Sunday, March 7

Too many malls, or a dying breed?

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It’s a story with a recurring theme: Sarawak’s commercial property is set to stay challenging  as transaction rates fall and occupancy rates plunge in most shopping malls.

Unconvinced? Try walking into one of the many malls in Kuching. Chances are, you will come across empty shoplots or pulled-down shutters with signs soliciting available rental of  space.

According to a property bulletin by CH Williams Talhar Wong and Yeo Sdn Bhd (CHWTWY), parent company of the local real estate agency WTWY Real Estate Sdn Bhd (WTWY), the retail market for Sarawak in 2016 has been rather stagnant throughout the state.

In Kuching alone, only the completion of a few smaller retail developments were seen, mostly in the form of hypermarkets such as Giant at Petra Jaya, Matang Mall; Mydin at Vista Tunku and Mydin Samariang.

Another three malls are currently underway, namely Aeon at Central Park, Emporium at Tun Jugah and Moyan Square at Matang, which are expected to be completed within the next two years.

(SOURCE: WTWY Property Bulletin 2017)

With this oversaturation coming to play, CHWTWY observed that transaction rates in Kuching have fallen and occupancy rates for malls within the city had plunged to an average of 70 per cent for most shopping malls.

 

Optimistic of Bintulu and Miri

In other domestic markets like Sibu, no retail projects were even launched at all in 2016 as transaction activity stayed limited and occupancy rates for existing retails were maintained.

In Bintulu, the situation got worst as CHWTWY reported that average rates for Bintulu malls was at an all-time low at around 67 per cent. Malls located in the CBD, however, enjoyed higher rental rates and occupancies.

Despite the uninspiring retail outlook in Bintulu and slowing market sentiment, retail development efforts held steadfast with the completion of two new malls, Times Square Mall and Commerce Square Mall in 2016, with two more upcoming malls, Paragon Street Mall and Crown Pacific Mall, slated for completion soon.

Due to this, CHWTWY anticipates that the sector in Bintulu will become highly competitive and occupancies rates are expected to slow down even more.

Only Miri’s retail market remained rather optimistic, posting average occupancy rates of 83 per cent in shopping malls with malls in the CBD area enjoying a higher rate as compared to those located in the suburbs.

Newer shopping malls like the Permaisuri Imperial City Mall in particular have experienced great take up rates reported the agency.

“However, for the coming year, it is anticipated that the sector will be subdued as the overall market slows down.”

The real estate agency explained that this was partly due to a steady increase of retail supply for the past five years with one new mall being completed and launched almost every consecutive year.

 

How much is too much?

Just looking at the statistics provided by CHWTWY, it is clear that our retail development is far outpacing our actual needs in terms of malls as average rental rates across most major regions within the state have taken a dip in 2016 compared to the previous year.

“The average rental rates have dropped for the retail sector as a whole, especially for the older malls struggling to maintain their occupancy.

“For Kuching, average rental rates are subdued at around RM7 to RM8 per square foot (psf) with better performing malls offering at most around twice that rate.

“This is much less than the rate of RM20 psf that we enjoyed during the peak of retail property in previous years,” the bulletin commented.

The harsh truth prevails: This is not just affecting local malls all around the state. Newly built commercial shop office units lots are also left empty as owners struggle to find prospective tenants.

It’s a head scratching sight to see some of these shop lots empty for months on ends despite being strategically placed right smack bang in the CBD area, near to schools, hospitals or residential areas.

 

Oversupply of retail space persists

So why exactly is this happening? There seems to be plethora of reasons ranging from poor economic climates to changing market sentiments.

However, a common consensus highlighted by retail analysts and industry heads is that we are oversaturating the retail market.

While more developments are to be expected in any state, with a population of only 2.636 million people, perhaps Sarawak is cutting it a bit too close with all these malls.

Allen Sim, director of Coramax Sdn Bhd, VivaCity Megamall’s management believes this to be true and forewarns of an oversaturated market if nothing is changed.

“There are already quite a number of malls within the state and retail density is starting to reach its peak and at the current rate malls are growing, it is not going to be easy for the retail industry.

“You just can’t build that many malls; the market just can’t take it.”

Sim explained to BizHive Weekly that this fast pace of development is due to an overestimation of the population growth in Sarawak.

“The population is just not growing as we had anticipated as many the younger generation who have gone overseas for studies are not willing to come back. This includes families who have chosen to migrate to other countries in hopes of greener pastures.

