Retail sector to have rocky year ahead

Rising cost of living remains the industry’s biggest challenge, while inflation will affect the growth rate 


MALAYSIA’S retail industry is expected to go through a rocky 2023 due to the rising living costs and increasing costs of doing business, among others. 

The Malaysian Reserve (TMR) contacted several retail associations to obtain their clear views on the sector’s expected situation in 2023. 

For the new year, there will be a reduction of personal income tax contribution by 2%, says Tan

Retail Group Malaysia MD Tan Hai Hsin stated that although the retail industry is expected to grow 3.5% in 2023, the rising cost of living remains the industry’s biggest challenge, while inflation will affect the growth rate. 

“The expansion in 2022 was unprecedented. It will never happen again unless retail businesses are forced to close for an extended period. The retail industry’s forecasted 3.5% growth rate in 2023 simply means that it is normalising or returning to normal,” he further explained. 

Previously, the sector’s growth rate was estimated higher at 41.6% in 2022. Pre-Covid time, the sector also recorded a positive growth rate with 3.7% in 2019 and 3.9% in 2018. However, during the peak of Covid-19, the sector’s growth rate dived into negative territory with -2.3% in 2021 and -16.3% in 2020. 

In its Malaysia Retail Industry Report (November 2022), it stated that higher retail prices increase the cost of living, which equals having less money to spend on non-essential goods and services. 

Commenting on other issues yet to be resolved in the retail sector, Tan said there are no major issues affecting the retail industry at the moment due to Malaysian consumers returning to their usual shopping behaviour and patterns. 

However, he highlighted two concerns that would affect the sector’s growth, namely Budget 2023 and foreign tourist arrival. 

He opined that the various monetary incentives announced during Budget 2023 in October 2022 previously will help to subsidise the higher prices of necessities for the bottom 40% of income group (B40) and middle 40% of income households (M40) in 2023. 

“For the new year, there will be a reduction of personal income tax contribution by 2% which will encourage employees to channel the extra money to retail spending every month. 

“Furthermore, in Budget 2023, the government has allocated RM55 billion for subsidies, aids and incentives to alleviate the cost of living. This will ensure costs of fuel, rice, chicken, cooking oil, flour, egg and many other necessities remain affordable to Malaysians,” he further added. 

For 9M22, Malaysia received 5.5m foreign tourists (pic: Bernama)

On the arrival of foreign tourists, he stated that more actions are needed to attract foreign tourists to visit Malaysia which in turn, will contribute to higher retail sales in 2023. 

“For the first nine months of 2022, Malaysia received 5.5 million foreign tourists. The latest target for the entire year by the Tourism, Arts and Culture Ministry was 9.2 million foreign tourists. 

“For 2023, the government targets to attract 15 million foreign tourists with tourism receipts of RM47.6 billion. However, this was still way below the foreign tourist arrival in 2019 at 26.1 million,” he further explained. 

Previously, RM25 million was allocated in terms of discounts and vouchers by the government to encourage domestic travel among Malaysians. In addition, a budget of RM200 million was allocated for tourism promotional activities to encourage more international tourist arrival. 

Nevertheless, he opined that incentives and allocations for both matters may be changed following the formation of a new federal government following the 15th General Election on Nov 19, 2022. 

However, he remains cautious on the growth of the retail sector to maintain and sustain the recovery the retail industry has already achieved following the expected recession in 2023 and opined that it depends on the economic situation next year. 

“In the event of a recession, Malaysian consumers will reduce spending, which is unavoidable. The local consumers will turn cautious in their spending when their take-home pays dropped due to a slowdown in the economy,” he added. 

Highlighting the changes in spending habits that will happen next year, he said: “The consumers will cook more at home and dine at restaurants that offer affordable meals, buy lesser non-essential goods or buy second-hand branded goods and shop less on high-value goods.” 

On the other hand, Malaysia Retailers Association (MRA) expects sales for the first quarter of 2023 (1Q23) and part of 2Q23 to be good due to Chinese New Year (CNY) and Hari Raya Aidilfitri, while the rest of 2023 will be challenging. 

The association’s representative stated that higher sales do not translate to higher margins and profit as they are expecting costs of doing business to increase in 2023 due to the impact of the revision of Employment Act, tight labour market, supply chain, as well as the drastic increase of electricity tariff (due to removal of subsidy) and financial cost (higher interest rates). 

“As 1Q23 will be fine, the second part of 2Q23 will be tough while the remaining quarters for 2023 will be extremely difficult. The industry will be challenged by higher costs of doing business, some of which will be passed on to consumers. Despite the higher price, supply will remain tight, putting additional pressure on prices,” the representative added. 

Furthermore, the representative stated that 2023 will be difficult due to the three largest economies — the US, Europe and China — that may enter a recession, and Malaysia, as a net exporter, will also be affected. 

“Back home, the pressure on another Overnight Policy Rate hike next month, the implementation of the Employment Act amendments and inflation will all put pressure on operating costs. 

“While the 1Q and 2Q may be able to absorb the negative shocks due to higher sales during the two festive seasons of CNY and Hari Raya Aidilfitri, the 3Q will be extremely difficult due to the full impact of those negative shocks. What lies ahead remains to be seen, but there is still uncertainty,” the representative further explained. 

Additionally, MRA hoped that the reopening of China’s borders on Jan 8 will help cushion some of those negative shocks with business from Chinese tourists, as well as urging the government to consider gradual implementation of regulations (such as the Employment Act amendments) or the elimination of any subsidy (such as electricity tariffs) to avoid a significant impact and effect on businesses. 

Some of the proposed changes to Malaysia’s Employment Act are in effect while some will only be implemented in the second half of 2023. 

According to Asean Briefing, the amendments — among other things — allow employees to request flexible working arrangements, increase paternity leave and provide greater protection against all forms of harassment and discrimination. 

However, the Employment Act amendments do not apply to all employees. Employees earning less than RM2,000 per month or less, manual labourers, domestic servants and those employed in the maintenance of mechanically propelled vehicles or on seagoing vessels are exempted from the Employment Act amendments. 

  • This article first appeared in The Malaysian Reserve weekly print edition