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Prospects for the retail industry and the opportunities ahead

Posted on January 19, 2014, Sunday

On the threshold of a tough trail but retailers are optimistic

Higher prices of goods and services as a result of subsidy cuts may pave a tough trail for businesses in the year ahead. However, retail operators in Sarawak are bracing up with a dollop of optimism.

They are ‘quietly confident’ that sales for the year will be a bit more bustling compared to last year, in spite of the generally perceived gloomy business climate.

Their buoyant sentiment is supported by a few factors such as, more gains from higher number of tourist arrivals during Visit Sarawak Year 2014, the changing lifestyles of people as they demand better quality  goods and services and demographic factors such as a spike in population in Kuching and other parts of Sarawak as a result of the state’s urbanisation agenda.

With new trends in population growth in urban hubs such as Kuching, industry players believe that a ready market is available with an enormous growth potential. This is besides the expectations of capturing a larger aggregate of shoppers in the form of tourist-spending in the coming months. The relatively young retail industry in Sarawak adds another plus factor to perk up current industry confidence.

Meanwhile, retail players are seeking new ways and ideas to draw shoppers to their outlets through various advertising and promotional campaigns as well as point-of-sale events. The Summer Mall managing director Dato Lee Chee Fui said “2014 is going to be a ‘turning point’ for the local retail industry, although it will be a very challenging year ahead.

“The existing retail operators will face more challenges as consumers grapple with lesser disposable income and lower purchasing power arising from higher cost of living.

“Despite prices of goods and services going up, consumers may buy less but generally sales will still be growing.

“This is because, consumers need to spend during festive seasons and to replenish their supply of food and basic everyday needs.

“For Summer Mall, our customers have been increasing since we opened in July last year, which is a good sign for us. Our focus is different compared to other shopping malls as we are targeting the lower to middle income market due to our suburban location in Kota Samarahan,” he told BizHive Weekly.

He said, the retail house is offering goods which are affordable to the people living in the surrounding areas and at the same time attracting family groups and young adults to the mall. Going forward, Lee said he intends to make The Summer Mall as a one-stop shopping haven for the convenience of the people, especially family groups.

The Spring Shopping Mall manager Christine Ling said “Generally, the retail sector (excluding food and beverage) for 2014 in Kuching will still be quite stable.

“We will see food and beverage prices under pressure but we don’t foresee significant impact that will cause retail sales to be lower than in 2013.

“Sales for the festive season during Christmas last year was bullish and we are confident that sales for coming Chinese New Year (CNY) will be the same,” she said in an e-mail interview.

Plaza Merdeka Shopping Centre managing director Dato Steven Ng said “I think the retail sector in Kuching will mirror the rest of the country and that this might be a challenging year ahead.

“We are fortunate in that we (retail industry) are still relatively new and we are in our growth phase. Our strength has always been our iconic location and our success will greatly influence the success of the immediate neighbourhood,” he said.

He also noted that sales for Christmas last year was very positive which was in line with expectations and is looking forward to higher turnover during the CNY period as well.

Therefore, given such a challenging situation, industry players have placed various measures to attract more shoppers and pull in the crowd to their outlets to generate more sales.

Responding to challenges

Although prices of goods and services are going up, local retail players are well-prepared and have crafted  various strategies to drive up sales for the year.

These include bringing in new tenants, upgrading facilities at the shopping malls and organising events and activities that will enable shoppers to participate while shopping at their outlets.

Boulevard Shopping Mall (Boulevard) tenants and leasing manager Jeremy Sim said “Having a good retail mix is very important as we do not want to have a situation of tenant duplication.

“We will also try to introduce new brands to the people here to give them a refreshing shopping experience.

“Our latest addition has been Daiso Japan and we will be bringing in more new tenants this year,” he said, without revealing more on the potential new tenants who will be making their presence felt at Boulevard in the later part of the year.

When pressed further, he said the company will keep the public informed and make the necessary announcement on the new tenants at an appropriate time.

Lee said “We have planned a series of events to entertain shoppers while they are shopping at our outlet.

These include cultural performance and car shows, some of which are held during the weekend to draw shoppers to The Summer Mall.

On the other hand, Ling said “This year, besides the many events that our advertising and promotional department has planned out, we will again continue our Live Active Run 2014 which will be bigger and more attractive as compared to last year.

By record, we already have many events that we do to bring in shoppers,” Ling said.

She noted that the company has done its asset enhancement initiatives to upgrade its common facilities, for instance, lift corridors and family-friendly car parks, adding that its new special parking facility is well received by shoppers.

