The Malaysian Insight

THIS year is turning out to be the worst for Malaysian retailers since the 1987 financial crisis, based on sales data from the second quarter to the rest of 2020, said research and consultancy firm Retail Group Malaysia (RGM).

Retailers told The Malaysian Insight that malls and stores in the Klang Valley, Sabah and Labuan have suffered a double whammy this year.

First came total closure during the movement-control order (MCO) in March and now, with the conditional MCO in effect, footfall has dropped up to 70%.

RGM’s September Malaysia retail industry report said the market turned into a bloodbath since mid-March when the MCO was enforced, resulting in 5% of mall tenants and about 10% of ground floor retailers in shop offices closing down.

RGM managing director Tan Hai Hsin said the closures will accelerate as a result of the second CMCO in several states, as well as after the end of the loan moratorium.

“Since the CMCO, weekend traffic to many shopping centres dropped as much as 70%.

“We are expecting about 15% of the total retail supply or at least 51,000 stores to close down in Malaysia due to the Covid-19 pandemic,” he said.

These closures involve both national chain and independent retailers, including all kinds of retail businesses from mamak restaurants to fashion outlets and beauty salons.

“All areas throughout the country have been affected, including city centres, residential townships, large commercial centres, high-income areas and low-income areas,” Tan said.

Malaysian Retail Chain Association (MRCA) president Shirley Tay said most retailers are finding it hard to adapt their business to the unpredictable conditions during this crisis.

“If the situation does not improve, it is likely that businesses will have to adopt ‘right-sizing’ exercise or inevitably shut more outlets, which will have a negative multiplier effect on the national economy,” Tay said.

Using the store sales performance as an indication, Tay said the decline in customer footfall is 60% and above. The number of visitors dropped on both weekdays and weekends.

“Unsurprisingly, the bulk of visitors spend minimal time in the mall and only frequent the supermarkets for grocery shopping or medical supplies,” Tay said.

Operator of several popular shopping centres, Sunway Malls, said the resurgence of the third Covid-19 wave pushed back its recovery.

“Before the third wave, Sunway Malls had anticipated sales and traffic to normalise by up to 90% by year-end.

“Generally, we see a 40%-70% decline in footfall in our Klang Valley malls, where the CMCO is currently in place.

“For our other malls in Penang and Johor, the footfall is somewhat more stable,” said Sunway Malls and Theme Parks chief executive officer H.C. Chan.

The game changer for the retail sector would depend on how swift the R-naught (R0) of Covid-19 is brought down, said Chan. The (R0) currently stands at 1.5.

Cautious shoppers

Not only have shoppers become cautious, the Covid-19 situation has influenced consumer behaviour. They have become more decisive and also opt for affordability.

Dr Kasuma Satria, chief human resources officer and corporate communications director of AEON Retail Malaysia said: “Consumers are spending more per visit, less window shopping but they are more specific.

“This is where we have seen a spike in demand for our concierge shopper service, in which we have served a total of 400,000 customers for the past six months.”

The general merchandise store and supermarket chain said its AEON malls in the southern end are impacted mainly by the closure of the border with Singapore.

Discount stores and fixed-price stores like ECO Shop, Mr DIY, Setia RM2.10 and MR SAVE are getting popular.

Tan from RGM said they attract all income groups and all racial groups.

“Many food and beverage operators have started introducing affordable set meals to attract more orders,” Tan said.

Malaysia Shopping Malls’ Association president Teo Chiang Kok said shoppers are cautious with spending at between 30% and 70% of pre-MCO levels as of August.

“But it has since dropped from September with the recent spike of Covid-19 cases and the current CMCO in the Klang Valley. Most of these spending is on essentials (supermarkets) and on food.

“There were pockets of carefree spending splurges due to ‘release’ and or ‘revenge’ spending but they are not sustainable.”

Teo said people are spending less on discretionary items because of fears about the future, especially on the economy and job security.

The footfall in malls fell further since last month after Covid-19 cases in malls, dropping to an estimated 10%-20% of pre-MCO levels.

Relief for tenants

Sunway Malls is assisting its tenants through flexi-operating hours, rent relief, term repayment and month-on-month lease.

“We estimated a 20% range of total rent for 2020 is diverted in this form of assistance, but we will monitor the percentage with the development of the Covid-19 cases.”

Chan said the pandemic’s effect is not a short-term, zero-sum game but rather a long-term recurring game whereby the first is survivability and then sustainability.

Tay from MRCA said: “As far as internal processes are concerned, most retailers have reviewed their hiring policy with regard to part-timers and revised the working hours of the permanent employees.”

She said landlords who are facing an equally difficult time should still offer some form of assistance to affected tenants to weather through this pandemic storm.

For Aeon, Kasuma said the retail chain is providing tenants with online-to-offline (O2O) opportunities at myaeon.com.my. – October 23, 2020.