Malaysia’s retailers look to rebound

Text size +-

Malaysian retailers are looking to overcome the effects of a weaker ringgit and the introduction of a goods and services tax (GST) last year in the hopes of stronger sales in 2016.

Modest expectations for the early part of 2016 come on the heels of subdued sales growth last year – which saw turnover rise by just 1.4% to RM96.2bn ($24.7bn), as per figures from consultancy firm Retail Group Malaysia (RGM) – marking the industry’s worst performance since 2010.

The sector was expected to post a 0.4% year-on-year decline in sales in the first quarter of 2016, according to the Malaysia Retail Chain Association (MRCA).

Retailers see more positive full-year prospects, however, with RGM predicting 4% growth in the sector, which is in line with the 4-4.5% growth in GDP forecast by the central bank, Bank Negara Malaysia (BNM).

Looking ahead

While some stakeholders are still seeing reduced sales a year after the April 2015 launch of the broad-based 6% GST, the MRCA predicts a 10% overall increase this year as confidence grows and the impact of the tax is factored in. Deeper market penetration via e-commerce is also expected to spur on growth.

“Besides consumers getting familiar with the GST, increased awareness about e-commerce is also expected to help spur the country’s retail sector further this year,” Liaw Choon Liang, president of the MRCA, told local media in March.

E-commerce accounts for a relatively small share of sector sales, according to a report by management consultancy firm AT Kearney, with turnover of just $1.3bn annually, though sales are on the rise.

Malaysia and the other so-called ASEAN-6 countries – Indonesia, Thailand, Vietnam, Philippines and Singapore – could see e-commerce sales increase by up to 25% per annum in the coming years, with Malaysia’s online retail segment on track to reach $10bn-15bn in sales over the long term, AT Kearney noted.

“We believe there are still plenty of opportunities. E-commerce is the future. We encourage retailers to look seriously into this segment,” Liaw said.

According to a 2013 survey by research firm Ipsos, travel services, such as flights and accommodations, online coupons and entertainment products like movie tickets are among the most popular goods purchased by the roughly 7m online shoppers in Malaysia.

Road to recovery

While the future of retail may be online, it will likely take time before both consumers and retailers fully embrace the new platform and the growth it is expected to bring. In the near term, several economic factors could continue to impact retail growth.

Depreciation of the ringgit, which dipped 19% against the US dollar last year, pushed up the costs of imports, including raw materials, semi-finished and finished goods, in 2015. This fed into inflation, which reached 2.7% year-on-year in December.

Looking ahead, BNM expects inflation to peak in the first quarter of 2016 before moderating later in the year on lower energy and commodity prices.

The ringgit has gained ground in early 2016, however, appreciating by 11% against the dollar in the first three months of the year. Further recovery of the currency could see import costs ease and domestic purchasing power rebound, potentially boosting sales.

Nonetheless, retail turnover could still be impacted by relatively high debt levels in the country. Around 68% of Malaysians are in debt, according to a study conducted by insurer Manulife, with living expenses cited by 60% of respondents as the highest contributor.

The country has one of the highest household debt-to-GDP ratios in Asia, ratings agency Fitch noted, rising from 86.8% in 2014 to 89.1% at the end of 2015, as per BNM data.

The impact of household debt on spending patterns could take some time to subside, with Manulife reporting one-quarter of those in debt did not expect to be able to pay off their loans for three or more years.

While this will likely rein in consumer spending, if inflation falls back from the 4.2% posted in February – a seven-year high – and the ringgit appreciates further, buyer sentiment could rebound from 2015 lows.

Oxford Business Group is now on Instagram. Follow us here for news and stunning imagery from the more than 30 markets we cover.

Covid-19 Economic Impact Assessments

Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.

Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.

Register Here×

Product successfully added to shopping cart

Read Next:

In Malaysia

Malaysia: Economic outlook bright despite election uncertainty

While a fiercely fought general election could send ripples through Malaysia’s economy in the next few months, the country otherwise looks set for another year of solid growth on the back of...

In Retail

South Africa’s retailers brace for slow holiday season

Although they benefit from a market with one of the continent’s highest levels of per capita purchasing power, retailers in South Africa have seen limited growth over the third quarter, due in...


Myanmar: Open for business

A new foreign investment law that offers investors broader access to Myanmar’s economy, as well as useful tax breaks, is expected to add new impetus to the country’s development and is a landmark...