City&Country: Suria KLCC losing its Malaysian identity?

The crowds are back at Klang Valley shopping malls, which had been hit by the global financial crisis not too long ago.

In anticipation of better times ahead, the managements of the more popular malls are raising rental rates.
Rates levied on retailers ­— which are confidential going by industry practice — vary significantly, depending on factors such as the location and size of a store.

Ultimately, it boils down to how much a brand matters to a particular mall. It’s a question of who needs who more — the brand or the mall.

In Kuala Lumpur, one’s shopping experience would be incomplete without a visit to Suria KLCC — the city’s most high-profile and, arguably, best-performing mall. Thanks to its iconic status and location, the 12-year-old Suria KLCC continues to pull in the crowds, foreign and local alike.

One of its key attractions is undoubtedly its varied and interesting mix of international and local offerings. Here, foreign labels are promoted alongside Malaysian-grown brands, among them Royal Selangor Pewter, which celebrates its 125th anniversary this year.

Of late, however, Suria KLCC has seen the exit of a number of local brands, including Ombak, an accessories, custom furniture and art work store; art gallery Lotus Arte; E’tho, an ethnic fashion boutique; and Kelantan Delights, a restaurant serving Malay cuisine. One of the main factors cited by the operators is the high rents.

Two other home-grown fashion brands that are still operating are Salabianca and Philosophy, which opened at the mall in 1999 and 2001 respectively. CEO of the two brands, Allan Chan, tells City & Country he finds business challenging due to “soaring rents” and the presence of “too many foreign brands”.

alt“There are too many misleading foreign brands [brands which are marketed as high-end when in their country of origin they are not at that level], in Suria KLCC,” he laments. “Suria KLCC is an iconic Malaysian shopping mall that houses too few Malaysian fashion brands. There is a lack of Malaysian fashion representation here,” he adds.

Royal Selangor Pewter, which operates on the first floor of Suria KLCC, has a presence in 20 countries, with retail outlets in Singapore, Japan, Hong Kong, China and Australia. Its products are no strangers to Japan’s Wako and Mitsukoshi as well as the UK’s Harrods and John Lewis.

Royal Selangor Pewter MD Tan Sri Yong Poh Kon stresses that Suria KLCC is no ordinary mall and needs to be looked at differently from other malls.

“The mall, being a nationally owned property, would need some consideration beyond just being a pure commercial proposition,” he says. “The consideration is how do we present this mall with a Malaysian identity or Malaysian facet?

“If it operates purely on commercial lines it might be any shopping mall in any part of the world. But if this is Suria KLCC in Kuala Lumpur, than some balance of having Malaysian stores [in the mall] is important,” he tells City & Country.

Royal Selangor Pewter may not have a place at the current location come the end of the tenancy agreement in 2011.

Early last year, it  rejected an offer to relocate from its store on the first floor to a higher floor.

“We were quite taken aback last year when we were told we would have to move to the third floor because the mall was doing a rezoning exercise and fashion brands were to be on the first floor,” Yong explains.
“They gave us early notice because they wanted us to shift early if we could,” he says. “At the time, the place which the mall management had allocated was still tenanted.”

In the meantime, the Royal Selangor Pewter  did a quick study to see if the relocation was viable.  “We did a traffic count of people visiting the first floor versus people going to the third floor, and the traffic count showed that footfall dropped tremendously. Even though the rent would be lower, the total effect on sales would be  quite significant,” says Yong.

Apart from being a retailer, Royal Selangor Pewter is also a manufacturer and the relocation, Yong feels, would be detrimental to the company  because a drop in absolute sales would affect its production and manufacturing segments.

Yong says the company requested to stay where it was  but it was turned down. “The management said if we do not move, they may not be able to assure a place for us [at the end of the tenancy agreement] in the mall,” he says. Hence Yong’s decision to wait out its tenancy agreement which ends next year, hoping, though, that management will reconsider and let Royal Selangor Pewter stay where it is.