“Factoring in this increased migration and urban migration, I think Sarawak’s population growth in general is only around two per cent, not nearly as high as we need it to be to accommodate for our retail growth.”

Chiming in on the discussion is general manager of tHe Spring’s management, PE Land Sdn Bhd, Ronald Ling who agreed that there was definitely a current oversupply of retail space but not necessarily in State yet.

“There is certainly an oversupply or malls currently, especially in the Klang Valley but the situation in Sarawak in my opinion is still manageable.

“It is important to note that not all sectors in the retail market are doing badly. Food and Beverage (F&B) and supermarkets/hypermarkets are still doing quite well and maintaining their sales.

“Because even in a down-market, consumers still need their daily necessities and weekly ‘splurges’ – which is usually in the form of dining. Humans are sociable creatures after all.”

While there is validity in both arguments, perhaps Ling is onto something as our state’s current supply of retail space still stands at a fairly moderate 6.94 million square feet (sqf) with a projection to reach almost 8.0 million sqf by 2018.

Based on information from the department statistics and CHWTWY, these figures translate to a 9.0 sqf of retail space per person within the Kuching division..

To put that figure in perspective, data derived from the International Council of Shopping Centres (ICSC); reported that the worlds’ densest retail markets are the US with an average of 23.5 sqf of retail space per person, followed by 16.4 sqf in Canada and 11.1 sqf in Australia.

On the other hand, our regional neighbours like Singapore, Thailand (Bangkok) and Indonesia (Jakarta) come in at 11.6, 9.7, and 4.8 respectively.

Going by figures alone, it’s pretty clear that our 9.0 sqf of retail space is moderately high when compared regionally, thus affirming the issue of retail oversupply.

However, it still a long ways off from hitting the densities found in many developed markets.

So, why is that on a whole, most retail markets globally are complaining of signs of a retail slump just like we are?

Correction:Previously this article stated that the total retail space in Sarawak was 2.6 sqf per capita based on a simple calculation performed using data from CHWTWY. However, it has since come to our attention that the total retail space reported by CHWTWY was for Kuching Division alone and not the entire state. We apologise for this oversight and any misunderstandings that may have resulted because of it.

The e-commerce factor

One obvious answer to that question is a change in our shopping habits thanks to the rise of e-commerce retail platforms.

Lazada, Lelong.my, AliExpress, 11st, Zalora, Doublewoot, and Twenty3 are just part of an ever growing list of online retailers that we Malaysians can shop from in the comfort of our own homes.

(SOURCE: MDA)

According to data released by the Malaysian Digital Association (MDA), revenue for e-commerce retail was at RM991 million in 2016.

The figure was a significant jump from the RM626 million revenue figure recorded in 2014 and is anticipated to more than double to RM1.92 billion by 2020.

“They (e-commerce retailers) directly conflict with malls as they take a huge chunk of revenue that would have otherwise occurred in stores,” said Sim who added that retail segments like apparel and accessories were the most susceptible to heavy competition with e-commerce retailers.

Internationally, the segment has indeed been observed to be one of the worst faring retail segments as news outlets are consistently churning out news of giant apparel retailers like American Apparel, Macy’s, BCBG and The Limited downsizing their physical storefronts or completely abandoning their physical retail operations.

Most notably, apparel retailer Bebe Stores, Inc who had at one point operated 312 physical stores globally, announced on April 21, that it would be closing its remaining 168 stores and moving all operations to its online retail platform.

In contrast, e-commerce giants like Alibaba and Amazon have been performing exceptionally well and have been striving for ambitious and rapid expansion of their operations either into different market segments or geographic locations.

Alibaba’s most recent move to set up a logistics hub in Malaysia which will be operational by 2019 has especially been worrisome as some economists are forecasting many malls and small-time traders to be unable to keep up with the onslaught of competition the logistics hub will bring forth.

This comes as Malaysia’s e-commerce industry and digital economy is growing steadily as more small and medium-sized enterprises (SMEs) begin to embrace digital technology.

HSBC Bank Malaysia Bhd chief executive officer Mukhtar Hussain said the success of the #MYCYBERSALE 2016’s online sale event last year was proof that more Malaysians were adopting the e-commerce culture.

“#MYCYBERSALE 2016 achieved RM211 million in gross merchandise volume, a 79 per cent increase from the previous year, and saw the participation of 607 sites, up 54 per cent when compared with 2015,” he said in a statement on Thursday.

The event was an initiative by the Malaysia Digital Economy Corporation (MDEC) to encourage SMEs to embrace e-commerce and boost innovation among them while stimulating the domestic e-commerce market.

