BMCC - Retail Sector Report 2018/2019

BRITISH MALAYSIAN CHAMBER OF COMMERCE Malaysian Industry Report 2018 / 2019

RETAIL

ABOUT THE BRITISH MALAYSIAN CHAMBER OF COMMERCE

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stablished in 1963, the British Malaysian Chamber of Commerce (BMCC) has been driven by the sole ordinance of advancing bilateral trade relations between the United Kingdom and Malaysia. Over the past five decades, the BMCC has been a catalyst in providing Malaysian-based businesses with networking and exposure, knowledge exchange and bilateral trading support services. Today, the BMCC has firmly rooted itself as one of Southeast Asia’s most prolific Chambers.

The BMCC is appointed by the UK’s Department for International Trade (DIT) to become their service delivery partner for British SME’s seeking to export or establish a presence in Malaysia. Embodied by dedicated sector specialists, the BMCC TRADE TEAM provide a range of customised services from market intelligence, business matching and event management to sourcing assistance of UK goods and services.

The BMCC TRADE TEAM works with UK exporters focusing primarily on SMEs in offering bilateral trade assistance, serving principally as a one-stop platform providing a soft landing for UK firms in Malaysia through market research and knowledge exchange, legal and regulatory systems guidance, connecting clients or distributors, and risk management.

In Partnership With

This report serves as a preliminary introduction that highlights key features and factors relevant to the Professional Services sector in Malaysia.

Information included in this report is the original work and property of the British Malaysian Chamber of Commerce (BMCC) and its department the Trade Team and is subject to copyright. No illustrations, photographs, graphics or text included in this report should be copied, reproduced or shared without prior written consent of its owner.

Whereas every effort has been made to ensure that the information given in this document is accurate, the British Malaysian Chamber of Commerce nor its Departments (Trade Team) accept liability for any errors, omissions or misleading statements, and no warranty is given or responsibility accepted as to the standing of any individual, firm, company or other organisation mentioned. © British Malaysian Chamber of Commerce Berhad 2018

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UNDERSTANDING MALAYSIA’S RETAIL SECTOR

Located in Southeast Asia, Malaysia is a federal constitutional monarchy consisting of two regions, Peninsular and East (Borneo) Malaysia, seperated by the South China Sea. Malaysia is known to be one of the most diversely congenial polyethnic and mutlti-cultural countries in the world.

Population: 32 Million Ethnicities: Malay, Chinese, Indian Currency: Malaysian Ringgit (MYR) Ease of Doing Business: Rank 24 Average GDP Growth: 5 - 5.5% Franchise Industry 2016: MYR 21.93 billion

The Malaysian government has drawn up the

framework for the New Economic Model (NEM) to turn Malaysia into a high-income economy based on innovation, creativity and high value source of growth. Under this model, Retail is one the 12 National Key Economic Areas (NKEA) implemented by the Economic Transformation Unit.

Various elements highlight a strong retail market in Malaysia, including the steady growth in overall income which results in lower spending on basic commodities and more on diversified and sophisticated goods and services.

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INTRODUCTION Malaysia’s overall retail sales are expected to perform better than projected in 2018, with a growth of 6% compared to 2017’s meagre growth of 3.7%.

According to RGM (Retail Group Malaysia), the improved percentage is a revised figure from the earlier projection of 5%, an increase that is expected to be influenced by several factors including the upcoming general election (GE). A growth in the retail market is expected if the election takes place before the middle of 2018. Once the election is over, it will stimulate economic activity and boost the confidence of consumers.

The ringgit is anticipated to return to a steady level by the end of 2018, on the back of more balanced flows that would also sustain economic growth, and is expected to boost the overall retail sales. The ringgit, which had depreciated drastically in late 2016-2017 before a slight improvement in late 2017, has a major effect on shopping habits of Malaysian consumers.

Another influence in Malaysia is religious festivals which tend to boost retail sales. The major celebrations are Chinese New Year, Muslim Hari Raya and Hindu Diwali while Christmas is also a big draw for local shoppers. However, for Chinese New Year in 2017, consumer spending was weak as consumers were cautious in their spending on festive goods.

