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Retail Outlook 2005
Higher consumer spending to drive KL’s retail growth
The retail industry has been improving steadily last year in the aftermath of the SARS (severe acute respiratory syndrome) outbreak in the region. The growth rate up to the third quarter was pegged at 7.6% but is expected to end the year at 7.7%, giving it a very slight lead over the country’s GDP growth.
Retail consultant Tan Hai Hsin of Retail Group Malaysia says prospects for the industry are good, with growth projected at 8%. Bank Negara (Malaysia’s Central Bank) forecast for GDP growth is 6% in 2005.
A worrying factor is the rising inflation rate as the prices of consumer goods and services (from festive goodies to petrol prices and toll rates) have been gradually rising since mid-2004. Tan says Malaysian consumers have, however, undergone an adjustment period between the second half of last year and the first half of this year.
“Many economists expect the Malaysian economy to slow down this year due mainly to the current oil crisis. We, however, expect consumer spending to be strong despite the lower economic growth rate. Overall, the economy is still at a healthy stage with the prospects of the job market remaining stable and the stock market vibrant.
“Furthermore, it is timely for the retail industry to return to a healthy level with its annual growth rate exceeding GDP growth rate. During the pre-crisis period, the retail industry growth rates had always been about 1%-3% higher than yearly GDP growth rates,” he says.
On other retail industry trends, Tan says the hypermarket sector that include players like Giant, Carrefour and Tesco will continue to perform well and will capture an enlarged market share from the supermarket sector with its wider variety of food products and competitive pricing attracting more consumers.
“Malaysian retailers will still need to use price discounts, free gifts, lucky draws, loyalty programmes, advertisements and instalment schemes to attract shoppers to buy more in 2005. However, price wars among the major supermarket and hypermarket operators may not be so intense this year as compared to the past few years,” he says.
The price war has been particularly intense among the grocery retailers, particularly hypermarkets, in the past few years. This was evident in the many campaigns where everyone was proclaiming rather loudly that they were cheaper than the others and even “cheapest of the cheapest”.
The patronage at one-stop shopping convenience has been gaining an edge since the Asian financial and economic crisis in 1997. The value-for-money merchandise and stores with strong brand names like Padini, Nike, Swatch, Popular, Jaya Jusco and Ikea are also winning more consumers.
“There is also a greater focus on quality of life since the Asian crisis. Thus, insurance, beauty-care, hair-care and health-care products have become more popular. Malaysian consumers are now willing to pay extra for goods and services that are emotionally important to them. They also want better bargains for products like groceries that are not emotionally important to them (hence the popularity of hypermarkets),” Tan says.
Malaysian consumers, whose spending power was diverted to automobiles, property investments and services like telecommunications and insurance during the Asian crisis because of the irresistibly low interest rates, low down payments and long repayment periods, are now putting their money on the “good life”.
Fashion and accessories — the best performing retail sub-sector in recent times — may continue to enjoy double-digit growth. It will also be an optimistic year for the other lifestyle and speciality stores retailing photographic equipment, optical products, sporting goods, toys, jewellery, fitness equipment, gifts, and arts and crafts products.
The furniture, electrical and electronics retailers, who saw a dismal performance in the second half of 2004, may enjoy better sales with the completion of more housing projects throughout the country this year.
Other retailers likely to enjoy a good year include those catering to the tourist trade, though it is not known how the fallout of the catastrophic tsunamis that hit the region at year-end will affect the tourism business. Malaysia has also announced the reduction of its mega-sale carnivals from three to one yearly.
Another blotch for this sub-sector is the prospect of the introduction of the goods and services tax, announced during the national budget speech last September, though retailers will not be encumbered by it until 2007.
The Malaysian retail industry, which has been seeing a number of businesses changing hands, may not see any major consolidation this year. Recent mergers have included Parkson’s takeover of the Aktif Lifestyle department stores and a few locations previously tenanted by Ocean, Giant’s takeover of Tops and Aktif Lifestyle supermarkets, The Store buying over of Pacific, Fajar and Milimewa, and the teaming up of Ocean and Hiong Kong.
Convenience store Watson also took over the entire chain of Prima Health pharmacies and it was planning to buy over Apex pharmacy but was recently turned down by the Foreign Investment Committee (FIC).
“After a period of merger, acquisition and consolidation during the past few years, local department store cum supermarket operators have started their plans for expansion in 2004 and will continue [to do] so in 2005,” Tan says.
More affluent products and creative store concepts have also entered the market. Successful retailers, however, find the ‘me-too’ syndrome alive and well in the industry. A good example of this is seen in the spread of gourmet bakeries that started with the Breadstory and was soon followed by Bread History, Bread World, Breadtalk ...
Even ordinary bakeries now claim to offer gourmet breads. Rotiboy’s popular coffee-flavoured Mexican buns is among the most-copied bread in town, sold by ‘me-too’ stalls in almost every shopping centre, and even wet and night markets. Kim Gary, who has found a huge following with his Hong Kong-style restaurant concept, has also a number of copycats hot on his trail.
Affluent Malaysians are also talking excitedly about the new retailers and entertainment centres coming to town. IMAX theatre recently opened in Berjaya Times Square and Movenpick Marche also opened in The Curve shopping centre. Borders will be opening next year in Berjaya Times Square.
“We do expect more overseas fashion brands to be brought in by local retailers. We also expect to see the opening of a few new franchises of popular F&B concepts from overseas in the country,” Tan says.
As for shopping centres, there will be an additional 3.23 million sqf of retail space in 2005 in the Klang Valley area. Several shopping centres are opening this year, including Galaxy Ampang, Tesco Kajang, Giant Kajang, Tesco Shah Alam, Centrepoint Bandar Utama Phase 2, Jaya Jusco Balakong, Cineleisure Damansara, Carrefour Kepong, Bangsar Village Phase 2, Mydin Hypermarket USJ, Hartamas shopping centre and Shah Alam City Centre.
Tan says cheap imports from China have also begun flooding the market in the past few years and are changing the rules of the game in the retail industry. Many retailers no longer need to rely on local wholesalers and importers for stocks.