Malaysia to see more foreign brands

It depends on the number of high quality malls that will be opening over the next few years

by ANIS HAZIM

MALAYSIA remains an attractive market for foreign brands despite the Covid-19 pandemic headwinds leading to some famous names shutting down operations following the outbreak.

Retail Group Malaysia MD Tan Hai Hsin said this has been proven with several new international brands opening this year such as Japan’s brand specialty store Don Don Donki, Mexican-inspired American fast-food chain Taco Bell and Japanese coffee brand % Arabica.

“Don Don Donki’s first outlet in Lot 10, Kuala Lumpur (KL) has attracted many Malaysians to wait in line for two hours during the first month of its opening, while the Taco Bell outlet has attracted young Malaysians from all parts of Klang Valley to travel to Cyberjaya when inter-district travel and dine-in are allowed,” he told The Malaysian Reserve (TMR) recently.

The % Arabica in Pavilion KL also saw an encouraging turnout when it opened in March this year.

“Even during the Conditional Movement Control Order, many people living in KL still travelled to the % Arabica outlet to try its coffees,” Tan added.

Tan expected more new foreign retailers to open this year as well as next year, namely the Five Guys burger chain, Apple store, David Rocco’s Dolce Vita restaurant, Bacha Coffee, Eslite Spectrum bookstore, Balmain boutique and Tom Ford.

Don Don Donki’s 1st outlet in Lot 10 has attracted many Malaysians to wait in line for 2 hours during the 1st month of its opening

“Last year, at least 22 brands from 11 countries including Australia, France, Italy, Germany, Austria, Japan, South Korea, China, Singapore, Hong Kong and Taiwan chose shopping centres in Klang Valley to open their first outlets in Malaysia,” Tan said.

Despite the upbeat opening, a few international names ceased operations in Malaysia this year like the 108 Matcha Saro dessert shop, Element Fresh restaurant and the Angry Birds Activity Park.

“Similar to local retailers, there are always closures every year so it is not an alarming situation.

“Last year, we witnessed the closures of several overseas retailers that included Esprit, Ladurée, NYX Cosmetics, Robinsons and Ben & Jerry’s,” he added.

Tan said the main cause of their closures was the drastic reduction in sales from the pandemic.

Apart from consumers not visiting stores during movement restrictions, retailers are also faced with rental issues.

“The problems are the same everywhere but foreign retailers tend to have strong financial resources, thus the current losses incurred in Malaysia are manageable to them, and they are looking at the future potential after the lockdown,” Tan said.

He added that although foreign brands are expected to come in, it depends on the number of high-quality malls that will be opening.

“Several high-quality malls will open in the Klang Valley over the next few years like the Mitsui Shopping Park Lalaport, The Exchange TRX, a shopping mall in Merdeka 118, Pavilion Bukit Jalil and IOI City Mall Phase 2,” Tan said.

Similarly, Savills (M) Sdn Bhd associate director and head of retail services Murli Menon said the foreign retailers are still looking at investing in Malaysia.

“Given its geographic location, Malaysia is indeed a strategic market for most retailers.

“Many prefer the country as a regional hub given the connectivity as well as relatively lower cost of setting up operations,” Murli told TMR.

However, Murli said Malaysia has a smaller market size compared to other countries in the region, hence, it offers limited opportunities for expansion of retail footprint compared to other countries like Indonesia, Thailand and Vietnam.

“Malaysia has seen several foreign retailers entering in recent years, with a majority of them being food and beverage (F&B) players,” Murli said.

Besides the upbeat entries, there are also quite many foreign brands that have pulled out from Malaysia in the recent past.

“Most of them were brands that have been struggling elsewhere, including their own country.

“The exit was accelerated due to a huge drop in business as a consequence of the lockdown and disruptions in the retail business,” Murli said, adding that these brands had already been losing their relevance and operating viability internationally as well.

Murli said foreign and local retailers have been facing several challenges during the lockdown, mainly due to a lack of clarification and last-minute announcements in standard operating procedures (SOPs) and rule implementations.

“Lack of clarity in terms of rental waivers or rebates and corresponding support to help retailers and landlords tide over this period also add to the woes of the retail industry. The absence of clear-cut guidelines became an issue of long-drawn negotiations leading to store closures and layoffs.

“Occupancy cost is a critical element in the profitability and viability of any retail operation, given the complete lockdown of several categories of retail for prolonged periods and restricted operations for F&B and other essential services cost ballooned out of control for many retailers making their operations unviable,” he said.

Therefore, most retailers have already started and initiated a rationalisation drive by cutting down marginal locations either through pre-termination or non-renewal of leases.

“Some are even considering relocating their regional hub from Malaysia to other countries like Indonesia and Vietnam,” added Murli.

He said all retailers are fully aware that this pandemic is global and affecting all markets, but what worried them is the lack of a clearcut strategy to control the pandemic.

“This applies to the way lockdowns are announced and implemented repetitively with no visible improvement in the level of control over the spread of Covid-19.

“There is also lack of confidence in the pace and manner of vaccination rollout which is the most critical element to help bring back life and commercial activities to some level of normalcy,” Murli stated.

He also said foreign retailers can compare the approach taken in other countries versus what is happening in Malaysia, which leads to further erosion in their confidence in the country’s market.

“The retail sector does not need to be locked down completely as long as social distancing and clear guidelines and SOPs in terms of dos and don’ts adhere.

“Also, prioritise retail staff for vaccinations as they are just as important as other frontliners,” Murli suggested.

Moreover, Murli said some malls are being used as vaccination centres and this needs to be rolled out at a much faster pace.

“It would also help to distribute the load that the main vaccination centres are facing, as well as reduce the risk of further infection and clusters copping up due to the crowding of such centralised vaccination centres,” added Murli.

He stated that for example, some countries are setting up vaccination centres in malls, commercial areas and hotels to help disperse the crowd and make the vaccination process more accessible.

On the other hand, Murli said some of the foreign retailers that had already planned their entry into Malaysia are still going ahead, albeit at a much slower pace with some delays in the actual launch.

“This is again being seen mainly in F&B, while other categories of retailers would prefer to wait and see before activating or deactivating their entry or even expansion plans within the country.

“F&B seem to be slightly less pessimistic and they see opportunities to grab prime space at more reasonable commercial terms given a large number of closures by existing F&B operators,” he said.

Notably, the indefinite lockdowns and unclear strategy and timeline to vaccinate the population means rethinking investment plans for retailers, particularly foreign retailers.