Retail sector still below par on seasonal factors, uncertainties

KUALA LUMPUR: The retail sector started 2016 year on a weaker mode with the overall Retail Trade Index (RTI) from the Malaysian Institute of Economic Research (MIER) Retail Sector Survey easing 19.5 points in the first quarter from a year ago.
“Although the fall is partly seasonal as the first quarter is traditionally a quieter period, it could be attributed partly to uncertainties in the local and global economy,” MIER said in its retail trade survey report for the first quarter of 2016 (1Q16).
The RTI shed 12 points quarter-on-quarter to settle at 65.9 points in the first quarter.
“The fact that the index still stays below the 100-point threshold for a few times in a row indicates that the sector is still a contractionary mode, but it may actually have bottomed out,” said MIER.
The overall reading was dragged down by weaker assessment of the two sub-indices that make up the overall index – the Expected Performance Index (EI) and the Current Performance Index (CI) compared with the previous quarter.
The CI settled at 29.2 points in 1Q16, down 8.1 points from 37.3 points in the previous quarter. The CI consists of four components – the current sales, the business situation, the new orders and the gross margin component.
The CI readings indicate that sales were limp for 1Q16.
The other sub-index, the EI, which measures expectations on how the retail sector would perform in the coming months, settled at 36.7 points, down from the 40.6 points it registered in the previous quarter.
MIER said the local retail sector is expected to face challenging times this year as consumers continue to be prudent in their spending while retailers have to face rising cost of goods and operation.
Looking into 2Q16, retailers maintained a non-sanguine outlook, as indicated by the fall in the EI reading, with both components, namely expected sales and business conditions, weakening.
MIER said Malaysia’s retail chain operators expect sales to grow at a much lower rate of 5% this year in line with the country’s gross domestic product growth forecast of 4%-5%.
The revised retail sales target is underpinned by the normalisation of the impact of the Goods & Services Tax, the country’s new policy to waive visas for Chinese tourists to boost tourism, and the implementation of a rehiring programme to deal with labour shortage in the sector.
“It is still to early to see how the 3% cut in employees’ Employees Provident Fund contribution from March 2016 will contribute significantly to overall retail sales in 2016,” said MIER.