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Monday, September 22, 2008

Retail sector outlook murky

PETALING JAYA: The country’s retail sector has moderated in the face of higher fuel and electricity prices and the outlook for the industry remains murky as inflation catches up with consumer sentiment and retailing costs.

The latest industry report put out by Retail Group Malaysia (RGM) on behalf of the Malaysian Retailers’ Association (MRA) showed that industry sales for the first six months (1H) grew 6.9% year-on-year, even as the rising price of energy and food took a big bite out of consumers’ disposable income.

But with inflation hitting 7.7% and 8.5% in June and July, respectively, it was unclear whether the 6.9% rate growth could be sustained, said MRA president and Sogo (KL) Department Store Bhd chief operating officer Eddy Chan.

“I would say that retailers are not as gung-ho as before, but I’ll settle for 6.9% for the year,” he said. “The outlook is still optimistic for certain categories such as pharmaceuticals and those in the supermarket business — the essentials. But areas such as fashion are still suffering.”

Chan said retailers were only now beginning to feel the pinch of the hike in energy prices, which might translate into a slower growth rate for 2H08. More importantly, Chan felt that the sudden hike in prices had dampened consumer sentiment.

“There’s no excitement in the market. Retail has to create excitement, but there is currently too much uncertainty in the market,” he said.

Chan hopes that the implementation of the Malaysia Savings Sale at the end of the year would inject some excitement into the retail industry, and enable the local industry to compete with regional retailers.

Coming off a bumper year in 2007 where sales grew by 12.8%, the highest since 1992, retailers had initially forecast 12% growth prior to June, said RGM managing director Tan Hai Hsin in the industry report.

“Malaysia’s retail industry had strong sales during the first quarter of this year, but slowed down considerably in the second quarter. The second-quarter performance was most affected after the sudden fuel price hike in early June,” he noted.

Tan added that all the different sub-sectors of the retail industry had reflected growth in 1H08, with some areas doing better than the others. He expects retail growth to be maintained through 2H08, and estimates 7% retail growth for the entire year.

The continued growth of the retail industry was unexpected, given the sudden and steep rise in fuel costs in June. In fact, OSK Research said there had been some contrary data emerging from the last quarter.

“Consumer sentiment and retail sales usually track each other but it has been showing a negative correlation,” said an OSK analyst.

“We believed (in an earlier report) that the fuel prices would impact retail sales but statistics are showing that sales are still intact. Month-on-month growth is still in the double digits and oil prices are coming down.”

She added that the festive seasons in 4Q would also boost sales, although numbers could be further improved by another reduction at the fuel pump, which may just be round the corner. Also, she was optimistic that the year-end sale would help boost numbers leading into 2009.

By The EDGE Malaysia (by Fong Min Hun)

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