Local retail market still tepid as consumer sentiments continue downward spiral
KUCHING: Analysts retain their neutral stance on the local retail market as the sector remains challenging with weakening consumer sentiments and growing competition from new local and foreign retailers.
In a report, the research team at MIDF Amanah Investment Bank Bhd ( MIDF Research) said: “The local retail market remains challenging as consumer sentiment weakens whilst retail players are facing ever increasing competition as new local and foreign retailers are flooding into the local market.”
In the near term, it predicted that retail sales’ growth could primarily be driven by promotion and price discounting as consumer look for value for money purchase.
“Hence,thiscreatesunconducive scenario to raise selling prices which will depress profit margins,” it opined.
Meanwhile, in the recently concluded earnings season, consumer discretionary companies under its coverage namely Padini Holdings Bhd and AEON Co ( M) Bhd’s earnings improved strongly from the subdued performance recorded in the previous quarter.
“The recorded earnings for both companies tripled sequentially to RM53.2 million and RM53.5 million for Padini and Aeon Co respectively as average selling price reverted upwards,” it said, noting that in the third quarter of 2018 (3Q18), retailers revised down the average selling price and executed aggressive marketing campaign in order to remain competitive during the tax holiday period.
“Hence, the readjustment of retail pricing post tax- holiday period coupled with the strong spending during the Christmas season and year- end school holidays helped to lift earnings,” it added.
Moving forward, as consumers are becoming more price sensitive, MIDF Research expected minimal upward revision in average selling prices.
“Coupled with the moderation of SSSG, we expect that retailer’s profit margin will continue to remain depressed. Hence, in our view we expect that the recent addition of malls and stores are expected to have a longer breakeven period.
“We understand that for AEON Co, AEON Kota Bahru ( firstAEON in Kelantan) and AEON Kuching (first in Sarawak) will take approximately six years to breakeven due to the lower average spending among consumers in these states in comparison to the average four years breakeven period for stores located in the west coast of Malaysia,” it said.
The research team also noted that the heightening competition among brick and mortars retailers compounded with the exponential sales growth of online shopping platforms has resulted in increasingly challenging outlook for the consumer discretionary players particularly in the fashion industry.
“In view of the shift in preference of shopping platform, Padini and Aeon Co have scale down their stores expansion plan as part of their rationalisation strategy.
“We understand that Padini has reduced new stores opening to four this year (from 10 stores opened in FY18) while Aeon Co currently has noconcrete plan to open new shopping malls beyond FY19,” MIDF Research said.