Malaysia’s retail sector grows rapidly by 7.8% in Q1 2024 amid consumer challenges

KUALA LUMPUR, June 18 — The Malaysian retail sector recorded a better-than-expected retail sales growth rate of 7.8 percent compared to the same period in 2023, according to the latest report by Retail Group Malaysia (RGM).

It said members of the Malaysian Retail Association (MRA) and the Malaysian Retail Chains Association (MRCA) had forecast third-quarter growth of 1.7%.

Many factors contributed to the strong growth, including Chinese New Year celebrations, extended school holidays from February to March and the start of Ramadan on March 12.

These events boosted consumer spending, with the distribution of Sumbangan Tunai Rahmah (STR) Phase 1 to 8.2 million Malaysians and increased tourist arrivals attracted by favorable exchange rates and visa-free travel for Chinese visitors.

However, challenges continued due to rising food prices and global geopolitical tensions, which led to boycotts of some international brands, impacting market dynamics.

Economically, Malaysia recorded an overall growth of 4.2% in the first quarter, with retail sales increasing by 7.8%.

This growth was supported by strong consumer spending, increased investment, a stable labor market and an increase in tourist numbers.

Key sectors such as services and construction grew by 4.7% and 11.9% respectively, while inflation averaged 1.7%, mainly due to higher costs of meals and utilities.

In March alone, spending on meals in restaurants, accommodation services, housing and municipal services increased by 3.0%.

Private consumption rose 4.7% in the quarter, helped by sustained spending on both essentials and discretionary products.

Despite these positive indicators, consumer sentiment – as measured by the Malaysian Institute of Economic Research’s Consumer Sentiment Index – fell to 87.1 points in the first quarter due to concerns about the rising cost of living and future career prospects.

The unemployment rate remained stable at 3.3% and labor force participation reached a record high of 70.2%.

The performance of the individual retail sub-sectors varied significantly over this period, as department stores combined with supermarkets experienced a significant increase of 12.3%, while stand-alone department stores recorded an increase of 9.7%.

Supermarkets and hypermarkets increased by 2.0 percent, and minimarkets, convenience stores and cooperatives by 5.6 percent.

The greatest demand was for fashion and fashion accessories, which recorded an increase of 12.6%, products for children and babies recorded an increase of 4.8%, and pharmacies – an increase of 8.2%.

Personal care products increased by only 0.4%, while furniture and furnishings, home furnishings and electrical and electronic equipment decreased by 2.1%.

Other specialist stores recorded an increase of 4.6%.

The food and beverage (F&B) sector continued to perform well in the first quarter of 2024, mainly driven by festive celebrations and school holidays.

However, higher food prices have increased costs for F&B operators as the ongoing Israeli-Palestinian conflict has led to boycotts by some international F&B franchises, impacting their operations.

The number of food and beverage outlets, including cafes and restaurants, increased by 7.4% and the number of takeaway outlets by 9.7%.

This boycott is expected to continue in the medium term and will have an impact on business operations.

Looking ahead, cafe and restaurant operators expect sales to grow by 7.3% in the coming quarter, while food and beverage kiosks and stalls expect slower growth of 5.5%.

RGM initially forecast 4.0% retail sales growth for full-year 2024, but later revised that forecast to 3.6%, citing a strong first quarter and moderate expectations for the second quarter.

It said the rising cost of living remains a major challenge for the Malaysian retail sector, affecting consumers across all income brackets.

RGM added that the depreciation of the Malaysian currency continues to impact import companies, leading to higher prices for consumers.

From January 1, a 10 percent tax on online sales of imported goods has contributed to an increase in retail prices.

Moreover, from March 1, the service tax rate on many goods and services increased from 6.0% to 8.0%, impacting retail spending.

From the same date, service tax on monthly electricity bills exceeding RM220.00 increased to 8 percent.

In April, the introduction of the EPF Flexible Account No. 3 enabled members under 55 years of age to withdraw funds, resulting in RM8.78 billion in claims filed as of May 22, likely boosting retail spending.

Moreover, the government’s decision to reduce diesel prices and launch a subsidy program from June 10 may impact transport costs and retail prices.

The planned High Value Goods Tax (HVGT) has been deferred indefinitely, while tourism is showing signs of recovery with target arrivals of 27.3 million tourists and receipts of RM102.7 billion in 2024.

With public servants’ salaries expected to increase by more than 13 per cent from December 1, with the minimum wage increasing to RM2,000 per month, year-end retail sales are expected to increase significantly.

RGM forecast 2.5 percent growth in the retail sector in the third quarter and plans for 3.2 percent growth in the fourth quarter after poor results last year.