Under the Economic Transformation Programme (ETP), the government’s long-term development strategy, the tourism industry is set to bring in RM168bn ($54.2bn) in revenues by 2020, three times as much as in 2010. While a substantial percentage of this new income is expected to come from a steadily increasing number of new visitors over the next eight years, the country is also working to attract more big spenders.

A NEW BRAND: With this goal in mind, in late February 2012, Ng Yen Yen, Malaysia’s minister of tourism, formally launched “Luxury Malaysia”, the ministry’s newest tourism brand, which aims to help rebrand the country as a luxury retail destination. “Malaysia has always offered tourists great value for their money,” Praba G Menon, the general manager of Hotel Istana, a luxury property in Kuala Lumpur (KL), told OBG. “And the budget market is important, of course, but now we are going after higher-income visitors.” The government’s long-term targets for the Luxury Malaysia brand are ambitious. Under the ETP, it plans to more than double visitor yield (receipts per arrival) from RM2260 ($729) in 2009 to RM4675 ($1508) by 2020. In the same period visitor arrivals are expected to grow by 1.5 times, from 24m in 2009 to 36m by 2020. The Luxury Malaysia brand will be used in promotional materials and advertising campaigns around the world, and will supplement “Malaysia Truly Asia”, the country’s overarching tourism slogan. The new luxury brand, which aims to boost tourist spending by targeting high-income markets around the world, represents a major step towards doubling visitor yield without doubling the total number of visitors. The private sector is expected to play a key role in helping to realise the government’s strategy. In recent years Malaysia has attracted a number of new high-end hotels, boutique retail brands and other firms looking to profit from the growing local luxury market, and this trend is likely to continue ahead. The burgeoning affordable luxury segment will also be key here, with this area singled out for particular focus under the ETP.

RINGING UP THE REVENUES: While Luxury Malaysia is the first formal development strategy for the local luxury segment, it is a clear continuation of efforts to support the rapid expansion of the country’s retail sector. According to data from the Department of Statistics, shopping accounted for 30.2% of total tourism receipts in 2010 (the most recent year for which statistics were available at time of writing), up from around 28% in 2009. Under the ETP, shopping is expected to contribute about 35% – or some RM58.8bn ($19bn) – to tourism receipts by the year 2020.

Over the past few years the government has implemented a number of initiatives designed to boost shopping revenues. In late 2010 the state announced that it planned to abolish all import duties on a substantial number of luxury items in an effort to promote Malaysia as a regional shopping destination. As a result of this plan, which came into effect on January 1, 2011, around 300 types of items can now be purchased duty free in the country, including apparel, handbags, suits, watches, wallets, curtains, shoes, shampoo, blankets, shirts, lingerie and perfumes, among others.

NEW ENTRANTS: While Malaysia has been a major market for many luxury products for years, the move to make most luxury goods duty free has resulted in a steady stream of new entrants. As of mid-2012 Malaysia was home to a substantial number of leading international brands, including Prada, Giorgio Armani, Chanel, Van Cleef and Arpels, Cartier, Jimmy Choo, Burberry, Bulgari, Hermès, Louis Vuitton and Rolex, among others. Many of these brands are relatively recent additions, having set up shop specifically to take advantage of the country’s duty-free status.

In addition to individual brands, Malaysia has also seen a steady expansion of overall retail space in recent years. In 2012 alone around 325,000 sq metres of new retail space will be completed in the Klang Valley, bringing the total amount in the area to around 5.1m sq metres. The great majority of this can be found in a handful of massive, high-end shopping complexes in and around KL. Major malls in the capital district include Pavilion KL, Suria KL City Centre (KLCC), the Starhill Gallery (which focuses almost exclusively on luxury brands), the Gardens, Midvalley Megamall, Ampang Park and the Great Eastern Mall.

