KUALA LUMPUR: The domestic retail sector will continue to be robust for the time being despite the potential for rising inflation, increases in interest rates, and a probable global recession.
Retail Group Malaysia (RGM) managing director Tan Hai Hsin said Malaysian consumers are not concerned about the current global recession since it has not affected their spending and take-home pay.
"There have been no strong indications of a slowdown in consumer expenditure in Malaysia due to these external factors.
"However, some negative impact may become obvious in the last quarter of this year," he told the New Straits Times.
Tan said retailers' future earnings depend highly on current consumers' spending behaviour and patterns.
According to Tan, the retail growth rate for the second quarter (Q2) of 2022 was 62.5 per cent.
He said RGM had revised the third quarter (Q3) estimate upwards from 3.4 per cent estimated in June 2022 to 50.0 per cent compared to 61.7 per cent estimated by retailers.
"This higher-than-expected growth rate is due to large contractions during the Q3 of 2020 (-9.7 per cent) and 2021 (-27.8 per cent)," he said.
Conversely, Tan said the fourth quarter (Q4) estimate had been revised downwards from 3.6 per cent to 1.0 per cent.
"This lower revision was based on the high base a year ago and the current challenges of Malaysia's retail industry.
"Our projection for Q4 of this year is 1.0 per cent. This figure may be low, but it is because of the high growth rate achieved a year ago at 26.5 per cent," he said.
Tan, however, noted that retailing today is omnichannel.
He said traditional retailers could not rely solely on physical stores to grow as they needed to provide multiple channels to reach out to modern consumers. As a result, even online retailers are doing so.
"Physical stores that offer virtual shopping through social media, WhatsApp, website, app and third-party online platforms during the lockdown periods have witnessed online shopping activities drop by 70-80 per cent since early this year.
"Most consumers returned to physical stores after movement control orders (MCOs) ended," he said.
Late last month, the Small and Medium Enterprises Association Malaysia (Samenta) revealed that domestic retailers are less optimistic about their prospects in 2023, expecting a drop in sales value and volume.
This is due to continued global uncertainty, including a potential escalation of the Russia-Ukraine War, the tension in the Taiwan Strait and a prolonged sell-down on most stock exchanges.
Samenta chairman Datuk William Ng said retailers, especially small and medium enterprises (SMEs), are facing a quadruple whammy of downward pressure on sales, slower than larger firms' recovery, a rapid increase in costs and a severe shortage of workers.
"This is not only hampering growth and recovery but is debilitating to our quest to have a vibrant retail sector as one of the cornerstones of our economy," he said in a statement.
Meanwhile, Tan said food and beverage (F&B) outlets that offer food delivery via third-party delivery platforms during the lockdown periods had witnessed online activity drop by 50–60 per cent since early this year.
He also said pure-play retailers enjoyed a spike in business during the lockdown period.
"After MCOs ended, their businesses dropped by 20-90 per cent. However, some online operators continue to enjoy stable sales due to their unique and speciality products that cannot be found elsewhere.
"Other online operators suffered a large drop in business after the lockdown was lifted due to their weak unique selling proposition (USPs).
"Many online operators who started their businesses during lockdown ended their ventures due to intense competition and low-profit margin," he added.
Source: https://www.nst.com.my/business/2022/11/845954/consumer-spending-may-slow-down-q4