In 2017, reports on retail industry were not as rosy, as figures shrunk with news of several hypermarkets closing down due to stiffer competition amid the uncertain economic climate
By SHAHEERA AZNAM SHAH / Pics By TMR
The tunnel seemed to have narrowed a bit for many retailers in the last couple of years, and now, after finishing the first quarter of the year (1Q18), the light could be a little brighter for them in 2018.
Last year, most of the reports on retail industry were not as rosy, as figures shrunk with reports of several hypermarkets closing down due to stiffer competition amid the uncertain economic climate.
The rise of e-commerce has also affected the traditional brick- and-mortar businesses, with more consumers getting used to online shopping.
Despite the challenges, the players trudge on. For this year, Malaysia Retail Chain Association (MRCA) president Datuk Seri Garry Chua said the industry is expected to do better, with a 4% growth, and further supported by the rise during festive seasons.
He said capital allocation for the 2018’s general election and the country’s “national mission” towards “Visit Malaysia 2020” could also translate into a corrective period.
In an exclusive interview with The Malaysian Reserve (TMR), Chua also shared industry insights and expectations for the coming months, as well as internal aspects of the local retail market that could offset the sector.
TMR: Malaysia’s economy has recorded a stronger performance for the last couple of months. Does it actually translate into higher margin for the retail realm?
Chua: Malaysia has recorded a growth of 5.9% in its gross domestic product (GDP) for the 4Q17.
However, a majority of Malaysia’s income is derived from the exports of electrical and electronics (E&E) goods, which has contributed almost 40% to the GDP.
On the exports side, major portion of it does not link to the retail sector.
Thus, the exports may be performing well, but it is concentrated on certain sectors and it did not spread. It may be a while for retailers to enjoy the growth.
TMR: Recent reports highlighted the struggle among hypermarkets and shopping malls to stay afloat. What can this market segment do to battle the situation?
Chua: No doubt it is a tough time for retailers who cater for the bigger market. From the association’s view, what they can do is to consolidate and reinvent themselves to keep attracting the visitors.
Sometimes, extraordinary features such as ladies parking and getting the precise balance of tenant mix will also keep the traffic to the particular malls.
There is a reason why malls nowadays go the extra miles in accommodating ladies parking by putting extra lights and painting the floors for specific bays. It is because they learnt that women hold more purchasing power than men.
Although it may have looked like bells and whistles to the public, but features like these will redirect the flow of traffic.
Also, malls nowadays are putting 30% quota for food and beverages (F&B), or sometimes they go higher than that because they feel it is the right tenant mix.
However, visitors do not go to shopping malls just to eat. Thus, owners have to invest in finding out the right tenant mix for each mall.
TMR: How do you describe the current consumer spending attitude?
Chua: Although many perceive that consumers are now having lower purchasing power, the performance in other industries are telling otherwise.
In 2017, the domestic tourism industry registered more than 10% growth, and Malaysian outbound tourists spending growth exceeded 10% from the numbers reported in the previous year, and that signals a huge capacity for Malaysians to spend.
In my opinion, consumers are being more cautious with their money.
Over the years, the trend has changed. Outlets will be thronged if they are offering sales and that was what happened during the recent Chinese New Year (CNY) celebration.
The spending for the celebration usually starts three to four weeks prior to the day, but this year we saw hypermarkets filled with people only a week before, just because they were waiting for shops to give the very best deals.
This had created a more mature spending pattern which, in a way, had slightly affected the market.
TMR: Any cause for the maturity?
Chua: Back in 2014, when the government implemented the Goods and Services Tax (GST), the retail market’s growth went down to 2%.
It took a year for us to recover and we achieved more than 4% in 2015. However, the positive sentiment slowed afterwards as it fell below 4% in 2016.
We can interpret from the pattern that the implementation of GST had made consumers more aware of how they spend their money, and that has created a prudent-spending culture in their daily expenses.
In addition, as the economy becomes more stable, consumers would relatively earn higher income, which would indirectly result into bigger responsibilities in terms of loans.
People would want better cars and bigger homes if they are earning more, and logically, leisure shopping activities would become a lesser priority.
TMR: As technology has positively disrupted many brick-and-mortar industry, what would happen to traditional retail market?
Chua: Consumers are known to look for “value for money” in their spending, and that includes the medium where they spend their money on.
During sales, people would line up a few meters from the shops which could create a hassle, with prolonged shopping time.
The introduction of online shopping has given an alternative for consumers to pick and choose what they want, when they are going to buy and how they are going to buy.
The choices have given the online sector an unprecedented advantage against the brick-and-mortar business, and this would continue to lead the way for retail market.
Also, the majority of the data in the retail sector is measured based on offline retail.
However, the online retail is expected to reach a double-digit growth, despite how persistent local retailers are on their unwillingness to adapt to it.
TMR: Is it really a big issue for local retailers to adapt to the change?
Chua: I believe the government’s action in initiating the Malaysia’s Digital Free Trade Zone (DFTZ) has helped the offline retailers see the importance of establishing an online platform.
The DFTZ started with over 2,000 retailers, which we consider to be relatively small. But it is a good start.
In Thailand for example, the government established its digitalisation journey by allocating 50 billion baht (RM6.2 billion) to the online startups.
Now, they have become the biggest captive market for Chinese tourists, receiving more than 10 million tourists, as we only managed to capture almost two million of them last year.
I always say the ones who catch the most are the ones who capture the best.
TMR: In finding a way to expedite the local retail economy, what other aspects of Malaysia’s economy that can be improved to help realise the goal?
Chua: The way I look at it, tourism can help instantly boost and spur the retail economy.
According to the tourism statistics, tourists will spend more than 30% of their budget on shopping and we could not afford losing out to this opportunity.
Also, by leveraging on tourism, it will help mitigate the glut in shopping malls if we can attract more tourists.
In addition, Malaysia’s population is too small. We have slightly more than 30 million compared to India, China, or even Thailand.
The local consumption is simply not enough.
TMR: Any particular ideal market that we should consider?
Chua: The Chinese is a good market to be tapped into as they account for 25% of the world’s tourist.
Last year, 130 million of Chinese travelled overseas and spent more than US$260 billion (RM1.04 trillion). To put in perspective, that is more than double our reserve. Imagine if we can just tap 10% of that.
Not just Malaysia and Thailand, the world is also capturing China’s market for over the past 20-30 years.
With the accumulated wealth that they have, the propensity to spend is enormous.