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Will freezing new mall licences solve Malaysia’s impending retail problems?

The proposal of the Malaysia Retail Chain Association (MRCA) early this month to temporarily freeze issuing licences for new shopping malls, has stirred up some discussion within the local retail scene. MRCA, which represents over 300 retailers in Malaysia, covering over 20,000 outlets, said its intention is to curb the oversupply of retail space.

Valerie Choo, MRCA’s deputy president said the rising number of shopping malls in the next two years would strain the retailers’ margins. She added that many retailers have been impacted by the economic slowdown with the weakening ringgit also leading to a rise in overhead costs. Choo estimated an over 50% increase in shopping mall space once the new shopping malls are ready.

The news also came within a week of the announcement that the Malaysian retail industry recorded a lower-than-expected growth rate of 7.5% in retail sales for the second quarter of this year, according to the Retail Group Malaysia (RGM).

But, the question remains on whether freezing licences will really solve the impending problems and if the move is fair to these new upcoming shopping mall operators and owners.

Due to the current prolonged soft economy, various weather and security related events, the retail sector has already suffered from both domestic and tourist consumption, said Sue-Anne Lim, chief of group insights and strategy at Dentsu Aegis Network Malaysia. She added in order to maintain targets, retailers are often forced to discount in order to stimulate sales.

Quoting a recent report by Dentsu Aegis Network’s proprietary Consumer Connection System (CCS), she said more Malaysians are also holding back spending, preferring to entertain at home and a sportier active lifestyle now as part of the top ten trends in responding to a challenged economy.

Andrew Crombie, CEO of Southeast and North Asia at Fitch Design does not think the proposal of freezing these new shopping mall licences would really solve the current issues faced by the retail sector.

“The real problem is the tendency to approach retail space development from a developer’s perspective. (There is) not enough consideration given to fully understand the consumer mindsets and how best to match them with desirable retail offers,” Crombie said, adding that starting with a deep understanding of the consumer is fundamental.

We believe a blanket freeze may not be the best approach. Not all geographies or consumer segments face the same overload. A more targeted solution may be required.

Dentsu Aegis Network Malaysia’s Lim agreed with Crombie and she said it will bode well to bring innovative concepts to retailing.

“Rather than developing cookie-cutter malls with similar line-up of brands, mall operators should look at creating products and services that caters to a more unique audience, and deliver a more unique service by understanding consumer changing lifestyle trend and needs, as well as global examples,” she said.

Instead of curbing retail development entirely, could we use these insights to build a unique mall concept that caters to people’s changing lifestyles and continuously provide them a higher quality of life?

Meanwhile, Crombie also said although the rising e-commerce is a key component of the new retail industry, bricks and mortar retail sales still accounts for around 90% of all retail sales.

“Whilst e-commerce in Malaysia is growing at a compound annual growth rate(CAGR) of 24.3%, it is unlikely to surpass physical channels in the foreseeable future as user penetration is only 58%,” he said.

The real impact for retailers, he said, will be in how they embrace e-commerce and what role it will play in their satisfying consumer wants and needs.

Too often, discussion around retail stimulation is focused on fiscal factors and tools. However, Crombie said – as all the great brands have proven over and over, a powerful and exciting brand offer and consumer experience will drive demand irrespective of the prevailing economic conditions.

 

 

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