She pointed out that the next big renovation that the shopping mall will undertake is its food court which will be launched in May.

She revealed that there will also be many more new brands to come in 2014, adding that the shopping mall will continue to upgrade its facilities and expects loyal customers to continue to lend support to its business.

Ng said in conjunction with the CNY celebration, the shopping mall will be organising fireworks display scheduled for Chap Goh Meh, to pull in the crowd.

He added that the company’s advertising and promotional team is constantly working with its retailers to hold events during non-peak periods as well.

 

Opportunities in a changing landscape

While the challenge of rising cost of goods and services persist, it is just one of the many challenges that industry players will have to deal with besides the emergence of more shopping malls coming up in Sarawak.

On a broader perspective, the retail industry in Sarawak is poised to grow exponentially with more and bigger malls making their presence this year and the following years.

These include VivaCity Megamall in Kuching, Times Square Megamall and Bintulu Paragon in Bintulu and Senadin Gateway, as well as the Permaisuri Imperial City Mall in Miri.

VivaCity Megamall in Kuching with more than 1.2 million square feet (sq ft) of retail space is likely to welcome shoppers in the third quarter of 2015.

Additionally, Times Square Megamall which comprises more than 350,000 sq ft of retail space will open this year and Bintulu Paragon offers 1.4 million sq ft of retail space, will be launched in the near future.

Senadin Gateway, which consists one hyper mall with more than 300,000 sq ft of retail space and 104 units of three and four storey shop houses will be unveiled in phases soon while Permaisuri Imperial City Mall which was launched recently has a net lettable area of more than 300,000 sq ft.

Other than that, there will also be Mydin Supermall and Mydin Hypermarkets which are coming up in Kuching and the latest is The Forum, a mixed development project comprising commercial retail outlets, office suites and residential condominium units located at Jalan Stampin Tengah, Kuching.

The landscape of the local retail industry is changing and is moving towards providing a one-stop shopping centre for consumers rather than the traditional shopping centre which housed retail outlets.

For instance, some of the upcoming malls will be integrated with other developments which include hotels, entertainment parks, water theme parks, condominium and service apartments.

Retail players believe that this concept will provide convenience for shoppers while shopping for goods and services.

According to statistics, these mixed developments will support the expansion of the retail industry in Sarawak with more tourists expected to make a beeline to the state.

Sim said “In Sarawak, there are still opportunities for the retail industry to grow.

“As a mall developer, we did extensive market research such as studying the trend of the population and consumer behaviour before we embarked on further expansion.

“We foresee, that there is a changing trend as the number of tourists coming to Kuching and Sarawak on a yearly basis is increasing.

“The changing demographic, rising household income and lifestyle changes are also some of the factors which we have taken into consideration before we invest more.

“The statistics is the key information for the developer to decide whether to expand or not,” Sim said.

Ng revealed that Plaza Merdeka has achieved more than 95 per cent of occupancy rate at present and foresees that there are huge potential for the retail market to grow in Sarawak and specifically in Kuching

“There are always opportunities. “In terms of market share, the retail industry in Kuching is ranked number five behind the Klang Valley, Penang, Johor and Kota Kinabalu.

“We are constantly looking for good and quality retailers who can add value to the shopping mall,” he explained.

 

The pull factor

Sim noted that Boulevard Shopping Mall will be positioned as a family mall with entertainment, food, a cinema and retail outlets housed under one roof.

He pointed out that there will be more phases which include a hotel with 300 rooms, an entertainment block and a service apartment with over 200 units to be launched in the future.

Lee said “Our Lotus Five Star (LFS) cinema will open to the public in February and there will also be other entertainments such as a skate park and a lagoon water theme park at The Summer Mall.

“It is hoped that these facilities (skate park) will provide a training ground and exposure to the local people to enjoy and practice as it is hardly available in Sarawak,” he said.

Ng said new developments and facelift will help to attract more people to Plaza Merdeka, noting that all those developments are currently work-in-progress.

“Besides the existing historical landmarks, the covering of India Street Pedestrian mall with a link to Plaza Merdeka, there will also be a Golden Bridge across the Sarawak River at the foot of Jalan Courthouse.

“The revamping of the Courthouse Complex into a tourism and food and beverage hub will transform the neighbourhood.

“The opening of The Waterfront Hotel situated atop Plaza Merdeka will also be a key addition to the neighbourhood.

“Having said that, the most important thing is the human factor, namely the willingness of the neighbourhood to work together for a common cause.

“We are working closely with Dato Wee Hong Seng of the India Street Pedestrian Committee, the Kuching City Centre Merchants Association, Kuching City North Commission and the Royal Malaysian Police to further improve the neighbourhood,” he added.

