Innovation and adaptability
Retailers to continue strategising amid headwinds
THE retail market, which registered a robust recovery in 2022, continued strongly into 2023 but was later hit by weakening consumer sentiment.
Going into 2024, the industry is expected to face persisting challenges, amid the proliferation of shopping malls and economic uncertainties.
In light of these uncertainties, Zerin Properties chief executive officer Previn Singhe says retailers will need to continue strategising and innovating to enhance product offerings, in order to adapt to shifting market trends and navigate the challenging landscape.
“Organisations are getting creative with their use of space, both shrinking and expanding according to their unique requirements. So, the demand for space persists, but its nature is evolving.
“To thrive, commercial real estate must harmonise these trends, providing adaptable, tech-integrated spaces that respond to these evolving needs,” he tells Starbizweek.
Despite a strong start to 2023, Savills Malaysia Sdn Bhd retail services head Murli Menon says a very sluggish and negative second half caught most retailers and malls by surprise.
“There was a tight squeeze in domestic consumption due to rising costs, as well as marked absence of tourist inflow below expected levels as compared to other neighbouring South-east Asian countries.”
Murli says the negative impact was far more significant for brands operating in the mid and mass market segments.
However, he says the luxury and premium categories still enjoyed some growth, even though below original expectations.
“The proliferation of shopping malls and especially oversized shopping centres with no unique offerings in terms of brands, services or experiences mushrooming without proper research and feasibility analysis, will only continue to erode retailer as well as shopper confidence.
“However, the successful and strong opening of TRX, Kuala Lumpur, has shown that there is still a lot of potential and vibrancy in retail.”
Murli says Malaysia is seeing renewed interest from international brands, especially from key players from China.
“This, combined with the mushrooming of new “retailpreneurs” will help bring in greater innovations in concepts and services.
“The overall outlook for 2024 will therefore be “cautiously optimistic” and there will be a stronger emphasis on detailed analytics and market evaluation before expansion,” he says.
Sunway Malls and Theme Parks chief executive officer H.C. Chan acknowledges that the retail market will face headwinds this year.
“Tax hikes and new taxes, roll-back of subsidy, tariff hikes, persistent inflationary outlook and geopolitical tensions, amongst many others, continue to drive business costs up and weigh heavily on margin and profitability for this year,” he says in a statement.
However, Chan says he remains optimistic about the group’s prospects for this year, given its proven track record, strong branding and network of retail partners.
“For 2024, the mall group forecasts a growth of 5%, in tandem with potential turnaround in external demand.
“We see this as part of a normalisation of growth towards more sustainable levels,” he says.
To circumvent increased competition entering the market, as well as catering to demands for more quality retail space, Chan says Sunway Malls is upgrading its current malls with asset enhancement initiatives (AEI).
“Between 2023 to 2026, a total of 5.47 million sq ft of new malls are expected to enter the Klang Valley market.
“The mall group is currently undergoing a Rm550mil AEI exercise of 800,000 sq ft of retail space in Sunway Pyramid and Sunway Carnival, with a respective investment of Rm200mil and Rm350mil each.”
Chan explains that the AEIS are strategic thrusts of converting low-yield to highyield for Sunway Malls’ next growth phase.
“The quality retail space will enable Sunway Malls to cater to a variety of new and fresh offerings including more Muslim friendly offerings.”
He adds that the group will be building two malls.
The first is Sunway Square, with a retail space of 300,000 sq ft in Sunway City Kuala Lumpur, which is expected to be completed by the end of this year.
The second is Sunway Ipoh Mall, which will have a retail space of one million sq ft in Sunway City Ipoh, to be completed by 2026.
Meanwhile, Knight Frank, in its Real Estate Highlights report for the second half of 2023, says the new and incoming retail supply may potentially exert pressure on upcoming rental reversion, due to intensified competition in the market.
“Thus, sustaining robust occupancy levels for existing malls in the short-to-medium term requires proactive management efforts, from organising events to updating tenant mix.”
In the newly tabled Budget 2024, Knight Frank notes that the proposed sales and service tax rate hike from 6% to 8%, coupled with the introduction of a 5% to 10% luxury tax and restructuring of subsidies, may dampen growth in the retail market.
“The tax increment impacts the entire supply chain. Thus, retailers experiencing higher tax liabilities will see rising operational costs, potentially eroding their profit margin and this may lead to price adjustments, which ultimately impacts consumers.”
Nonetheless, Knight Frank notes that the government is committed to ease the rising cost of living, such as allocating Rm200mil for the ongoing Payung Rahmah initiative.
“The government also continues to allocate cash assistance and incentives to boost consumer spending, increasing 25% from the previous year to Rm10bil.”
Additionally, Knight Frank says environmental, social and governance (ESG) is gaining traction within the local retail scene.
“Supported by regulatory and financial institutions, more retailers and mall operators are proactively embracing sustainability and aligning their strategies with ESG principles.”
Additionally, Knight Frank says omnichannel strategies continue to play a pivotal role in the digital transformation of businesses.
“Supported by government initiatives aimed at establishing a regional e-commerce gateway, the upward trend in e-commerce transactions in Malaysia is anticipated to persist.”
“Organisations are getting creative with their use of space, both shrinking and expanding according to their unique requirements.”
Previn Singhe