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Thursday, February 21, 2008

Retail round-up

Industry pundits expect 2008 to be a good year for the retail industry in Asia despite the possible slowdown in the US economy

THE Year of the Rat is expected to be an optimistic one for Asia’s retail market, with expansion activities being a main growth driver. Based on retail consultants Jones Lang LaSalle’s fourth annual Retailer Sentiment Survey released last month, three key factors are behind the anticipated double-digit retail growth – consumer spending, the economic climate and tourism.
While India and Greater China are among the most bullish in the region, 76% of the 150 retailers from various trades in eight key Asian markets polled anticipated higher growth turnover in 2008.

Jones Lang LaSalle Asia Pacific head of research Dr Jane Murray said in the report that 2007 had been a bumper year for retailers in Asia. According to Murray, continued strong, real-income growth has buoyed consumption levels and purchasing power. Murray feels Asia has emerged relatively unscathed from the credit crunch; markets in the region continue to be attractive to investors, developers and retailers.

Meanwhile, retail sales in Hong Kong also rose 19.3% in December last year following an improved labour market and lower interest rates, which encouraged consumers to spend more on food, clothes and electronics. A Bloomberg report last month quoted MasterCard Inc estimating that Hong Kong’s retail sales may grow 10.5% in the first half of this year from a year earlier after gaining 8% in all of 2007.

However, there seems to be mixed sentiment on home ground. MasterCard Worldwide expects retail sales to rise by 6.7% year-on-year in the first half of 2008, to RM40.5 billion on the back of strong consumer confidence. According to its Master-Index of Retail forecast released recently, increased attention by the government on infrastructure and development reforms would aid economic activity although Malaysia’s real gross domestic product growth would slow to 4.8% this year.

Local consultant, Retail Group Malaysia Sdn Bhd however is not so optimistic. The company, which tabulates quarterly retail data for the Malaysian Retailers Association cut its sales growth projection to 7% from 8% earlier. This cut could result in total sales for the year coming in at RM68 billion, a RM610 million shortfall. The reasons for this include higher living costs and stagnant salaries that are weighing down consumer confidence. Retail Group Malaysia’s managing director Tan Hai Hsin feels retailers are preparing for slower consumer spending this year as they are concerned about Malaysia’s rising cost of living more so than a slowdown in US economy.

Business as usual
However, despite the threats of inflation, the retail scene continues to look exciting for shoppers who are spoilt for choice when it comes to shopping destinations in the Klang Valley. The opening of two new malls, The Gardens Galleria and Pavilion Kuala Lumpur coupled with the extension of Sunway Pyramid last year, saw new international brands such as Massimo Dutti, Ted Baker and GAP, being introduced. Tan, who is also managing director of Henry Butcher Retail observed large shopping crowds during the festive period at the end of last year.

“While consumers remain cautious in spending following expectations of price increases in petrol prices, the shopping managers went all out to attract shoppers and big boys like Pavilion Kuala Lumpur, Suria KLCC, 1 Utama and the Curve also organised regular promotional activities at their main concourses,” Tan told PropertyPlus.

However, Tan cautions that there are not enough shoppers and purchasing power to cope with the increasing shopping centre supply in the Klang Valley. Some shopping centers are going to
be forced to close down due to poor occupancy and low visitation in the near future, he said.

According to the Ministry of Finance’s Valuation and Property Services department latest report in 3Q2007, total retail space within shopping centers stood at 66,887,886.55 sq ft nationwide housed in 353 shopping centers, of which, about 77.1% is occupied. Not surprisingly, Kuala Lumpur leads in market share at 23.4% (50 shopping complexes with 15,619,457 sq ft retail space and 81.9% occupancy), followed closely by Selangor (19.2% or 40 shopping complexes with 12,837,449 sq ft retail space and 86.8% occupancy), Johor (13.8%) and Pulau Pinang (13.0%).

A check with some shopping malls revealed that visitation and sales results last year improved compared to 2006. Take the example of 1 Utama – thanks to its constant reinvention and finetuning of offerings and presentation to entice discerning shoppers, approximately 25 million shoppers visited the mall last year.

Shopping centre director of 1 Utama, Datuk Teo Chiang Kok said, “We follow trends closely and strive to introduce new and exciting facilities in line with shoppers’ experiences and expectations that are always changing. In fact, our 2007 year-end sales results improved on average by 15% against the previous year.”

