Businesses struggle to stay afloat amidst a subdued Raya

The arrival of festivities has always signified a welcome increase in business transactions, and Hari Raya is no exception. However, Muslims celebrating the Raya this year must contend with a new normal, with the virus threat and a nation largely under the movement control order (MCO).

For the consumers, it is a matter of inconvenience, but for the retail businesses, it is a matter of survival of the fittest. According to Retail Group Malaysia managing director Tan Hai Hsin, the Hari Raya festival usually contributes to about 25% of total retail sales in Malaysia.

Due to phase four of the MCO, this year’s Hari Raya sales have been severely affected, with many Muslims being unable to purchase the necessary items and merchandise during the first two weeks of Ramadan. However, Tan is optimistic that retail sales shall climb quickly in the event the MCO is lifted after May 12.

He said Malaysian consumers would return to shopping as usual, but the reserved setting may hamper business. For example, the imposed social distancing measure will affect business volume as consumers may be frustrated by the long queue. As for the cafes and restaurants, tables need to be placed apart from one another, which reduces customer capacity.

“The partial lockdown in the last two weeks of March led to zero revenue for non-essential retailers in the whole country,” said Tan.

With regards to external demands, retailers that are highly dependent on foreign tourists will register poor business until at least the end of this year. “The return of foreign tourists will take time as the virus infection will stop travellers from moving around for the next one to two years,” Tan commented.

The new normal does not only change consumer habits. Tan said the impact of the virus would direct retailers’ investments towards online platforms. The digitisation of shopping is foreseen to become a significant channel of distribution for goods and services in Malaysia.

Supply chain disruption
Essential goods and services remained operational during the MCO, and are likely to continue uninhibited after the lifting of the control order. With the non-essential products, most are manufactured in China, and the factories there had resumed operation since early April 2020. Based on these developments, Tan stated that supply would not be the major issue, but rather the demand.

He cautioned that the high demand for groceries and pharmaceutical products should revert back to normalcy soon. In fact, essential retailers may witness some slowdown in sales due to the overbuying of certain items, such as toilet paper, eggs, canned food, instant noodles, frozen food, face masks, hand sanitizer, vitamins and more.

Historical data showed a spike in business transactions for grocery retailers during the first week of the MCO. That was during the time when Malaysians rushed to stock up food and basic necessities. Note that grocery retailers included supermarkets, hypermarkets, mini-markets, provisional shops and convenience stores.

Retail growth rate of grocery retailers during the MCO, March 2020

Source: Retail Group Malaysia

In the second week, shopping activities began to normalise as can be seen through the drop from 20.9% to 9.5%. As more Malaysians adopt home cooking, grocery retailers began to enjoy higher sales.

On the other hand, non-essential retailers were disrupted even though online shopping had been used extensively during the MCO. “Many non-essential retailers with online shopping facilities are not able to deliver the goods to their customers because of logistic problems. Since their goods are considered non-essential, they are not allowed to deliver to their customers,” he said, adding that for those capable of doing so, it took weeks for the goods to be distributed to the buyers.

About 126,000 retailers, including 10% of stalls and markets, remained open during the MCO. They constitute 37% of the total retail outlets in Malaysia. This combined sale turnover accounts for 35% of the total retail turnover in the country.

Over 209,000 retail stores, including 90% of stalls and markets, were forced to shut down at the same time. They represent 61% of total retail outlets and 63% of total retail sales in the country. More than 732,000 retail employees are required to stay at home during this period without work.

Non-essential retailers also need to pay for most of the retail operating cost, even though their retail stores remain close. The total retail operating cost is estimated at RM14.3bil during the six-week duration. Such expenses include rent of retail premises, staff cost, utilities, head office expenses, insurances, taxes, advertising and promotional expenses, repair and maintenance costs, third-party professional services and others.

Cost of operation of non-essential retailers during the six-week duration of the MCO

During the six weeks of business closures, non-essential retailers still need to pay an estimated RM6.2bil in staff cost including salaries and wages, allowances, EPF and SOCSO contribution.

Retail to recover by the third quarter
Retail Group Malaysia predicted a growth rate of 2.5% for the third quarter of 2020, with a projected growth rate of 3.3% during the fourth quarter. However, due to the high negative growth rates during the first half of this year, the retail industry is expected to contract by 5.5% for the entirety of 2020. Tan drew parallels to the year 1998, or the first year of the Asian financial crisis, where the Malaysian retail industry contracted by 20%.

Retail growth rate, Malaysia 2020

To stimulate consumer spending, Tan recommended a government initiative where a nationwide shopping festival can be organised during the second half of this year. The event should boost retail spending by getting all the retailers to offer attractive discounts.In the event the national economy is unable to recover by the second half of this year, Malaysians may be reluctant to spend due to either a drop in take-home pay or lower consumers’ confidence level. Therefore, the main focus of the government is to improve the economy of the country.

From a macroscopic perspective, Tan explained that time is required for retail businesses to recover, as consumer spending gradually returns to the same buying momentum as per last year. “We can expect about 15% of the total retail supply or at least 51,000 stores to close down in Malaysia within the next six to eight months,” Tan cautioned.

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