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While the Malaysian GDP has shown a positive growth, hypermarket retail sales have declined around 5% and the drop is attributed to the lower purchasing power of consumers in the B40 (bottom 40%) group. With the declining currency, prices have increased which affects the B40 group who may not be able to afford the rapid increases.

The e-commerce sector stands to benefit from this acclimatisation. When the 6% Goods & Services Tax (GST) was introduced in 2015 and the ringgit was weak, consumption levels slowed down in 2016. Consumers were more price-sensitive which led them to shopping online due to its affordability. Another direct effect of a weaker ringgit is the attraction of shopping tourism especially from the neighbouring countries.

In 2015, there was 13.3 sq ft per capita of shopping space, surpassing even traditional shopping cities like Hong Kong and Singapore. There is an endless supply of incoming retail space and slowdown in consumer spending.

Effective Nov 1st, 2017, the Government banned the construction of high-rise luxury residential projects with units costing above RM1mil, offices and shopping malls. As of December 2016, the occupancy rate for malls was estimated to be 86%.

E-COMMERCE The country’s e-commerce business is still in its nascent stage, with 10 – 15% growth compared to countries like Singapore, China and Taiwan which have a 20% growth year-on-year. This has been attributed to the lack of ICT support and trust between buyers and sellers.

E-commerce contribution to GDP in Malaysia in 2015 was RM 68 billion and it is estimated that with sufficient support, this is estimated to increase to RM 172 billion by 2020.

In 2016, 21.93 million people were accessing the internet in Malaysia. This figure is projected to grow to 23.41 million in 2022, and increase the e-commerce industry.

E-travel is a large segment of the online B2C market. Top sites include Uber, Grabcar and Air Asia.

Hypermarkets, convenience stores and traditional markets are all jostling for position in the urban areas, while retail e-commerce is a growing segment, with Lazada, Zalora 11Street, Lelong and Shopee being among the top sites.

Currently, AladdinSt is positioning itself to be the world’s 1st exclusive premium halal e-marketplace.

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FRANCHISING The local franchise industry contributed RM26.6 billion to GDP in 2016 compared to RM26.8 billion in 2015 and the industry is consistently promoted and supported by the Government.

The franchise industry is also targeted to contribute 9.4% to the country’s GDP by 2020.

Since the government introduced the Franchise Development Assistance Fund (DBPF) in 2005, 85 local franchise companies had received RM5.65 million in funds from the programme so far.

From 2012-2016, the Government promoted the National Franchise Development Blueprint (NFDB) with the aim of making “franchising for all”.

One of the main objectives of NFDB was to make Malaysia the leading hub in the Southeast Asian region and to gain greater market access to the Middle East countries.

According to MATRADE, franchising only contributes 5% of total retail sales in Malaysia compared to 40% in developed countries like the United States.

There are over 500 franchise brands in Malaysia, out of which 70% are local.

Among the popular Malaysian franchisers are Nelson’s, Secret Recipe, Marrybrown, Optic Point, Kyros Kebab, Oldtown White Coffee. Popular foreign franchisors are McDonald’s and KFC. In Malaysia, franchising is governed by the Malaysian Franchise Act 1998.

This Act applies to the sale of franchises throughout Malaysia. All franchisers that are selling their franchises in Malaysia are required to register with the Registrar of Franchise (ROF) under the Ministry Of Domestic Trade, Co-Operatives and Consumerism (KPDNKK).

A franchise amendment bill was introduced in June 2012 and has been in operation since January 1st, 2013.

The bill works to strengthen administration and enforcement of franchise law, and it amends the Franchise Act to ensure the Act is consistent and up to date with current franchise development.

Breakdown of Franchise Companies in Malaysia Convenience Stores & Supermarkets

12% Other Businesses

2%

Beauty Treatment & Health

Beauty Treatment & Health

10%

10%

39%

F&B Sector Learning & Care Centres

11%

Services & Maintenance

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11%

11% Apparel & Accessories

MARKET ENTRY Reach out to a local partner or distributor who will ease the process through the various procedures from customs clearance to marketing the product directly to major retailers.

Ideally located in ASEAN, Malaysia benefits from a wide maritime network with not less than 16 commercial ports.

The port connection is completed by 5 international airports, a good road network and a rail option.

