KUALA LUMPUR (Dec 17): Retail Group Malaysia (RGM) has cut its forecast for 2015 retail sales for the fifth time due to poor retail figures achieved in the second and third quarters of the year.

The independent retail research firm anticipates retail sales growth of 2% this year, down from an earlier estimate of 3.1%. The slowest growth prior to 2015 was in 2009 at 0.8%.

“A 2% growth translates into RM96.7 billion in sales value excluding big ticket items such as houses and cars,” said RGM managing director Tan Hai Hsin.

RGM cited the challenges of a weak ringgit in the last several months in its decision to revise down its forecast, which had led to higher import costs.

“Higher import costs have affected all retail sub-sectors. Higher retail prices since September this year have further deteriorated the purchasing power of Malaysian consumers,” RGM, which tabulates retail data for the Malaysia Retailers Association (MRA), said in its report on retail sales performance for the third quarter of 2015 (3Q15) released yesterday.

It has also cut its retail sales growth forecast for 4Q15 to 3.8% year-on-year (y-o-y) from an earlier forecast in August of 6%.

However, RGM’s forecast for 4Q15 is still higher than MRA’s forecast of a 1.3% growth for the October to December 2015 period.

That’s because RGM believes the year-end school holiday and festive season should lift the buying spirit of Malaysian consumers. The higher cost of overseas travel due to the weaker ringgit will encourage more domestic spending as well, it added.

For MRA, it does not expect its businesses to recover strongly during the October to December 2015 period, as the department store-cum-supermarket operators are expecting a 2.6% contraction in sales.

“The department store operators are also expecting their businesses to remain in the red, with a 12.2% contraction for 4Q15,” said RGM.

However, supermarket and hypermarket operators are more optimistic about their performances in 4Q15, expecting a growth of 2.2% in sales after two consecutive quarterly declines.

Retailers in the fashion and fashion accessories sector also expect their businesses to maintain a recovery momentum, with a growth of 4.4% during the October to December 2015 period, while the other specialty stores sub-sector hopes to keep its growth at 6% y-o-y for 4Q15.

Meanwhile, RGM data showed Malaysia’s retail sales growth slowed during the July to September 2015 period to 1.6% y-o-y compared with 2% y-o-y in the same period in 2014. The 3Q15 performance is above the average growth rate of 0.1% forecasted by MRA members in August, but it missed RGM’s estimate of a 2.5% growth.

According to RGM, Malaysia’s retail industry has yet to recover from the negative impact of the goods and services tax (GST) on consumers’ spending. The unexpected drop in ringgit value worsened it.

The research firm said the political developments in Malaysia had also affected retail sales indirectly during 3Q15.

“The political situation was affecting the consumer sentiment level and buying mood of Malaysian consumers. As a result, they were spending less,” it added.

The weaker 3Q15 retail sales were also reflected in the country’s slower gross domestic product growth of 4.7%.

RGM said the inflation rate also continued to move up to 3% during the 3Q15 due to rising prices of goods and services. Private consumption grew at a slower pace of 4.1% in 3Q15 due to the implementation of the GST.

In 3Q15, the Consumer Sentiment Index by the Malaysian Institute of Economic Research dropped to a new low of 70.2 due to rising cost of living and concerns of job prospect. Unemployment rate rose slightly to 3.2% y-o-y.

RGM also pointed out that the latest quarterly growth rate was supported solely by specialty retail stores. Large-format retailers continued to face challenges in 3Q15.

For the cumulative nine-month period of 2015, Malaysia’s retail industry grew by a mere 1% from the year-ago period.

“Once again, retailers continued to sacrifice their bottom lines in order to get more shoppers to buy by offering heavy price discounts,” said RGM, adding that retailers suffered a decline in profit margins during the July to September 2015 period.

Going forward, RGM doesn’t see the local currency climbing back to the 2014 level within the next six months in 2016.

“This will add more pressure on importers of raw materials, semi-finished goods, and finished goods that are meant for final consumption by Malaysians. Another possible hike in prices of retail goods and services from 2Q16 will result in further deterioration of the spending power of Malaysian consumers,” it said.

As such, RGM is projecting a 4% growth rate for the Malaysia retail industry in 2016, which will give a sales value of RM100.6 billion.

This article first appeared in The Edge Financial Daily, on Dec 17, 2015. Subscribe to The Edge Financial Daily here.

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