PETALING JAYA: As more Malaysians feel the pinch of inflation and the rising cost of living, many have been forced to re-evaluate spending habits and practise belt-tightening where possible.
Surprisingly, the first quarter of this year (1Q24) fared well, according to the Malaysia Retail Industry Report 2024, with the consumer sector registering a 7.8% growth compared to the same period of last year.
This was driven by the Chinese New Year festivities and the month-long school holidays from February to March.
The distribution of Sumbangan Tunai Rahmah Phase 1 to 8.2 million Malaysians early in the year as well as incoming tourists from visa-free nations and the weaker ringgit also led to higher consumption.
However, not all in the industry are upbeat – department store operators, for example, are expecting their businesses to decline by 16.4% in the second quarter of 2024.
“Similarly, the supermarket and hypermarket operators are not optimistic of sales in 2Q24, expecting it to grow by only 1.4% for the quarter,” the report said.
As such, the Retail Group Malaysia has revised its growth expectations to 3.6% from 4%, on the premise of a likely more subdued second quarter.
Tradeview Capital Sdn Bhd chief executive officer Ng Zhu Hann told StarBiz inflationary pressures have been eroding the purchasing power of consumers.
On top of that, he said with the lack of increase in wage growth, most people’s disposable income took a hit.
“Festive spending in the first quarter led to higher outflow, so for the second quarter, people will be more thrifty to rebuild their savings,” he said.
On the lower expectations of department stores, Ng said they have been facing secular downtrend over the years because of eCommerce.
“So with the need to be more selective in spending, often consumers would compare prices online and look for the best deals.
“Department stores would face challenges in competing with online vendors, which may have promotions and direct-to-consumer sales that provide more value for money,” he added.
He pointed out that the boycott movement picked up pace in the second quarter, resulting in outlet closures and retrenchments, while impacting the top line for those affected.
Will the rest of the year continue to be on a downward trend?
Ng said there are a few factors that might push consumer spending up, like the civil servant salary hike and the option to withdraw from Employees Provident Fund’s (EPF) Account 3.
“We will see some improvement in 3Q24 and 4Q24, especially with the flexible withdrawal scheme under EPF Account 3, which provides for one-off movement of funds from Account 2 to Account 3 between May and August.
“The economy may witness a sudden inflow of capital into consumption spending, investment and others. Civil servants’ hike is also a catalyst to the spending due to the percentage increase in salary hike.
“All in all, it will contribute towards the consumer sector as a whole,” Ng said.
He added that an improvement towards the end of the year is likely due to the holidays and festivities.
“If the ringgit strengthens towards year-end, as indicated by Bank Negara, it is likely to provide some relief to our local spending and price adjustment for imported goods.”
HSBC head of Asia equity strategy Herald van der Linde said local consumer stocks benefitted from lower inflation, a trend seen globally.
“But we also see incoming investments in the technology industries and this creates employment. That too will support Malaysian consumer spending,” he told StarBiz. Meanwhile, Kenanga Investment Bank Research said it will maintain a “neutral” call on the consumer sector as it foresees ups and downs in the coming months.
It said sustained elevated inflation and consumer anxiety over the impending RON95 subsidy rationalisation will most likely keep the sector subdued.
According to the research firm, the retail department store segment may be worse off due to the lack of festivals after Hari Raya Aidilfitri in April.
“Consumer discretionary players like Padini Holdings Bhd and Aeon Co (M) Bhd will continue to face challenging times and may need to sacrifice margins to hold up sales,” it noted.
Contrary to Ng, Kenanga Research said the option to withdraw money from EPF Account 3 may not boost spending as much as it was expected to do.
At the moment, the EPF has approved 3.04 million applications for withdrawals, amounting to RM5.52bil.
It has also received 2.86 million applications during the period to transfer funds from Account 2 to Account 3, involving RM8.78bil.
The research house said that over time, the number of applications are likely to taper down, given the latest application number is close to an average 5.9 million applications received over the past four withdrawal schemes.
“Due to the smaller withdrawal amounts involved, the boost to consumer spending is expected to be milder than previous schemes,” it opined.
On the flip side, it said the 13% salary hike for civil servants may partially restore spending power, albeit much later in the year.
