Challenging year ahead for retailers

PETALING JAYA: The lower than expected growth rate of Malaysia’s retail industry in the first two quarters of the year, is expected to pick up towards the end of 2013, according to Retail Group Malaysia’s (RGM) latest retail industry report.

While RGM expects to see 6% growth for the local retail industry in 2014, it cautioned that retailers and consumers should prepare for some challenges next year.

The biggest challenges expected are the rising cost of living and reduced purchasing power due to the hike in prices of goods and services, as well as higher borrowing costs.

The recent increase in petrol price is likely to lead to higher prices of retail goods and services, from the fourth quarter of 2013 (4Q13).

Other contributing factors include the higher power tariff and the situation in Syria, which could lead to a further adjustment in petrol prices next year.

There maybe a rise in interest rates next year, leading to higher borrowing costs, which will increase the rate of monthly repayments for ordinary consumers and reduce the purchasing power of Malaysian households.

Earlier this year, Bank Negara Malaysia (BNM) announced new policies on bank borrowings to control household debt. The tenure for personal loans is now 10 years, instead of 25 years. Recently, BNM revised its GDP growth downwards to 4.5% to 5%.

Malaysia’s retail industry recorded sales growth of 4.6% in 2Q13. This is lower than that in 2Q12 (5.9%) and 1Q13 (7.5%).

The figure is about 40% lower than the earlier estimate of 7.7% by the Malaysia Retailers Association (MRA) and 29% lower than the forecast 6.5% by RGM in the same period.

The consumer sentiment index slid to 109.7 points in 2Q13, while the inflation rate soared to 1.8%.

According to RGM managing director Tan Hai Hsin, the May general election and haze may have contributed to the slowdown in the quarter.  

Consumers held back their spending, especially on high-value goods and services during the election period, while lower sales were recorded during the haze as many people stayed indoors.

As a result, many retailers had to offer deep discounts and very attractive offers to attract shoppers. This affected their bottom lines, severely.

MRA members were interviewed regarding the retail sales performance for the second half of the year. They are optimistic and foresee a 10.5% increase in their businesses in 3Q13.

Department store-cum-supermarket operators expect 10% growth in sales.

Department stores hope to see a positive growth of 9.5%, while supermarket and hypermarket operators anticipate slower growth of 4.6%.

Retailers in the fashion and fashion accessories sector expect to maintain their growth rate of 8.4%, compared with 3Q12.

Retailers in other specialty stores sub-sector, are confident that their businesses will expand by 16.2%. This is the highest forecast by the retail sub-sectors.

For 4Q13, RGM has revised its estimated growth rate to 6% from 5.8%, in anticipation of slightly better retail sales during school holidays, year-end sales and festivals.

However, it said Malaysians will continue to be cautious in their spending for the rest of the year, and demand for value-for-money goods and services will rise.

This article first appeared in The Edge Financial Daily, on September 20, 2013.