Non-essential retailers in harsh decline

Retail performances amassed heavy losses in 1Q20, and with strict SOPs, they won’t be able to operate at full capacity


NON-ESSENTIAL retailers remain badly affected due to the Covid-19 outbreak as Malaysia’s retail industry recorded a negative growth rate of 11.4% for the first quarter of 2020 (1Q20).

According to the Malaysia Retail Industry Report July 2020 by Retail Group Malaysia (RGM), during the second month of this year, retailers began to suffer from declining sales due to the rapid spread of Covid-19 and the drastic drop of foreign tourists.

“The fear of the virus pandemic had affected consumers’ spending during the first two weeks of March 2020.

“The Movement Control Order (MCO), which started on March 18 as a preventive measure by the government in response to the pandemic, led to zero revenue for non-essential retailers in the whole country,” RGM said in a statement.

Retail performances of all retail subsectors amassed heavy losses during 1Q20, with the fashion and fashion accessories subsector recording a poor result of -30.5% in growth rate, making it the worst-performing retail subsector during this period.

Department store cum supermarket subsector recorded a negative growth rate of 8.5% in 1Q20 compared to the same period a year ago. However, the food business of this subsector had cushioned the negative impact of the MCO in March 2020.

RGM noted that the pandemic, lower tourist arrival and the MCO led to poor retail sales performance of the department store subsector with businesses decreasing by 17.5% in the first three months of this year.

“The supermarket and hypermarket subsector was the least affected retail subsector during this crisis, declining by 3% in 1Q20.

“Pharmacy and personal care subsector reported a growth rate of -3.9% compared to the same quarter a year ago. Similar to the grocery retailers, it was one of the least affected retail subsectors during this quarter,” it said.

The other specialty stores’ subsector (including retailers selling photographic equipment, optical products, children-related goods, second-hand goods, toys, as well as arts and crafts) suffered a drastic drop in retail businesses with a growth rate of -17.9% in 1Q20 compared to the same period last year.

For 1Q20, Malaysia’s national economy recorded a low growth rate of 0.7% compared to -11.4% for retail sales (at current prices).

The average inflation rate during 1Q20 slowed down to 0.9%, while the consumer price indices recorded relatively higher rates in January (1.6%) and February (1.3%), but declined sharply in March (0.2%).

In its forecast for the next three months, RGM said its members project an average growth rate of -28.8% during 2Q20, far worse than the projection made by RGM in April 2020 at -9.3%.

“For 2Q20, department store cum supermarket operators are expecting a dismal performance with a growth of -40.9%, while department store operators are expecting the worst in their businesses with a growth rate of -62.8%.

“Supermarket and hypermarket operators will not see big improvement in their businesses in the coming months and expect to remain in the red zone with a -14.8% growth rate for 2Q20,” it said.

Across the board in 2Q20, other subsectors are also expecting a decline with retailers in fashion and fashion accessories, pharmacy and personal care, and other specialty stores expecting their businesses to suffer a drop in growth rate by 39.3%, 18.4% and 55.5% respectively.

Commenting on the second half of 2020, RGM said with strict standard operating procedures (SOPs) being enforced, retailers would not be able to operate at full capacity as last year.

“For 3Q20, retail sale is expected to suffer a moderate decline of 3.5% compared to last year.

“In the event MCO is lifted fully before October, Malaysian retailers should expect retail business to begin its recovery. For 4Q20, retail sale is expected to decrease slightly by 1.5%,” it said.

As such, RGM projected the annual retail growth rate for Malaysia in 2020 to be -8.7% compared to last year. The figure has been revised downwards by RGM from its forecast made in April at -5.5%.