Additionally, Malaysia’s digital economy also received a boost through the establishment of the Digital Free Trade Zone (DTFZ), which allowed SMEs to capitalise on the exponential growth of inter economy and cross-border e-commerce activities.

“Malaysia will tap on the expertise of Jack Ma, Alibaba Founder and Executive Chairman, who is also digital economy adviser to the Malaysian government, and at the same time learn from the technological advances made by Chinese companies such as Alibaba, Tencent Holdings, Baidu Inc. and Huawei Technologies,” said Mukhtar.

He said increased Internet access coupled with  increasingly widespread digital technology was critical to amplifying productivity, innovation and living standards across the wider economy.

“Malaysia has realised this early and is well on its way to creating an innovative and vibrant digital ecosystem,” he added.

 

Merely adapting to a new environment

With no end in sight for what e-commerce might offer next, it begs the question, ‘Is there a place for malls in the future?’.

An overwhelming response to that question is an optimistic yes.

In an interview with Free Malaysia Today, the Malaysia Shopping Malls Association (MSMA) advisor Chan Hoi Choy said that malls would just have to adapt to competition from online retailers and survive.

He explained that it was an opportunity for malls to capitalise on their ability to offer new experiences to their patrons by promoting socialisation and engaging their five senses.

“To face the onslaught of online retailers, malls need to ask themselves what are the trade categories that can conjure up experience and socialisation, among other pertinent questions.”

Ling reckons that our need to socialise in human nature is definitely a factor to consider in the future of malls and a key strategy to fulfil that need is to incorporate a more Food and Beverage (F&B) focused tenant-mix.

“Humans are sociable creatures, and although we may spend a lot more time on our smartphones and computers, it still does not mean that we want to be cut off from everyone in real life.

“Hence, many malls today are shifting or updating their tenant-mix plan as F&B and entertainment are the main crowd-pullers for malls now – and many of them are increasing their F&B mix to as much as 30 or 40 per cent of their entire tenant-mix.”

Previously, the standard for most malls was to only allow for only a maximum of 15 to 20 per cent of their tenant-mix to be made up of F&B tenants.

However, e-commerce once again seems to be cutting into this segment as food delivery applications such as Food Panda start to gain momentum in the Malaysian market.

Sim notes that in Peninsular Malaysia, online delivery is already starting to make its mark but opines that it will be a while before it starts affecting Sarawakian markets due to our ease of travelling and easy access to parking.

Nevertheless, he warns of the potential threat and suggests that malls should also definitely look beyond the F&B segment and into more emergent-proof businesses.

“I don’t think e-commerce can take out the function of malls altogether because there many things that cannot be traded online still such as services and entertainment.

“For example, you can’t trade a haircut online and you can’t trade an experience like singing karaoke online either. These are the sort businesses that are more emergent-proof to the rise of e-commerce.”

Sim went on to add that another strategy he has employed at Vivacity Megamall was to appropriately position itself among other malls.

“We work quite independently for our mall and we do so by purely focusing on bringing in brands that locals will like.

“Sure, we have some high-end brands but ultimately we know that the market is in the mass market and hence why we have made our mall our accessible by positioning ourselves as a medium to high end mall.”

Both Vivacity Megamall and tHe Spring are positioned as medium to high end malls and have posted occupancy rates of 90 and 98 per cent respectively.

 

An experiential experience

Besides calling for a more modern and relevant tenant-mix, Chan is also lobbying for mall owners and managers to keep footfall up by focusing on providing their patrons an experiential experience.

“A trip to the mall with take on a different dimension and meaning in years to come and it is a question of what you do with the space, and how you make it experiential,” he said.

Going off this, Ling notes that many malls are now employing more experiential marketing tactics based of their patrons wants and creating shopping experiences that are at often times unique.

“For example, they may build a German-style Christmas market in their main events space, complete with very-detailed buildings and even fake snow.”

Chan’s advice has definitely not fallen on deaf ears as around the state, local malls have already begun deviating from the traditional product demonstration booths, experimenting heavily into more unique events such as flea markets, trunk sales, food festivals and even live music performances.

While analysts have been very fairly optimistic about the future of malls and retail space in an increasingly digital world, the retail segment is still set for a rough couple years due to oversaturation of current retail space and a market sentiment from a weak ringgit and high inflation rates.

It’s not all doom and gloom however, as Ling explains, “All industries and economies face it about every decade or so – it’s a cycle. We will recover eventually.”