Gloomy retail outlook for the first quarter

The lower-than-ex­pected retail sales performance for the first two months has led Retail Group Malaysia (RGM) to revise the country’s projected retail sales growth rate for this year down­wards for the second time to 4.9% from 5.5%, writes Laura Lee.

20022015_klcc_ST

Its previous revision from 6% to 5.5% was made on Jan 26, when RGM released its December 2014 report. In that report, members of Malaysia Retailers Association (MRA) had expressed hope of achieving a 5.5% increase in their businesses during the fourth quarter of 2014 (Q4 2014).

They were also looking at higher con­sumer spending during Q1 2015 due to the Chinese New Year festival, receipt of bonuses by employees and distribution of BR1M4.

However, RGM’s latest retail industry report for March revealed otherwise. For Q4, the industry instead registered a negative growth of 0.8% in retail sales compared to a 3.9% growth for the same period in 2013.

It also fell short of RGM’s estimate made in its December 2014 report that Q4 retail sales would have a 5.5% growth.

The March report states that although retailers used heavy discounts to encour­age consumers to shop during Q4 2014, they failed to generate higher sales.

In its analysis of the retail sub-sec­tor’s performance for Q4 and projections for this year, the report shows the “other specialty retail stores” sub-sector has been reporting negative growth since Q2 last year, where it registered -0.2% followed by -6.2% in Q3 and -6.7% for Q4.

Retailers from this sub-sector include those selling photographic equipment with photo processing services, optical products, second-hand goods, golf equipment, health and fitness equip­ment, toys, souvenirs, duty-free goods, arts and craft as well as food services.

While the retailers from this sub-sec­tor are hopeful of puttingbehind their disappointing performance last year with a positive growth of 4.7% during the first three months this year, one wonders whether this is just wishful thinking when the March report shows that “Malaysians were hesitant to spend more despite lower petrol prices and electricity charges”.

The department stores sub-sector also saw its negative growth widening to -5.7% in Q4 from -1.1% in the previous quarter.

For Q1 this year, RGM’s March report says department store operators expect to turn around their business with a 1.1% growth.

The fashion and fashion accessories sub-sector recorded its first negative 2.2% growth for Q4 after sales fell to a 11.3%growth from the previous quar­ter.

Although the March report says retailers from this sector expect their businesses to turn around with a 12.1% growth during Q1 this year, no reasons were given for this optimism.

The same goes for supermarket and hypermarket operators who say they expect a strong growth of 7.9% for Q1 when they managed to have only a marginal 1% growth for Q4 last year.

The department store-cum-super­market sub-sector, which did remarkably well in Q4 last year with a higher growth rate of 7.9%, is expected to post 6.2% growth for Q1.

Despite the dismal performance of most of the sub-sectors in Q4, the March report, which was compiled by RGM managing director Tan Hai Hsin, notes that MRA members are hopeful of an overall recovery in Q1 with a 5.8% growth rate for the retail sector.

RGM, whose projected retail sales growth for Q1 is much lower at 3.8%, says sales will expand by only 3.5% the next quarter with a higher growth of 4.8% and 6.9%, respectively, expected for the third and fourth quarters this year.

The Malaysian Institute of Economic Research (MIER), which came out with its retail trade survey report on Q4 earlier in January, had blamed the more cau­tious consumer spending on the rising cost of living.

Meanwhile, the expected performance index (EI), which measures how the retail sector would perform in the coming months, fell to 49.8 points in Q4 from 73.5 points in Q3.

Both its components – expected sales and business conditions – weakened by 25.5 and 22 points, respectively. This was aggravated by the reduced number of firms anticipating improved sales (sliding to 42% from 52% previously) while the number of firms expecting worsening sales climbed to 33% from 0%.

Although 58% of the respondents reported unchanged sales prices in Q4, they expect prices to increase in the coming months.

The weakening of the ringgit, which could accelerate inflation, is also a cause for concern for consumers given the reduced purchasing power from their income, especially when it comes to buying imported goods and travelling abroad.

For those involved in the retail business, it means higher cost for the import of goods and decreased profit margins. According to MIER, the danger with weaker profit is cost cuts and sub­sequently job losses.

This is an excerpt of an article first published in the April 4-10, 2015 issue of Focus Malaysia. Visit http://www.focusmalaysia.my
– See more at: http://www.theantdaily.com/Main/Gloomy-retail-outlook-for-the-first-quarter#sthash.1y24KDbl.dpuf