PETALING JAYA – The recent slew of retail outlet closures have raised the question of whether the retail industry in Malaysia is shrinking amid weak consumer sentiment and a challenging economic environment, but retailers are convinced that the situation is far from worrying.
Malaysia Retail Chain Association (MRCA) deputy president Valerie Choo opined that the number of closures may be slightly higher now but stressed that it is not abnormal, adding that there may be brands that do not suit the local market but are successful elsewhere.
On July 5, Bulgogi Brothers announced its closure in Malaysia. Just several days earlier, Texchem Resources Bhd’s 51%-owned subsidiary Dim Sum Delight Sdn Bhd, which operates the Tim Ho Wan restaurants in Malaysia, ceased operations. On June 9, True Fitness Malaysia announced on its website the closure of all its gym and spa facilities in Malaysia after having ceased operations in Thailand. Korean bakery chain Tous Les Jours shut down its four outlets in the Klang Valley effective May 25.
Choo said most of these brands are international franchise brands, which have a much higher raw material cost structure and operating cost.
“Firstly, their (international brands’) products are mainly from overseas. When they buy, there’s the ringgit factor. Most of the time, international brands will bring in expats, so that is where your salary cost and operating cost will be higher. Hence, the tendency of closing down may be higher for an international brand. They benchmark each other in many countries and if certain countries are non-performing, then it is tough for the principals,” she told SunBiz.
Choo said although the principals are usually a parent with strong financial muscle, the international brands in Malaysia are owned by a master franchisee, technically Malaysian companies that own the licence to operate here.
“The ones that are closing are Malaysian-owned companies. It won’t affect their brand in that sense, as they still have presence in other countries, but it is a measure that they take to maintain their brand. To the principal, it’s not much of loss, but to the master franchisee, perhaps they have to close because they can’t generate the kind of profit required,” Choo explained.
“Getting an international franchise will also be more expensive. Of course master franchisees who take up the brand are themselves financially strong as well. But if the business is not viable, somehow they have to close. But it is not too worrying because you don’t see a huge flux of brands leaving Malaysia or closing down. Certain trades or companies may be more affected than the rest here,” she added.
Choo said this phenomenon is not unique to Malaysia, but is happening due to the country’s slowing economy and consumer spending, coupled with the weak ringgit.
“If you’re buying from other foreign currencies and you pay in ringgit, it’s the conversion rate that is killing (you),” said Choo.
She said although some brands are exiting, there are also many entering Malaysia.
“A lot of overseas brand owners are confident here and find that Malaysia is a good place to start their flagship stores. Malaysia is still one of the strategic locations for new brands to enter Southeast Asia. It’s just that the current scenario has a bit of hiccups,” said Choo.
Pavilion Elite, a newly opened retail landmark project adjacent to Pavilion Kuala Lumpur, houses first-in-Malaysia stores such as ABC Cooking Studio, COS, Lukfook Jewellery, Simmer Huang, The Planet Traveller, The Wallet Shop and VLV Life. Pavilion Elite also houses brands with their flagship and biggest stores, including Coach, Huawei, Lego, Muji and JD Sports, King of Trainers. Brands that are opening soon include Lululemon, MAX, 6ixty8ight, Hotwind, HLA, Defacto and LC Waikiki.
Melawati Mall, which will open on July 26, will also see the opening of many food and beverages (F&B) brands.
Choo said the F&B market is competitive and international brands generally have good quality and branding but may not be able to compete on price. “But this situation is not peculiar to the Malaysian market. Singapore and Hong Kong market also face a similar situation.”
Malaysian Franchise Association exco Deric Yeo said the closures are normal in this economic environment.
“It’s not only these few brands that are closing, but also other brands that are not as famous as those exiting. It’s just that they are not being highlighted. It’s normal, but it is also because of the economic situation. The overall sentiment of the retail market is low at the moment. It’s a fact,” Yeo told SunBiz.
He said Malaysia is not the only country affected as it is a global situation, with the Middle East and Singapore also reportedly feeling the squeeze.
Yeo concurred that F&B is challenging, but pointed out that in the sector, foreign investors are looking to take Malaysian halal brands overseas.