Retail industry cementing its footprint in the nation’s economy
by Emy Lindsay, firstname.lastname@example.org. Posted on August 12, 2012, Sunday
Retail today is a combination of revolution and evolution. The retail industry is very broad and it will continue to evolve and change. To put it simply, retail is the sale of goods and services from individuals or businesses to end-users.
With increasing interest in non-store retailing (catalogue and online shopping), companies will have to redefine and plan new shopping environments that make the shopping experience as enjoyable as possible.
In an exclusive email interview with BizHive Weekly, Retail Group Malaysia (RGM) managing director, Tan Hai Hsin said that overall, the performance of the world retail industry was weak.
According to RGM, retail sales growth in the first quarter of 2012 was estimated at a conservative figure of 10 per cent after achieving 11.5 per cent in the fourth quarter in 2011. RGM was projecting a six per cent growth rate for Malaysia retail industry in 2012.
Tan said that for 2012, RM88.2 billion of sales was anticipated with a projected slower growth of six per cent compared with 6.5 per cent in 2011, in view of the European debt crisis, job uncertainties and an anticipated reduction in credit card spending.
Nielsen’s Global Survey on Consumer Confidence and Spending Intention revealed that Malaysians were more cautious with their spending nowadays, adding they were spending less on new clothes and out-of-home entertainment and switching to cheaper grocery shopping due to the growing concerns over the weak economy, job security and increasing food prices.
The recent revision in civil servants’ pay package and the proposed country’s minimum wage set at RM900 is set to inevitably benefit the retail industry as these measures will boost household incomes as the lower income group will have extra ringgits to spend.
“Retail industries that are thriving now are in China, India, Brazil, Indonesia, Australia and South Korea. Meanwhile, the performance of the retail industry in Malaysia is still at a healthy level,” he pointed out.
Explaining the outlook of the retail industry in Malaysia, Tan clarified that for the last three months, retail sales had slowed down slightly as a repercussion of the slow growth of the world economy.
He cited the notorious sovereign debt crisis that had enveloped major European countries that had not turned positive, coupled with the slow recovery of the United States economy which had not been at a sustainable pace.
In addition, the world’s second biggest economy, China had been experiencing slowing exports and declining domestic demand due to the effect of the weak US and European macroeconomy.
“All these factors are worrying and Malaysian consumers remain cautious in their spending,” affirmed Tan although he acknowledged that the first four months of this year were encouraging because of several incentives introduced by the government late last year that spurred consumer’s spending power.
He reasoned that the en
couraging retail sales for the first four months was largely contributed by the 1.2 million government servants who had received higher salaries beginning this year.
Without a doubt, government civil servants accounted as the biggest workforce in the country, hence with more disposable income to spend, it would certainly inject a positive outcome for the nation’s retail industry.
“The government had also disbursed a one-off RM500 aid under the Bantuan Rakyat 1Malaysia (BR1M) to almost four million households whose income are less than RM3,000 per month in the month of March to May,” he added.
Not forgetting also, the government had presented the one-off RM100 in cash that was given to school students from Primary One up to Form Six and RM200 book vouchers to all pupils who were in the tertiary education level, all of which had boosted sales in bookstores nationwide for the first quarter of this year.
Consequently, all these so-called ‘free gifts’ have increased retail spending from the masses during the early part of this year.
Whilst the first quarter of 2012 showed robust retail spending by the masses, however costs of retail goods would continue to rise this year at moderate levels due to rising cost of raw materials and increasing transportation costs.
Tan elaborated that since January this year, banks had tightened their lending credit to end customers. New loan approvals were based on nett income rather than gross income of applicants.
Furthermore, credit card spending by some 3.3 million principal credit cardholders in the country would be reduced as well by this year due to the new guidelines sanctioned by Bank Negara Malaysia to control the credit limit and number of credit card issuers allowed for each card holder.
Plus, banks had also raised the interest rates on outstanding credit card balances of the cardholders to penalise payors who lapses making their monthly payments.
“The cost of running labour-intensive retail businesses has gone up due to higher employer’s EPF contribution (one per cent increment for monthly salary of not more than RM5,000), lest with the higher cost of businesses, it will lead to higher prices on retail goods and services,” Tan explained.
