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FOLLOWING a challenging two years, the Malaysian retail industry is gearing up for a much needed recovery in 2022.
Retail Group Malaysia (RGM) in its latest Malaysia Retail Industry Report is projecting a 6% growth rate for the industry next year. “The Malaysian retail industry looks forward to a recovery from the covid-19 pandemic of almost two years. However, few challenges remain.”
The report notes that the number of daily positive cases still remains worrisome. “A potential fourth-wave pandemic is haunting Malaysian retailers. Malaysian non-essential retailers cannot afford another forced closure of physical stores.
“A new Covid variant discovered recently is now spreading rapidly across the world. This will affect the economic recovery around the world as well as in Malaysia.”
RGM points out that the Malaysian government has decided to delay the country’s transition into the endemic phase due to the uncertainties created by the new variant.
“Foreign tourists’ arrival may be affected due to the current virus development. This will affect retail businesses that have been dependent on leisure travellers.
“The recent spike in prices of many consumer goods may continue next year. Rising cost of living will affect the purchasing power of Malaysian households in 2022.”
RGM says it expects the local retail industry to gain momentum in terms of recovery by the end of this year.
“For the fourth quarter of 2021, the estimated growth rate has been revised upwards from 12.7% (estimated in September 2021) to 18.3%.
“Retailers are hopeful that retail sales will climb higher in December this year due to two upcoming major festivals, namely, Christmas and Chinese New Year.”
Fitch Solutions in a recent report, meanwhile, says retail sales in Malaysia have been severely impacted by the Covid-19 pandemic and its resultant restrictions.
“Over 2021, retail sales grew 4.3%, but this is overstated by the low base effect created in 2020, after retail sales contracted by 5.3%.
“This high frequency data suggests that retail sales in Malaysia have still not recovered to pre-Covid-19 levels.”
Comparing retail sales in 2021 to that of 2019, Fitch Solutions says sales remain at 1.2%.
“Malaysian authorities have continued to implement stringent restrictions over 2021, largely in sync with rising Covid-19 cases.
“Higher vaccination rates are needed for these two to be decoupled and allow for a broader recovery in retail sales from 2022 onwards,” it says.
Meanwhile, RGM has revised downwards its retail growth projection for 2021 to 0.5% from 0.8%, initially.
“In September this year, RGM estimated a 0.8% growth rate in retail sales for 2021.
“However, this projection needs to be revised downwards again, taking into consideration the worse-than-expected growth during the third quarter, as well as a revision of estimates in the fourth quarter.”
For the third quarter of 2021, RGM says the retail industry growth plunged 27.8% year-on-year.
“Retailers in Malaysia operated with strict social distancing measures under the recovery movement control order (MCO) during the same quarter a year ago.
“On the other hand, most retailers were forced to shut down during the first half of the third quarter of 2021.
“The enhanced MCO was enforced in large parts of Selangor and selected locations in Kuala Lumpur from July 3, 2021 and ended on July 16, 2021.
“Retail businesses in the largest retail market of Malaysia were badly hit during this critical period.”
RGM notes that from Aug 16, 2021, more retail businesses under the first phase of the National Recovery Plan had been allowed to open.
“When the government relaxed restrictions on the number of passengers in a vehicle, as well as the limit of travelling distance on Aug 21, 2021, shopping traffic in major shopping centres gradually returned.”
Additionally, cinemas, entertainment centres and beauty salons were allowed to open from Sept 9, 2021 for fully vaccinated individuals, RGM says.
“However, most of these businesses only began opening to the public a week or more later after finalising standard operating procedures with the relevant government departments.”
On the performance of the various retail sub-sectors, Fitch Solutions notes that supermarkets, hypermarkets and department stores were permitted to operate during even the strictest of Covid-19 related restrictions.
“As such, sales performance has been positive, albeit not as good as specialised food, drink and tobacco stores.”
From January to September 2020, Fitch Solutions says sales of supermarkets, hypermarkets and department stores grew 1.8% year-on-year (y-o-y).
“Growth over 2021, at just 0.6% y-o-y, was more stagnant, but still at a much higher level than that of 2019, the pre-Covid-19 environment.
“Comparing 2021 sales to that of 2019, retail sales were 2.4% higher than pre-Covid-19 levels.”
Fitch Solutions says the food, drink and tobacco sub-sector had been one of the best-performing segments in Malaysia throughout the pandemic.
“As a result of the Covid-19 pandemic and its resultant economic impact, consumers quickly shifted their spending into essential items, to make sure their needs were met during periods of lockdowns and restrictions.
“With Malaysia experiencing increasingly worse waves of the virus over 2021, this emphasis continued into the year, with sales growing 4.1% y-o-y (for the January to September period).”
Additionally, Fitch Solutions says the consumer electronics category was another outperforming sector in Malaysia, largely as a result of consumers adapting to the new reality of Covid-19 restrictions.
“This category covers sales of computers, video game consoles, telecommunications equipment, audio and video equipment. Sales of these were impacted quite severely in 2020 (January to September), contracting by 7.5% y-o-y.
“However, as consumers adjusted to spending more time at home, items in this consumer category were key to entertainment spending.
“As such, there was a healthy rebound in sales over 2021, growing by 9.5% y-o-y.”
Consequently, Fitch Solutions says sales over 2021 were 1.3% higher than sales in 2019, the pre-Covid-19 environment.
Meanwhile, sales of household goods performed poorly during the pandemic, says Fitch Solutions.
“Sales contracted by 11.6% y-o-y in 2020, as physical stores selling these items were forced to close under the strictest restriction levels.
“While sales did somewhat rebound over 2021, growing by 9.5% y-o-y, this was mainly a result of a low base from which to grow.”
Comparing 2021 to pre-Covid-19 levels, Fitch Solutions says sales of household goods over 2021 were still down 3.7% on sales in 2019.
“We have highlighted in the past that Malaysia does offer an attractive market for household goods retailers, with government incentives and an expanding real estate market with first-time home owners being key consumers of household goods.
“Despite still having some attractive fundamentals, we believe this trend has been significantly impacted by the economic realities of Covid-19 on household disposable income levels.”
Meanwhile, cultural and recreation goods were the worst performing segment during the pandemic, says Fitch Solutions.
“Over 2020 (January to September), retail sales through this channel contracted by 14.3% y-o-y.
“Despite posting a growth of 8.9% y-o-y over 2021, retail sales are still 6.7% lower than that of pre-Covid-19 levels in 2019.”
Products under this category range from big-ticket (fishing equipment, camping goods, boats, bicycles and related) to smaller items (office supplies, books, newspapers, stationary and musical records).
Fitch Solutions points out that many retailers under this segment were not permitted to operate during the strictest of restrictions.
“Additionally, the impact that Covid-19 had on disposable incomes in the country has meant that consumers cut back significantly on big-ticket items.
“While we still hold the view that there was an increase in sales of smaller cultural and recreational items, it was not enough to offset the drop in sales on big-ticket items.”