Yong, meanwhile, is puzzled as to why BritishIndia too has  too been told to relocate to the third floor from the first floor. “BritishIndia is fashion, so, why do they have to move?” he asks, in reference to the management telling him that the first floor is only meant for fashion retailers.

Home-grown presence
Equally convinced that the presence of home-grown retailers in Suria KLCC is necessary is Pat Liew, founder and CEO of BritishIndia. The company also has stores in Singapore, Thailand and the Philippines.
“Suria KLCC is an iconic Malaysia landmark, a showcase of Malaysia to the world,” Liew says. “We were told that Suria KLCC’s culture would be that of a shopping centre which will reflect a good balance of international and top local brands, in particular, local brands which have made it to international standards.”

This objective, Liew says, is however, being diluted with more foreign brands populating the mall. While she does not dispute that the landlord has every right to select tenants as it sees fit,  Liew feels strongly that some consideration should be given to home-grown Malaysian brands.

Liew says Suria KLCC seems to be solely focusing on driving revenue up. “Most countries would relish the opportunity to promote and showcase their own distinctive brands to the world and be proud to see them side by side with the other international brands,” she says.

Meanwhile, Datin Rafidah Jalil, Suria KLCC’s former senior marketing manager (she left in 2006) ,has an interesting perspective to share. “When Suria KLCC was set up, there was consciously a Malaysian agenda — to nurture unique serious local retailers and (the late) Tun Azizan [Zainal Abidin] was serious about this,” she tells City & Country.

The former Petronas chairman, who took office in 1988, passed away in 2004. He had also served as private secretary to three Prime Ministers — Tun Abdul Razak Hussein, Tun Hussein Onn and Tun Dr Mahathir Mohamad — among his other public duties.

Rafidah points out that Azizan viewed the Twin Towers as a Malaysian icon, as do other Malaysians, and the surrounding properties must thus reflect this status. (Suria KLCC is sandwiched between the Twin Towers.)

With more than 20% of mall visitors being tourists, it is important to have the best Malaysian retailers represented to build a brand or image, says Rafidah.

“Branding must start at home at its strongest and most significant place,” she says. “We proudly want to exhibit to the world what we have, otherwise, we will be just like another big city shopping centre. There will be no point of difference without strong, unique, serious local players.”

One fashion brand that has left the mall is Eric Tho’s E’tho brand. Tho is a noted designer who has been creating his fusion Malaysian fashion for over 18 years. His Malay, Indian and Chinese designs, especially using batik, provide a unique amalgamation that is truly 1Malaysia.

However, being a niche high-quality product retailer, the higher rents imposed were too much for him and Tho exited Suria KLCC in 2008 after being there since 1999. E’tho has an outlet in Mid Valley Megamall.

Another fashion brand, Mayfair Design, an ethnic fashion boutique set up by former journalist Leung Thong Ping, opened its doors in Suria KLCC in 2002. Although she was only there for a few years, her store and fashion designs garnered much interest in the local media. One local daily, in  early 2008, reported how a British family walked into her store after visiting several malls in KL. They were looking for something that reflected Malaysian culture and all they found so far were the same overpriced brands already available in London.

“They ended up buying a cotton floral top with Chinese accents and a cotton Malay kurung-inspired top to wear over jeans,” Leung was quoted saying in the report. “One of them asked why there weren’t more shops like ours ‘with a Malaysian soul’. That made my day. But it also reminded me that I’m a seriously threatened species!” In 2008, Mayfair Design exited the mall.

Although Leung left on her own accord, in an email interview with City & Country, she shares: “Suffice it to say that Suria KLCC does provide an environment for a dress designer to push the envelop with ideas, and because of the critical mass of affluent, informed customers that are drawn there, some will step forward to embrace those ideas. But you pay a killer rent for the privilege!”

Besides fashion labels, other home-grown Malaysian brands such as art galleries and home decor stores were also in Suria KLCC at the start.

