Malaysia: Big spenders
Posted on December 11, 2011, Sunday
As hypermarkets change Malaysia’s shopping landscape and economic pressures squeeze profits, the country’s retail sector should continue to maintain a healthy growth rate and become increasingly competitive.
Indeed, the October edition of the Malaysia Retail Industry Report, published by Business Monitor International, found the sector’s sales grew by 9.1 per cent in the second quarter of 2011, which was unexpectedly higher than the 5.8 per cent growth recorded during the same period in 2010.
The sector’s growth rate for the first six months of 2011 was 8.2 per cent and sales were expected to have risen by more than 10 per cent for the third quarter of 2011. Moreover, retailers were optimistic about continued growth for the rest of the year, encouraged by the middle class’s growing disposable incomes and low unemployment rates.
“This latest quarterly result was 28 per cent lower than the earlier estimate by retailers (at 12.6 per cent) during the middle of this year. However, it was higher than the forecast made by Retail Group Malaysia at seven per cent,” Tan Hai Hsin, the managing director of Retail Group Malaysia, which compiled statistics on the sector, said in the report.
Tan reasoned that the higher growth seen during the second quarter was partly due to the lower base during the same period in 2010, which had the lowest quarterly growth for that year.
In the long term, continued growth in the retail sector seemed to be highly likely due to certain demographic fundamentals. The World Bank ranks Malaysia as an upper middle-income country, with its proportion of middle-income households estimated at more than 50 per cent.
The country also had a growing urban contingent that was willing to spend its disposable income, with the average urban household spending almost twice that of a rural household between 2004 and 2005, according to the Department of Statistics Malaysia.
With the country’s population expected to increase to 30 million by 2015, GDP per capita was predicted to rise almost 45 per cent, from US$9,686 in 2011 to US$14,019 in 2015.
Additionally, with the UN projecting that the urban population would account for almost 76 per cent of Malaysia’s total population by 2015, the obvious conclusion was that the country’s retail outlets and mega-malls were likely to continue to increase their sales.
This was especially good news for retailers, as the government’s recent announcement that it would abolish import duties on about 300 luxury items, to go into effect from January, was expected to spur a sizeable influx of luxury brands to the country.
Like much of Asia, Malaysia was in love with mega-malls, and many urban consumers chose to spend their money at the high-end Pavilion or Suria KLCC rather than local family-run shops, as was the case not so long ago.
Add to this the fact that large foreign hypermarkets such as Tesco and Carrefour were now dominating the retail landscape and it was easy to see why many local players – who may lack the requisite expertise and financial resources – were finding it difficult to compete.
These large foreign retailers had been expanding aggressively in Malaysia, ousting many local players from their former leading positions on the retail ladder and further fracturing an already fragmented market.
While Malaysia’s Giant remained the country’s retail leader with 5.6 per cent of the market share, Tesco was now number two with 3.8 per cent. AEON Group was in third place with 2.6 per cent and Carrefour held fourth place with 1.7 per cent.
Only three other local players – Store Corp, Econsave Cash & Carry and Senheng Electric – were in the top 10 in terms of market share by retail value, according to industry sources and government statistics.
As grocery retailers – particularly the hypermarkets – began to stock non-grocery products like clothes, furniture and home appliances, they were also encroaching on the traditional domain of non-grocery retailers. According to the retail industry report, however, neither group seemed to be feeling the pinch so far.
“The department store-cum-supermarket operators are expecting their businesses to improve further from the second quarter of this year,” Tan said in the report. “For the third quarter of 2011, they expect their businesses to grow by 9.9 per cent. Department store operators also expect their businesses to rise further during the third quarter of this year with a growth of 9.6 per cent.”
For now, middle-class urban customers were keeping their wallets open, but as uncertainty hung over many Western economies and the costs of goods rose because of higher transportation and manufacturing costs – caused in part by the on-going conflicts in oil-producing nations – retailers would be forced to either absorb the increasing cost of goods themselves or pass the increased costs onto customers. Either way, intensified competition was expected to continue for the foreseeable future.