Smaller convenience stores thrive

Households are pickier on what to spend on during the MCO as they focus more on essential items, says expert

by NUR HAZIQAH A MALEK/ pic credit: 99speedmart.com.my

CONVENIENCE stores like KK Super Mart and 99 Speedmart are thriving during the Movement Control Order (MCO) as consumers seek convenience in their purchases of daily essentials.

Malaysian Retail Chain Association VP and Bagman Corp Sdn Bhd founder/CEO Datuk Liew Bin said in response to this spending cut, the fashion and non-essential item segments will see the most impact.

“Households will be pickier on what to spend on during the MCO, and because of that, they focus more on essential items like food,” he told The Malaysian Reserve.

According to a research by Vase.ai, the top three grocery sources are local stores or supermarkets at 40%, 99 Speedmart (39%) and Tesco (21%).

The study also showed that most Malaysians are cutting their spending on other items as 69% of consumers are only spending on essential food and household items, with 27% saying they have purchased other items besides food from ongoing promotions and sales.

Liew said retailers will take around three months or more to recover from the impact of the MCO and the Covid-19 outbreak.

“We are also considering trade, which means both external and internal.

“Local demand will definitely take its time, and we also have to consider how external economies recover too, which means at least three months or more will be taken for the entire retail segment — from supply to demand — to recover,” he said.

He said he cannot project the amount of money the segment will lose due to the lesser spending from households.

“I’m not sure how to provide an exact figure, but a billion perhaps? Regardless, it will still cost us a lot of money.”

CGS-CIMB Research analysts Walter Aw and Syazwan Aiman Sobri also further noted that near-term consumer sentiment and spending are likely to be constrained due to the exacerbation of Covid-19 and MCO implementation.

“Sales of staple goods are likely to remain robust during the MCO period, but retailers will be hit by weak retail spending, store closures and/or limited operations.

“Still, businesses of consumer staple stocks such as Nestlé (M) Bhd, QL Resources Bhd, Fraser & Neave Holdings Bhd, Power Root Bhd and Kawan Food Bhd are more defensive in nature, given the inelastic demand for their goods. Hence, we expect limited negative impact from Covid-19,” they reported.

They said negative impact on retailers is inevitable, except for convenience store operators such as myNews.com, 7-Eleven and Family Mart.

“Other retail-based stocks under our coverage such as Bonia Corp Bhd, Only World Group Holdings Bhd and Panasonic Manufacturing Malaysia Bhd have to close down all their premises during the MCO.

“While the e-commerce activities remain in operation, contribution to revenue for the retailers under our coverage is small, which is estimated to be below 5% in total revenue,” they said.

In the consumer space, the research house chose to retain its ‘Neutral’ call on the sector.

“While consumer staple stocks should remain defensive, we believe that this has been captured at 35 times forward price-earnings (PE) (slightly above a five-year mean).

“On the other hand, discretionary stocks should continue to trade at depressed valuations (13.6 times forward PE, below -2 sd to their five-year mean), given earnings risks from weak consumer sentiment,” they said, noting their top picks such as DKSH Holdings (M) Bhd, Power Root and CCK Consolidated Holdings Bhd.