levels, Fitch Solutions says household goods sales in 2021 were still down 3.7% from sales in 2019.

“We have highlighted in the past that Malaysia offers an attractive market for homeware retailers, with government incentives and a growing property market, with new homeowners being the main consumers of homewares.

“While we still have attractive fundamentals, we believe this trend has been significantly impacted by the economic realities of Covid-19 on household disposable income levels.”

Meanwhile, cultural and leisure goods have been the worst performing segment during the pandemic, says Fitch Solutions.

“Over 2020 (January to September), retail sales through this channel contracted by 14.3% year-on-year.

“Despite growing 8.9% year-on-year in 2021, retail sales are still 6.7% below pre-Covid-19 levels in 2019.”

Products in this category range from large items (fishing gear, camping gear, boats, bicycles and more) to small items (office supplies, books, newspapers, stationery and music records).

Fitch Solutions points out that many retailers in this segment were not allowed to operate during the strictest restrictions.

“Additionally, the impact that Covid-19 has had on disposable incomes in the country has meant that consumers have cut big-ticket items drastically.

“Although we continue to believe that there has been an increase in sales of smaller cultural and recreational items, this has not been enough to offset the decline in sales of big ticket items.”


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