Teo: We follow trends closely

Meanwhile, Sunway Pyramid Sdn Bhd senior general manager HC Chan expects the newly extended mall to see it gather full momentum within the next six to 12 months. “With a total of 1.7 million sq ft of net lettable area, we are enjoying 98% occupancy and visitation levels have doubled, with 2.5 million visitors monthly,” he said.

Centre manager of the Curve, Adele D Flores said that a majority of its fashion and food-andbeverage tenants achieved their sales target for the year, resulting in a direct positive impact on the mall. “One of our key efforts was a branding exercise for Mutiara Damansara, which integrates the Curve, Cineleisure, Ikea/Ikano and Tesco as a one-stop destination for shoppers. Our visitorship increased by 30% last year compared to 2006,” said Flores.

Despite being in business only since the fourth quarter of last year, Pavilion Kuala Lumpur experienced monthly visitation of between 65,000 and 70,000 people. Leasing and marketing director for Pavilion Kuala Lumpur Sdn Bhd, Joyce Yap, also said that December was a successful month for the mall.

Yap: We did well in the festive period

“We did quite well during the festive period and business was three times that of October and November. From the feedback gathered from our tenants, the number of tourist visitors at their outlets in Pavilion is higher,” added Yap.

Competitive marketplace
Pavilion’s Yap, who is also president of the Association for Shopping Complex and High-rise Management (PPK), feels that the existing malls are not competing for the same retail pie and that only 10% to 15% of the market is cannibalised.

“Competition is good for the industry because it will see an increase in investment by the mall managers to step up promotional efforts and fit-outs,” she added.

PPK vice-president MK Foong concurs, believing that competition is a method to gauge a mall’s strengths and capabilities, and to keep on improving itself.

Foong: Competition is a method to gauge strength

Foong, who is also Sungei Wang Sdn Bhd’s general manager, said, “Despite the emergence of new players, Sungei Wang continues to retain its identity, strengthen its retail and promotional activities. We also generate continual publicity in the relevant media, introduce new concepts/floors to attract shoppers.”

Another player that places emphasis on advertising and promotion is Mid Valley Megamall, which spends in excess of RM5 million annually, said Mid Valley City Sdn Bhd executive director Daniel Yong.

“We aim to provide valueadded services and create a feelgood factor for our customers. Despite the new competition, our key indicators such as visitation and spend have continued to grow. In fact, our sales growth for 2007 was met and in many cases, exceeded expectations,” Yong added.

However, Sunway Pyramid’s Chan, who is also PPK vicepresident, expects mall players to experience a competitive squeeze on margins and market share as a result of the opening of the new malls.

“With approximately four million sq ft of retail space created by these new malls, there is an oversupply of mall retail space and the market size is not increasing as fast as the supply,” he explained.

Henry Butcher’s Tan agrees with Chan, saying that it is a survival of the fittest with such intense competition in the marketplace.

“This dilution has been happening since 2004 where newer and larger malls have been facing problems filling up space and bringing in shoppers,” said Tan.

While no major retail space with over one million sq ft of net floor area is expected this year, there are still many shopping centres being planned, said Tan.

Tan: Dilution has been happening since 2004

“Major ones that have yet to be opened in the Klang Valley include Suria KLCC phase two, Vision City, Plaza Rakyat, Bukit Bintang City Centre [Pudu Jail], KL Sentral’s Lot G, Bangsar Shopping Centre phase three, Subang Parade phase two, Harbour Place and Tropicana Mall.”

VMY 2007
Following the government’s extension of the Visit Malaysia Year 2007 campaign by an additional eight months in conjunction with the country’s 50th year of independence, the retail boys are not resting on their laurels.

Ongoing efforts are being made to up the ante in efforts to get a slice of the Tourism Ministry’s targeted tourist revenue pie worth some RM50 billion this year against the RM44.5 billion set last year.

PPK’s Yap believes there must be a concerted effort between the government and the private sector to promote the country as a shopping destination. “The latest malls have caused some excitement on the local retail scene and certainly increased our standards to compete on the foreign front,” she said.

Foreseeing the market to be a competitive one, both locally and internationally, Yap said that Malaysia remains known as a shopping holiday destination.

“With no limit to the potential revenue from tourists and shopping, our neighbours are also competing for shopping dollars. For instance, Singapore’s new attractions are F1 and casinos, Thailand has huge malls with breadth and depth like Siam Paragon, and malls in Indonesia are catching up in size,” she said.

According to 1 Utama’s Teo, the retail scene in Malaysia still trails countries like Hong Kong, Singapore and Bangkok where shopping accounts for some 60% of tourist spending, while Malaysia only recorded 25%.

By theSun - PropertyPlus (by Loo Pik Kwan)

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