Retail Industry to Contract Further?

Source: http://edition.cnn.com

  

The extension of the Recovery Movement Control Order (RMCO) to December is expected to delay the recovery of the retail industry. Annual performance will be down by 9.3%, from an earlier forecasted contraction of 8.7%. A 9.3% contraction means retailers will only be able to report sales of about RM97.5 billion compared with RM98.2 billion projected previously.

“The RMCO started on June 10, 2020, and is expected to extend until the end of this year. With strict social distancing measures continuing to be enforced in the next few months, shopping centres and retailers will not be able to operate at full capacity compared to the pre-COVID-19 period,” according to the Malaysia Retail Industry Report (September 2020) that was released on 3rd September.

“This year has been the worst period for retailers in Malaysia since 1987. The retail market turned into a bloodbath since the middle of March with the implementation of the MCO.” The report was compiled by Retail Group Malaysia on behalf of the Malaysia Retailers Association (MRA).

And with the six-month moratorium on loan repayments ending on Sept 30, 2020, consumers are expected to tighten their spending in the final quarter of the year as they recommence servicing their loans, the report wrote.

The retail sector is now expected to contract 2.5% in the fourth quarter, as opposed to just 1.5% previously. Retailers who had traditionally relied on year-end festivities, school holidays, back-to-school purchases and bonuses may not see much, as many companies are not expected to give bonuses. The year-end school holidays have also been shortened to just two weeks from the usual six.

Retail data tabulated by RGM does not include big-ticket items such as cars and houses. Also not included are online retail sales, unless they were conducted on sites established by brick-and-mortar stores.

Retailers in Malaysia recorded their worst quarterly performance in the April to June 2020 period (Q2), with a sales contraction of 30.9%, as the MCO forced a majority of retailers to remain shut for a prolonged period during the quarter. The Q2 contraction was worse than the decline in the country’s economy during the same period, when Gross Domestic Product shrank by 17.1%.

The worst-hit retail sub-sector was department stores — which included retailers like Parkson Holdings Bhd — with sales shrinking by 62.3%, followed by fashion and fashion accessories (down 44.2%). Fashion retailers in Malaysia that have closed in the past few months include German-based ESPRIT, which has shut all its stores in Malaysia, and US-based NYX Cosmetics.

Sales at specialty retail stores shrank by 40.9%. These are stores which sell items like toys, photographic equipment and optical stores, which have been performing well over the years,

Meanwhile, the department store-cum-supermarket category declined by 34.6%. Aeon Co (M) Bhd, for example, sank into the red with a net loss of RM9.56 million during the period.

The pharmacy and personal care segment saw retail sales contract by 26.2%. This segment has not been immune to the impact of the COVID-19 as outlets within malls experienced the biggest sales decline, with many pharmacies having to shut to cap losses.

Meanwhile, supermarkets and hypermarkets, which were also allowed to operate as usual during the MCO to sell essential goods, recorded a 9.9% decline in sales.

Coupled with the Q1 retail sales decline of 11.4 %, retail sales in the first half of 2020 have already contracted by 20.2%.

Moving forward, retailers are expecting some improvement in Q3. The department stores-cum-supermarkets, in particular, are expecting to see sales growth to rebound to 5.7%, outpacing all other sub-sectors, while the fashion and fashion accessories segment expects a 4% expansion.

However, four segments are still expecting to show declines in the Q3, namely the pharmacy and personal care segment (down 10.6%), specialty retail stores (down 9.5%), supermarkets and hypermarkets (down 6.7%) and department stores (down 3.5%).

The Government seems oblivious to the implications – GDP shrinks, job losses increase, stores close, and manufacturers will totter to bankruptcy. Why can’t there be a government-private sector recovery plan drawn-up for retail, tourism, manufacturing and other sectors?

Reference:

Bigger annual retail sales contraction seen after 2Q’s record 30.9% slump, Vasantha Ganeson, TheEdge CEO Morning Brief, September 3, 2020