Retail Apocalypse?

The term “retail apocalypse” gained currency in 2017 with multiple closures in the U.S. of major retailers. Since 2010, various economic factors have impacted U.S. stores.

Sears Holdings with more than 3,500 stores in 2006, down-sized to 1,430 stores in 2016 and filed for bankruptcy in October 2018. Sears had 68,000 employees. The impact is not only on employees but suppliers and others as well. Over 12,000 physical stores have closed since 2018.

Factors for closure include over-expansion of malls, rising rents, bankruptcies of leveraged buyouts, low quarterly profits, changing habits and online shopping. Millennials generally resort to online purchases.

The most productive retailers in the U.S. are the discount superstores Walmart and Target, the low-cost “fast-fashion” brands (e.g. Zara, Uniqlo), off-price department stores and dollar stores.

In Malaysia, hypermarkets are facing a bleak future. Many are pulling their shutters or revisiting their business model. Operational costs, waning customers’ appetite and tough fight with smaller outfits make their case untenable. Internet shopping has hit mega retailers, as consumers opt for cheaper options.

GCH Retail (M) Sdn Bhd, operator of Giant Hypermarket has closed seven of its hypermarkets since 2017. In addition, nine supermarkets, low premium supermarkets under the Cold Storage brand are targetted for closure. GCH has been suffering four consecutive years of net losses (since 2014). GCH Retail posted a net loss of RM235.11 million on revenue of RM4.6 billion in 2017. Accumulated losses amounted to RM243.5 million. GCH Retail is owned by DFI Mauritius Limited (70%) and Syarikat Pesaka Antah Sdn Bhd (30%).

In December 2018, it was reported Tesco was contemplating to exit its businesses in Thailand and Malaysia. Tesco left Japan, the U.S. and Turkey in recent years. This is amid stiff competition.

AEON Co (M) Bhd, the operator of the Japanese-owned hypermarket chain, downsized its departmental store areas in several locations and refurbished stores to focus on food items.

Besides online buying, smaller chain retailers like 99 Speedmart and Mr DIY have also contributed to the slow exit of hypermarket. According to Retail Group Malaysia (RGM), the hypermarket segment has been slumping since 2017. RGM MD, Mr Tan Hai Hsin, has forecast that supermarkets and hypermarkets will remain in the red with negative growth for 2019.

What lessons can we learn? There is no such thing as “too big to fail”; adaptability is another; technology makes the difference and being agile in a tough market is key to survival.

References:

1. Hypermarkets face a bleak future on waning appetite, The Malaysian Reserve, July 15, 2019

2. 20 more Giant and Cold Storage stores to close? Vasantha Ganesan, August 20, 2019, www.theedgemarkets.com

3. Tesco Plc likely to exit Asia business, focus on home country, EU, Ayisy Yusuf, December 10, 2019, New Straits Times