“Inevitably, all these factors
will continue to affect the purchasing power of Malaysian consumers and thus, affect the sale of high-value consumer goods including car, houses, electrical and electronics products, furniture and others.
When asked on his opinion of the immediate future of the retail sector, Tan said it was hard to gauge if retail sales would perform better in the second half of this year with the impending general election that could affect consumers’ sentiment levels, though not affecting their spending power greatly.
“We may expect improvement in retail sales after our Prime Minister makes his annual budget announcement sometime in September this year. Nevertheless, retail sales will improve in the next few months due to the Hari Raya celebrations and year-end holidays,” he said.
Elaborating on Malaysians’ shopping habits, Tan reckoned that long ago prior to 1998, Malaysian shoppers were enjoying an economic boom as they were spending to improve their social status and lifestyles.
“However, when the financial crisis started towards the end of 1997 in Thailand and it quickly spread throughout the Asian countries, Malaysian shoppers cut down their expenditure drastically, because they were struggling to pay off their huge personal loans and credit card debts,” he said.
During that period, many people lost their jobs or suffered from salary cuts. Then after the crash of the Asian economy in 1997 which took about three years to recover, Malaysian consumers spent more only during sales and big discount soffered by retail shops and malls.
“They look for low-priced products and services regardless of the quality and brand name. During that period, full-price and branded stores suffered from poor sales, while wholesalers, warehouses, sale organisers and importers of cheap China-made goods were enjoying good businesses. During that period, ‘value-for-money’ was directly related to price.
“Since the mid 2000s, Malaysian shoppers have begun to learn how to live a meaningful and healthy lifestyle. They are now smarter shoppers, they demand for good quality products and services at low prices. They demand for goods and services that will improve their life and make them feel good. ‘Value-for-money’ relates to both price and the intangible values such as ‘the feel good factor’,” added Tan.
On the emergence of online shopping due to IT dominated business nature, when asked whether it was a threat to the brick and mortar retail stores, Tan agreed that online shopping was growing fast in Malaysia, but they would not replace retail stores anytime soon.
“Not at least in the next 10 years,” he noted adding that many people buy online not solely because of the lower price reasoning that goods sold via internet were supposed to be cheaper but because the cost of operation was lower than running a retail store.
He stressed that for a retailer to be successful, it needed to integrate physical store with online technology, saying that Malaysian brick-and-mortar stores have already embraced online technology.
“Retailers integrate and connect with shoppers via online using social networking websites such as the popular Facebook and Twitter. At the same time, online retailers are moving to physical stores. We have noticed many retail entrepreneurs started their businesses online and moved to physical stores after they have established themselves several years later,” he concurred.
To a question on how big was the online shopping growth in Malaysia since it started during the implosion of internet connectivity, Tan opined that it was still small and they represented not more than five per cent of the total retail sales in the country, adding that it would have a double-digit growth rates annually.
On the topic of foreign direct investment (FDI) in the Malaysian retail industry, he disclosed that there had been no major retail FDI in Malaysia recently as large retailers were not that keen to invest in the Malaysian retail market due to its limited market and consumer size as compared with our neighbours such as Thailand and Indonesia.
He revealed only two big retailers from Thailand and South Korea might be entering the Malaysian market next year with their respective retail store brands, Central and Lotte.
“However, there have been numerous branded specialty retailers that have entered Malaysian shores during the last two years, they include Michael Khors, Steve Madden, French Sole, DC, Uniglo, Muji, Garret Popcorn, Inglot, Pantry Magic, Melvita, TWG, Victoria’s Secret and H&M will be opening soon,” Tan revealed.
Apart from clothing, there are other food and beverage retailers that have also made an impact on Malaysian consumer such as the popularity of drinking Taiwanese tea, nowadays many Taiwanese tea franchises have mushroomed throughout the country.
In Klang Valley alone, Tan said there were more than 20 Taiwanese tea franchises such as Chatime, Come Buy, Gong Tea, Ding Tea, Share Tea, Drink Tea, Blackball, YoFresh, Kungfu Tea and GeorgPeck to name a few.
On whether there was over supply of retail spaces in Malaysia’s open market, he said as the population kept increasing and influx of foreigners working in the country, coupled with the aggressive tourism to promote Malaysia to the world and attract more tourists arrivals into the country, the need for more retail spaces with contemporary design will be created and utilised.