Malaysia is also becoming a destination for high-end hotel brands. It is already home to a handful of luxury operators, including Four Seasons, Mandarin Oriental and Grand Hyatt, and others are in the process of setting up shop, including Raffles and St Regis. Additionally, a number of designer-owned-and-operated hotels are in the early stages of launching projects, according to the Malaysian Association of Hotels, an industry organisation. These include Armani Hotels and Resorts, Bulgari Hotels and Resorts, and Palazzo Versace.

In addition to relaxing import duties on luxury items, the government also announced in late 2010 that it would spend RM85m ($27.4m) on the construction of hotels and resorts in remote areas of the country, in an effort to attract high-end visitors to new areas.

INFRASTRUCTURE & EVENTS: Improving the transport infrastructure in the most popular shopping areas is also a major focal point. In early 2011 the state announced a plan to spend RM50m ($16.1m) on shaded walkways in Bukit Bintang, one of KL’s busiest shopping areas. The government has already completed work on a 142-metre elevated, enclosed and air-conditioned walkway between the Impiana Hotel and KLCC. The project is the first phase of a 42-km network of walkways that will eventually link up major shopping destinations in Bukit Bintang and other nearby shopping districts.

The government and the private sector have also worked together in recent years to develop a series of festivals, events and performances that are designed to attract high-spending visitors. The country hosts a variety of shopping festivals, for example, including the Malaysia International Shoe Festival, the Malaysia Megasale Carnival, the Islamic Fashion Festival, and the “A Journey Through Time” luxury watch and jewellery festival, the latter of which is the largest luxury watch retail gathering in Asia. Other events that attract high-spending tourists include the annual Formula 1 Malaysia Grand Prix, the Contemporary Art Tourism Festival and a rapidly expanding number of international golf tournaments, including the CIMB Asia Pacific Classic Malaysia tournament, which is sanctioned by both the PGA Tour and the Asian Tour, and the Maybank Malaysia Open. Golf tourism is considered to be a major growth area in Malaysia. According to data from the Malaysia Golf Tourism Association, the country is only meeting 30% of its potential for golf tourism.

Malaysia’s new tourism brand aims to build on the country’s existing strengths in the luxury market to attract high-yield visitors from around the world. In particular, the government hopes to attract big spenders from China and the Middle East, where incomes and, consequently, demand for luxury goods, have grown exponentially in recent years.

“[Malaysia is] duty free, documentary stamp free and value-added tax free for all luxury items,” said Ng in a press conference in early 2012. A number of consumer goods do not benefit from these exemptions, including cigarettes, chocolate and cars.

ALL PART OF THE PLAN: The Luxury Malaysia campaign is closely linked to the government’s ongoing long-term development initiatives. In general, under the ETP the state plans to increase the average tourist’s shopping expenditure from RM631 ($204) in 2009 to RM1636 ($528) by 2020. The ETP’s tourism component is made up of 12 entry-point project (EPPs), three of which are concerned with the affordable luxury segment. The EPPs represent the government’s individual development goals for 2020.

The first EPP, which aims to position Malaysia as a duty-free shopping destination for tourist goods, was the basis for the government’s abolition of import duties in early 2011. While the government will lose an estimated RM630m ($203.2m) in import tax revenues by 2020 as a result of this change, it expects to earn an additional RM780m ($251.6m) in corporate taxes over the same period, as new companies set up shop in the Malaysia. In addition to eliminating import duties on foreign goods, the state plans to provide incentives in an effort to help Malaysian manufacturers compete in the newly liberalised market.

AFFORDABLE LUXURY & OUTLETS: The second EPP is concerned with boosting the affordable luxury segment and involves integrating and formalising the KLCC-Bukit Bintang area as a shopping destination. The enclosed, air-conditioned walkway project mentioned previously is a key part of this initiative. Other plans include organising more events in the area, including festivals and concerts; and setting up a KLCC-Bukit Bintang Tourism Council to promote the area.

Finally, the third EPP involves establishing three premium outlet malls. These offer discounted luxury items and attract a substantial amount of business in other countries in the region. To tap into this demand, the government plans to open premium outlet malls in Iskandar Malaysia, Sepang and Penang. The first mall, located in Iskandar Malaysia, is expected to open in 2013.