While the integrated mall concept is not new and has been in existence in the Klang Valley for quite some time, it is aimed at attracting a large number of crowd especially tourists to shop and spend their money.

Renowned property developer such as Sunway Bhd has its Sunway Resort Hotel & Spa located adjacent to its water theme park,

while IGB Corporation Bhd which owns Mid Valley Megamall and The Gardens Mall is also the operator of Cititel Hotel.

Given such a trend, our retail industry which is relatively young is poised to capture a significant amount of tourist receipts in the future.

Developers observed that our retail industry has not reached the maturity stage and believe that the construction of other facilities for instance, entertainment parks will attract more visitors especially tourists to shop and boost their sales.

Apart from some of the new developments, the ability to attract more international renowned brands will also be a key attraction and draw more shoppers to visit local shopping malls.

Meanwhile, some of the local shopping malls have been working on to bring in new fashion and apparels brands such as

UNIQLO, H&M, Coach as well as food and beverage outlet such as Nando’s to provide more choices and convenience for the local people to shop here.

 Retail industry across Malaysia

On a wider picture, the retail industry in Malaysia is also expected to welcome more international players.

It was reported that leading French department fashion retailer, Galeries Lafayette with more than 60 stores in France and over 3,500 brands is seeking to penetrate the Malaysian retail market in the near future.

It is understood that officials from the company have been making several trips to Malaysia to look for suitable locations in Kuala Lumpur, Penang and Johor.

The retailer is believed to be interested to open its stores within the prime shopping area in Kuala Lumpur to complement high-end stores for instance at Pavillion Mall, Starhill Gallery and Suria KLCC.

Analysts believe that the entry of Galeries Lafayette will bring more excitement to the Malaysian retail market due to its wide variety of brands which are more than 3,500 and mostly not available in Malaysia.

At the same time, there will be more entries of retail mall in the Klang Valley with seven new malls estimated to open this year and another five to be refurbished and expected to be opened over the next few years.

These include D’Pulze, Nu Sentral, Jaya Shopping Centre, Sunway Pyramid Phase Three, Sunway Velocity Lifestyle Mall, Four Season Place and many others which will provide healthy development of the retail industry throughout the country.

Analysts are unanimously neutral on the prospects for the consumer sector in 2014 although the local retail industry is expected to witness modest growth.

The research arm of JF Apex Securities Bhd in a report said consumers turned cautious in spending amid anticipation of rising cost of living that would lead to lower disposable income.

The research firm believes that the retail industry throughout the country would take a hit as customers cut down their discretionary spending.

It opined that retailers in high-end products would experience slowdown in sales growth while forecasted that the retail industry to grow at a slower rate of two to four per cent in 2014 compared to an estimated six per cent growth in 2013.

The research firm expects weak consumer sentiment to persist into first half of the year as consumers have to tighten their belt in 2014 and be cautious in spending post several fiscal reform measures announced by the government.

It observed that consumer sentiment gauged in September 2013 continued to fall by seven per cent quarter-on-quarter to 102 points owing to the anticipation of subsidy rationalisation by the government.

Meanwhile, the research division of Maybank Investment Bank Bhd in a report said despite the headwinds from subsidy cuts, consumer demand will not collapse in 2014 amid stable economic growth and low unemployment rate.

It said while sales should continue to grow, margins could be flat as shoppers continue to favour value or marked-down merchandise.

The research firm believed retailers will be reviewing their pricing and marketing strategy in 2014 before the implementation of the goods and services tax (GST) next year.

On the other hand, RHB Research Institute Sdn Bhd (RHB Research) in a report said retail sales should be resilient in the first quarter of 2014 in view of the upcoming CNY shopping season.

The research firm believed that low to middle income earners will remain prudent in their spending, especially on non-essential items due to higher living expenses arising from the rationalisation of government subsidies.

It added, as the demand for basic necessities is usually stable and inelastic, the performance of food and beverage companies will depend largely on commodity prices and manufacturing cost.

RHB Research expects domestic consumer spending to remain resilient supported by high savings, low unemployment and stronger tourist arrivals in conjunction with Visit Malaysia Year 2014. To round it up, while consumer spending might be affected by higher prices of goods and services, retail players are revamping themselves to garner more sales and enhance their assets with more international brands.

Looking ahead, some property developers who are also retailers are planning to inject some of their retail assets and turn them into a real estate investment trust which will further unlock the values of their assets.

Thus, this will further boost the value of the company and deliver greater value to their shareholders.

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