One such store-cum-art gallery was Lotus Arte, which opened in 1999. Its director Eric Chong remembers how Suria KLCC was the premier shopping mall in KL and business then was good. Clients included international shoppers from all over the world, he recalls.

Through the years however, Chong says, he noticed the mall becoming more bland, with no Malaysian identity and hence less attractive to well-travelled tourists. “Unfortunately, the locals do not shop much [in Suria KLCC] and prefer suburban malls with lower price-point products,” he observes.

The drop in well-heeled tourists and the high rents resulted in the art gallery moving out on May 25, 2010. “The rental policy of Suria KLCC does not support the growth of local brands like ours which gives a unique and special flavour to the mall,” Chong says.

Another brand that was invited to be part of this iconic landmark was Ombak. Starting out as an accessories, custom furniture and art work store which opened in 2000, it went on to offer interior design services. Its director, Simon Gan, recalls there weren’t many malls in KL in 2000 and Suria KLCC was the best location to be in.

However, on May 25, 2010, Ombak too quit the mall due to increased rates. While Gan concedes that the change in his operations does not necessarily require walk-in business, he says he would have stayed on had the rents been “reasonable”. 

After spending some time shopping for great deals and whipping up their appetites, tourists and locals invariably make a beeline for culinary treats.

One restaurant that made a name for itself offering East Coast cuisine is Kelantan Delights. Its owner, Juhaidi Yean Abdullah, however, found that doing business in Suria KLCC difficult due to the rent increases. “The management is more of a deterrent than a help to tenants,” he laments.

Juhaidi had operated a stall in the food court before upgrading to a 1,800 sq ft restaurant on the fourth floor. At the time, he was paying RM14,000 a month in rent. When the three-year lease ended in 2003, the rent went up to RM30,000 a month.

Then in 2006, the rent was raised to RM50,000 a month. Juhaidi called it quits in 2007 after efforts to negotiate the terms fell through.

“There will be no more local brands in Suria KLCC in five years and it will be like shopping in Hong Kong, Macau or Singapore,” He predicts.  He remembers the late Tun Azizan saying that Suria KLCC would be a showcase for Malaysian brands together with international ones. “This [the loss of Malaysian homegrown brands] is against the vision of the late Tun Azizan,” he says.

The other side to the story
Maintaining a good tenant mix is no mean task, especially for a mall the size of Suria KLCC which has over one million sq ft of net lettable area and 326 tenants across six levels.

altSuria KLCC CEO Andrew Brien is tasked to ensure that the mall continues to perform positively and to international standards. “We’ve researched to find out why our customers come to the mall, why they don’t come to the mall, what brands they want, what brands they think are hot. And then we go and research that globally. We travel every year to talk to major brands globally,” Brien says.

“We benchmark operators globally; we benchmark major fashion operators against major fashion operators; we benchmark internally in Malaysia with Malaysian brands, we look at how those brands relate to international brands. And we came up with a tenancy mix that is obviously the mix that is correct for our assets given the sales growth and positive reaction we get from our customers.”

altThe retailers at Suria KLCC had seen a sales turnover of close to RM2 billion over the 12 months to May 31, 2010, a figure Brien says is proof of a right tenant mix based on customers’ wants. Based on the mall management‘s internal research, he says, 70% of the customers who shop at Suria KLCC are locals.
“We should understand that we do things in the interest of the mall as a total entity,” Brien says.

From 95 home-grown stores in May 2000, there are now 111.  During the same period, foreign-owned stores grew from 77 to 83, while the number of Malaysian-owned specialty stores expanded from 184 to 242.

According to the latest Finance Ministry’s Property Market Report, the lower ground floor rental rates in Suria KLCC in 1998 ranged from RM13.80 to RM31.80 but jumped significantly to between RM55 and RM69.95 in 2009.

Henry Butcher Retail’s managing director Tan Hai Hsin points out that this puts the average annual rent increase over 12 years for the lower ground floor at about 10%, a rate he considers “acceptable” given the draw of the mall. “Suria KLCC started in the midst of the worst recession ever in 1998 when the rental market was badly affected,” he says.