Points of Entry (POE) in Malaysia:

Langkawi, often dubbed the Jewel of Kedah has become a blooming place for tourism with tourist visiting from all around the world. Aside from beautiful beaches and green hills surrounding the island, Langkawi is also a duty free destination, making it a great shopping destination.

Central city: headquarters in Klang Valley (Kuala Lumpur and parts of the state of Selangor) Second tier cities: Penang, Ipoh, Melaka and Johor Bahru Duty Free islands: Langkawi, Tioman and Labuan

MATRADE (Malaysia External Trade Development Corporation) was established in March 1993 as an external trade promotion arm under Malaysia’s Ministry of International Trade and Industry (MITI). MATRADE assist Malaysian companies to establish their presence overseas and raise their profiles in foreign markets through different promotional drives including participation in trade missions, business matching, specialized marketing missions and international trade fairs. Being the national agency for trade promotion, MATRADE is often the first reference point for enquiries and visits by foreign importers

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MAJOR RETAILERS Parkson Shopping retail chain with departmental stores selling cosmetics, fragrance, women and men’s fashion, toys, electrical appliances and household products www.parkson.com.my

Giant Part of the Dairy Farm Group and operated by GCH Retail, Giant has over 100 hypermarkets throughout the country www.giant.com.my Tesco Tesco is a British multi-national retail corporation which operates 50 hypermarkets in Malaysia www.tesco.com.my AEON Big AeonBig has 22 stores in major cities across Malaysia www.aeonbig.com.my Isetan Isetan is a leading corporate group in Japan’s retail industry. Isetan’s departmental and grocery stores are domestically and internationally renowned for top ranked high quality standards www.isetankl.com.my Watsons Watsons Personal Care Stores (Malaysia) Sdn. Bhd. is part of the Health and Beauty Store chain of A.S Watson, the largest health, beauty, cosmetics and perfumery retailer in the world www.watsons.com.my Mydin Largest & well established Malaysian wholesaler & retailer with over 300 outlets throughout the country. It is notable for bringing local & overseas products at affordable prices catering to a large segment of the Malaysian population www.mydin.com.my 7-Eleven 7-Eleven Malaysia is the largest convenience store in the country with over 2,200 stores nationwide www.7eleven.com.my

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EVENTS Malaysia International Jewellery Fair Spring Edition 2018 19 - 22 April 2018 http://www.mij.com.my/ 30th Malaysia International Jewellery Festival 2018 (Spring Edition) 19 - 22 April 2018 http://eggroups.com/upload/event/ brochure/REX18KLCC.pdf

FIM 2018 (25th International Franchise Exhibition & Conference) 20 – 22 April 2018 http://mfa.org.my/fim2018/

Cosmobeaute 2018 9 - 12 July 2018 http://www.cosmobeauteasia.com/ index.php/malaysia

10th Malaysia Gifts Fair 25 - 27 July 2018 www.malaysiagiftsfair.com.my ; www. mgpa.org.my MIRF 2018 (Malaysia International Retail Fair) 26 - 28 July 2018 http://www.mirf.my/

KEY STAKEHOLDERS Organisation

Overview

Website

Government agency - information on doing business, investment opportunities, publications and statistics

www.mida.gov.my

Represents over 100 major retailers and related companies. Provides a unified voice to lobby on issues that affect all retailers

www.mra.gov.my

Comprises over 290 retail chain store operators and franchisors. Avenue for retailers to network, share ideas, expand and facilitate enhancement of chain stores management through education and training

www.mrca.org.my

Formed in 1994 to support the Government programme to promote entrepreneurship through franchising

www.mfa.org.my

Formed in 1984, recognised as the spokesperson for shopping centres in Malaysia

www.ppkm.org.my

Leading retail consulting firm providing retail research and shopping centre consultancy services to retailers, shopping centre developers and shopping centre managers in Malaysia and around the region

www.rgm.com.my

CONTACT US For any inquiries please contact the BMCC Trade Team: Tel: +60(0)3 2163 1784 / 1786 Email: info@bmcc.org.my Web: www.bmcc.org.my

E04C0, 4th Floor East Block Wisma Selangor Dredging 142-B Jalan Ampang 50450 Kuala Lumpur

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