RGM expects 2020 retail sales to shrink 8.7% year on year, up from earlier forecast of 5.5%

PETALING JAYA: Independent retail research firm Retail Group Malaysia (RGM) has revised downwards its annual retail sales growth projection for Malaysia in 2020 to -8.7% year on year, from a projection of -5.5% made in April.

“This year has been the worst period for retailers in Malaysia since 1987. The retail market turned into a bloodbath since middle of March with the implementation of movement control order (MCO),” RGM said in its July 2020 Malaysia Retail Industry Report.

For the first quarter of 2020 (Q1), Malaysia’s retail industry saw a 11.4% drop in retail sales, compared with the same period in 2019. This latest quarterly result was better than the estimate made by Retail Group Malaysia at -18.8% in April 2020.

The Covid-19 pandemic affected the retail performances of all retail sub-sectors during Q1.

In Q1, the department store cum supermarket sub-sector recorded a negative growth rate of 8.5% year on year, but the food business of this sub-sector cushioned the negative impact of the MCO. The supermarket and hypermarket sub-sector was the least affected retail sub-sector during this crisis, with business declining by 3% in the first quarter of 2020.

The pharmacy and personal care sub-sector was also among the least affected during the quarter, reporting a growth rate of -3.9%, compared with that in the same quarter a year ago.

However, the department store sub-sector sales performance decreased by 17.5%. The fashion and fashion accessories sub-sector was the worst performer in Q1, recording a growth of -30.5%, while the other specialty stores sub-sector (including retailers selling photography equipment, optical products, children-related goods, second-hand goods, toys as well as arts & crafts) suffered a drastic drop in retail businesses with a growth rate of -17.9%.

Looking ahead to the second quarter, RGM said Malaysia Retailers Association members project retail sales to fall 28.8%. This is worse than RGM’s forecast of -9.3% made in April.

This is because the department store cum supermarket operators are expecting a dismal performance with a 40.9% drop in retail sales for Q2. In addition, the department store operators are expecting the worst in their businesses with a 62.8% drop in retail sales for Q2. This sub-sector will be the worst performer among the retail sub-sectors during this quarter.

Furthermore, supermarket and hypermarket operators do not see big improvement in their businesses in the coming months.

“They expect to remain in the red zone with a 14.8% drop in retail sales for Q2. This sub-sector remains the least affected business among the retail sub-sectors during these trying times.

Retailers in the fashion and fashion accessories sector expect their businesses to suffer a drop of 39.3% in growth rate during Q2,” it stated.

In addition, retailers in the pharmacy and personal care sub-sector are expecting their businesses to record a growth rate of -18.4% for the second quarter of 2020.

Retailers in other specialty stores sub-sector are equally pessimistic, with the expectation that businesses will decline by 55.5% in 2Q.

RGM said that with strict social distancing measures continue to be enforced, retailers would not be able to operate at full capacity as last year. For Q3, retail sale is expected to suffer a moderate decline of 3.5% compared with last year.

“In the event MCO is lifted fully before October, Malaysian retailers should expect retail business to begin its recovery. For Q4, retail sales are expected to decrease slightly by 1.5%.”

Supermarket and hypermarket operators do not expect a big improvement in their business in the coming months. - AFPPIX