“This is all about demand and supply. The management of Suria KLCC will not dare charge high rentals if there are no retailers wanting to pay them,” Tan continues. “This is not whether it is a Malaysian brand or foreign brand. From the shoppers’ perspective, shoppers demand that the mall offers new or different brands regularly. Shoppers do not want to visit a mall year in year out and keep seeing the same retailers. They want to see changes in the trade and tenant mix every few years.”

Echoing Tan’s feelings is CB Richard Ellis (Malaysia) Sdn Bhd  (CBRE) managing director Allan Soo. “Suria KLCC is now 12 years old and in need of a refresh in terms of the overall offer,” he says.

“It has matured and some of its tenants may not be the right fit if [the mall] is to position itself differently. At every review period, which is this year for Suria KLCC, the opportunity to upgrade is not to be missed … No mall can stay static, bearing in mind that retail is about trends and change. So, a good mall operator must be able to change, and to do it well.”

President of the Association for Shopping Complex and High-rise Management (PPK), HC Chan, notes that most successful malls globally are, to a certain degree, “internationalised” in that they allow global brands to be part of their trade mix. “The pertinent question is not to look at whether brands are nationalistic, but should they be more inter-nationalistic, meaning to say the value of the brands has to be measured in global terms.

“The internationalised brands will enjoy greater success as they transcend borders. This generally applies to Malaysian brands as well as some of them have gone big in a global way. Of course, the other consideration is also dependent on the strategic direction and positioning of each individual mall,” he adds.

What do we want?

Clearly, the ripples at Suria KLCC stems beyond mere commercial reasons. The question that begs to be answered is what Malaysia wishes for this iconic destination.

Back to business as usual

Malls in Kuala Lumpur city have recovered from a year ago with business picking up, especially in the last three months, for the likes of Suria KLCC, Pavilion Kuala Lumpur and Berjaya Time Square, says CB Richard Ellis (Malaysia) Sdn Bhd  (CBRE) managing director Allan Soo.

Equally bullish about the retail outlook this year is managing director of Henry Butcher Retail Tan Hai Hsin who predicts the Malaysian retail industry to grow by 5% this year, based on the local and global economy. In comparison, the industry grew by a marginal 0.8% last year.

“With the completion of at least 20 retail centres this year, retail market share may dip among the players,” Tan says. “However, the negative impact will be regionalised and localised. For example, the retail market in Cheras will see more competition when at least five new retail centres enter the market this year.”

The occupancy rates of most prime malls in the Klang Valley have held steady so far. A CBRE Asia Market View report for 1Q2010 says the overall vacancy rate of selected prime shopping centres in the Klang Valley remained unchanged at 7.6% while the vacancy rate of prime shopping centres in the city centre dipped slightly by 0.1% to 11.7%.

Henry Butcher’s Tan says based on the company’s 2009 data, the average occupancy of shopping malls in the Klang Valley in 2009 is 86%, and he does not see it varying much in 2010.

altFor the popular malls in the Klang Valley, such as Suria KLCC, Mid Valley Megamall, BB Plaza, Pavilion KL, 1 Utama and Leisure Mall, all boast good occupancy rates of close to 100%, Tan says.

Rental rates for these malls vary. Henry Butcher Retail’s Tan says the gross ground floor monthly rates for 1 Utama range from RM14 to RM35 psf while at the Mid Valley Megamall, the range is from RM20 to RM40 psf.

According to Tan, average rental rates of Klang Valley shopping centres have not grown much. He says: “Since 2005, we have faced many economic and human crisis – like the severe acute respiratory syndrome outbreak, the H1N1 influenza epidemic and the fall of Lehman Brothers. These have sent our retail market on a roller coaster.”

Tan puts the average rental growth rate for Klang Valley shopping centres at only 1% in 2005, 3% in 2007 and 2% in 2008.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 812, June 28-July 4, 2010

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