City&Country: Cover-- Retail Surprise

Surprise is the word to sum up the Malaysian retail industry in 2009. While some retailers suffered in view of the challenging times, others turned in a better performance than in 2008.

Although the year started off very slowly, pressured by both the global credit crunch and the H1N1 pandemic, which kept many consumers at home, business for some retailers picked up significantly in the second half of the year, especially at the more popular malls in the Klang Valley. By the time 2009 bowed out, the likes of Suria KLCC, Pavilion KL, 1 Utama and The Gardens reported a growth in sales over 2008.

Still, not every retailer is celebrating. CB Richard Ellis Malaysia (CBRE) managing director Allan Soo estimates that most retailers' takings dipped by as much as 10% to 30% from 2008, and identifies fashion players as some of the worst hit.

It is noteworthy that Pavilion KL's anchor tenant, Parkson, was among those that did exceptionally well last year. Take, for instance, the month of September, a quiet period for most retailers; Parkson reported a significant 20% y-o-y growth in sales, Soo tells City & Country.

"Even Parkson is at a loss about the business turnover," says Soo with a laugh. On a more serious note, he attributes the retailer's fortunes to a rise in the patronage of tourists, coupled with pent-up consumer spending. The Parkson branch at Pavilion KL is believed to be the retail chain's best-performing outlet in Malaysia.

So, what's in store for retailers in 2010?

Retail Group Malaysia managing director Tan Hai Hsin is cautiously optimistic. The global economy has not shown strong recovery and this will affect Malaysia and other regional markets, he says. Although international retail markets have improved slightly, the going remains tough, he offers. (see boxed story, at right).

That aside, Tan forecasts the retail market to expand 5% this year. It has been growing between 3% and 5% in the last decade.

To improve sales, Tan's advice to retailers is to innovate. "Retailers need to move away from using price as the sole attraction to get consumers to spend. Many mass-market and conventional retailers continue to use heavy price discounts to attract shopper to buy more, but at the expense of profit margin. This strategy is not sustainable."

Padini Holding Bhd did exactly what the doctor ordered, and enjoyed good returns as a result. The group posted a pre-tax profit of RM67.6 million for the year ended June 30, 2009, up from RM57.66 million in 2008. This was on the back of group revenue of RM475.5 million.

Padini's executive director C Y Cheong tells City & Country that the company weathered the early part of 2009 by reacting quickly to changing market conditions, and implemented measures such as prudent buying of stock for its brands.

In the latter part of 2009, its brands, such as Padini, Padini Authentics, Seed and Vincci, were all given fresh new looks to ensure continued interest among consumers.

For this year, the company plans to renovate its existing stores. A Padini Concept Store with 40,000 sq ft of space will be opened in The Jusco Bandaraya Melaka. Domestically, Padini Holdings Bhd has 232 stores. This is augmented with 96 outlets in the Asean region, Saudi Arabia, the UAE, Oman and Syria.

Malaysian shoe entrepreneur and designer Datuk Lewre Lew also found the early months of 2009 to be very slow. However, his philosophy of planning for every eventuality enabled him to restrategise and weather the slow period. In 2009, the brand saw a 10% drop y-o-y in sales, due to poor performance in its European and Japanese stores.

Still, last year, the Lewre brand penetrated the market in six countries - Pakistan, Cambodia, Mauritius, Singapore, Indonesia and India. This year, Lew says he will be focused on strengthening and expanding his shoe, bag and accessories collections.

Over at Jaya One, the commercial and creative mixed development on Jalan Universiti in Petaling Jaya, F&B sales activities dropped between 15% and 20% in early 2009, compared with 2008. However, this was due to the opening of other outlets in and around Petaling Jaya, shares Charles Wong, executive director of Tetap Tiara, the developer of Jaya One.

This year, Wong says he is looking to create what he calls "customer association to Jaya One" to attract old and new customers to its outlets. This will require the repositioning of certain aspects of Jaya One, refining its values and discovering exactly what customers want, Wong explains.

Meanwhile, F&B operator The Delicious Group weathered the global economic crisis well last year. "The early part of 2009 did not see any drop in sales, versus the same period in 2008," shares Benjamin Yong, CEO of the group that operates Delicious, D'lish and Reunion Chinese Restaurant. "Delicious' sales remained robust in the first two quarters. D'lish turned around after a concept overhaul with growth of over 100%, while Reunion remained consistent," he says.

In 2009, the group introduced two new concepts: Delicious Ingredients, a boutique gourmet grocer, and DISH, a luxury steak house. Both outlets are found at Dua Annexe, part of Dua Residency, a high-end condominium along Jalan Tun Razak in Kuala Lumpur. Another Delicious Ingredients outlet is at Bangsar Village 2.

Yong says as a result of these two additions, the group's sales turnover doubled from the same period in 2008. He is positive that the brands will do well this year. "We are looking for the right time and opportunity to expand overseas. Meanwhile, our Delicious outlet at 1 Utama is slated for a rejuvenation programme in 1Q2010," he shares.

Growing retail space
The expected cautious spending aside, consumers simply have lots of shopping choices, as the supply of shopping mall retail space continues to balloon.

According to latest government statistics, as at 3Q2009, Malaysia's shopping complex retail space supply totalled over 108 million sq ft. Of this, some 49 million sq ft is in the Klang Valley, with Selangor taking the lion's share at 26.29 million sq ft, followed by Kuala Lumpur with 22.69 million.

According to the National Property Information Centre (Napic) report, Kuala Lumpur can expect an incoming supply of 5.631 million sq ft and a planned supply of another 6.513 million. Selangor, meanwhile, has 1.292 million sq ft incoming and about 1.6 million planned supply.

Meanwhile, occupancy rates for Klang Valley malls are reported to be averaging 80%, along with those in Putrajaya, Labuan, Perak, Pahang, Terengganu, Kelantan, Perlis and Sabah.

CBRE's Soo sees the market as "oversupplied, not overbuilt". "Oversupplied, as only 30 of the 122 centres in the Klang Valley are doing well, and there is cannibalisation in some areas. However, the market is not overbuilt, because there are still some areas and submarkets where there is undersupply," he says, adding that areas like Cheras, Shah Alam, Setapak and Ampang would benefit from a suburban or regional mall.

According to CBRE's data, as of December 2009, occupancy rates in city malls dipped slightly to an average of 88.7% from 89.3% six months ago. The suburban malls, however, maintained an average 94% occupancy. The ground floor of malls in town command an average rental of RM30 to RM50 psf. Suria KLCC and Sungei Wang Plaza are able to get RM50 psf for their ground level units.

Tan of Retail Group Malaysia says some 20 new retail centres across the Klang Valley, in places such as Cheras, Subang Jaya, Mont'Kiara, Petaling Jaya and Sungei Besi, will come on stream this year. He believes there are just too many malls in the Klang Valley. "During the last few years, newly opened shopping centres have been facing problems securing sufficient tenants and shoppers, mostly due to market saturation, not the financial crisis," he explains.

"Popular shopping malls will be able to maintain their rental rates, but newly completed ones will face pressure."

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 789, Jan 18-24, 2010.