ARE you hitting the shops this Christmas?
If you’re one the over 60 percent of Malaysians who have shopped online, then there’s a fair chance the answer is no.
There is rising concern within retail that battling crowds, standing in queues, and hunting for the last remaining parking space may be enough to scare of many shoppers who are instead favouring the comfort of their own living room. After all, bargain deals while sitting on the couch in your pyjamas can be hard to beat.
This is posing a conundrum for Malaysia’s shopping malls, of which there is a staggering abundance – the country of 30 million is expected to have close to 700 malls by the end of 2019. Analysts have voiced concern they are fighting a losing battle; that the double-whammy of rising e-commerce and an uncertain economic outlook will be enough to land them in dire straits permanently.
But Malaysia’s malls aren’t giving up without a fight – and with another 140 in planning to be built nationwide – they realise they need to get creative if they want to hold on to customers.
The rise of e-commerce
E-commerce in Malaysia has exploded in recent years with revenue in the e-commerce market amounting to US$3.1 billion in 2018, according to Statista. That’s a whopping 30.6 percent higher than the previous year, and it’s showing no signs of slowing down.
By 2023, the e-commerce market is predicted to fetch US$5.7 billion with the number of users expected to amount to almost 22 million.
Not only will the number of online shoppers grow, but our online spending on an individual level is predicted to increase with the average annual revenue per user more than doubling from 2017 (US$124) to 2023 (US$261).
The retail apocalypse
In other countries, such as America, this has played a role in the decimation of bricks-and-mortar retail outlets, with analysts Credit Suisse foreseeing between 20 and 25 percent of American malls closing within the next four years.
Their 23-year US Retail Store Closure Index shows the US retail industry is tracking to an annualised 59 percent year-on-year reduction in store unit closures in 2018.
They’re calling it the retail apocalypse, as some of the giants of yesteryear and big household names – such as Toys ‘R’ Us – cave to the pressures of the modern-day retail landscape.
Malaysia has so far weathered this storm, instead pushing forward with plans to build more. By 2021, Malaysia is expecting 27 new malls in Kuala Lumpur alone, bringing the overall number of malls in our capital city to 137.
But ambitious plans don’t always equate to success with some developers struggling to fill the ever-increasing retail space on offer.
Filling the space
Focusing on Kuala Lumpur, tenant occupancy rates in the capital’s malls have dropped in recent years hitting 84 percent in the second quarter (Q2) of 2018. That’s down from 89 percent four years earlier, according to the National Property Information Centre (NAPIC).
As malls continue to be built, the number of malls with vacant lots is also increasing. There are now 14.5 percent of shopping malls in Kuala Lumpur that have failed to fill over half of their space, far higher than the 3.9 percent in 2014.
Oversupply is a problem in the capital, Tan Hai Hsin, Managing Director of Retail and Director at real estate consultancy Henry Butcher Malaysia, told Asian Correspondent. But it’s not the biggest problem.
While the Klang Valley, the area in and around Kuala Lumpur, has been facing retail oversupply for the last eight years, this is a location-specific problem, Tan explains, and is not shared by other regions of the country.
Smaller towns, such as Klang, Bangi, Kajang, Kepong, are yet to reach saturation point, Tan points out.
E-commerce isn’t all to blame
If oversupply is only the second biggest problem facing Malaysia’s malls, you might expect e-commerce to be the number one, but you would be wrong.
Despite the warning cries and fearmongering about e-commerce, Tan believes it simply is not the threat many are claiming it to be.
“The online retail market will continue to grow,” he said. “But it will not replace the bricks-and-mortar retailers, as well as shopping centres.”
A far bigger risk, Tan says, is the country’s poor performing economy. This, not e-commerce or oversupply, is the driving force behind the drop in occupancy rates nationally.
“The most important problem faced by shopping centre owners in Malaysia was severe reduction in consumer spending due to rising cost of living and weak economic conditions,” he explains. “This has affected even the most popular shopping centres in Klang Valley.”
The introduction of a highly unpopular goods and services tax (GST) in 2015 increased the price of goods and dramatically dropped people’s consumption power. The negative sentiment that plagued its initial months continued throughout its implementation as the prices of goods skyrocketed while salary growth remained stagnant, making the six percent universal tax an added burden on household spending.
This was repealed as a first order of business by the new Pakatan Harapan government after their shock May election win. And it appears the reversal is already showing results, with household spending surging to a multi-year high of eight percent year-on-year in 2018.
The statistics from ICAEW reflect a boost to consumer sentiment since the abolition of the tax in June.
Advice for future developers
While consumer sentiment is improving, there is still an air of political uncertainty as to what direction the new government is going to take the economy.
So while Malaysia’s economy is continuing to grow, it currently going through a slowdown, leaving some to question if investment in more shopping malls is really the best way to go.
Chan Hoi Choy, CEO of Sunway Malls, has some sage advice for any developers looking to break into the market: Do your research.
“A mall is very capital intensive, it can cost anywhere from RM500 million (US$120 million) to a RM1 billion of investment,” Chan told Asian Correspondent. “You need to really understand the demographics and the market you are going into, this helps to minimise the business risk.”
And Chan would know. Sunway has developed six malls in Kuala Lumpur with a seventh on the way. It boasts among them some of the capital’s most popular shopping destinations. He’s also a top adviser to the Malaysia Shopping Malls Association, or PPKM, that oversees the industry nationwide.
Malaysia’s Malls aren’t going anywhere
While the figures in occupancy and e-commerce rise, twinned with Malaysia’s uncertain economic outlook may be cause for concern, it looks unlikely to be the kiss of death for Malaysian malls that some have feared. Those that continue to thrive have shown that malls don’t need to die, they just need to change.
Chan believes the shopping mall will be a mainstay in Malaysian culture for a long time to come, after all, as he points out, one in five people in Malaysia still go to a mall on the weekend.
As times have changed, so too have the malls, and they are now far more than just a place to buy your groceries.
“In Malaysia, it’s a community place where people can come together and congregate. It a safe and controlled environment where people can have peace of mind to go about their business more efficiently.
“They go beyond just product purchases, it’s about health, enjoyment and leisure.”