The Asian financial crisis of 1997/1998 was a traumatic tragedy for businesses in Asia, including Malaysia.
It pushed the Malaysian retail industry into negative territory. In 1998, the industry contracted by 20 per cent.
This year the industry is expected to suffer a decline in sale by 5.5 per cent, from a 4.6 per cent growth projection in December 2019, because of the Covid-19 pandemic.
Retail Group Malaysia managing director Tan Hai Hsin said the negative growth rate of 5.5 per cent for the entire year is calculated in comparison with the retail sales performance in 2019.
Last year, the annual growth rate for the retail industry was a positive 3.7 per cent.
Tan said the projection of negative 5.5 per cent in retail industry growth rate for 2020 is consistent with the latest Gross Domestic Product (GDP) projections, taking into consideration the four-week movement control order (MCO) by several organisations.
"Negative growth rate of 5.5 per cent is not a small number. In fact, the Malaysian retail industry has never experienced a negative annual growth rate since 1999. Thus, a negative growth rate of 5.5 per cent is a serious matter. Having said that, the current situation is completely different from 1998," Tan told NST Property.
The retail sale value of the Malaysian retail industry was RM107.5 billion in 2019 as versus to only RM37.2 billion in 1998.
These retail sales values excluded retail sales from provision shops, independent retailers, stalls, hawkers, temporary retailers, direct selling, and online retailing.
"The Asian financial and economic crisis started in Thailand due to sudden currency devaluation and outflow of foreign capitals. It affected the economies of Asian countries severely.
"For this round, the likely world economic recession is not caused by the collapse of a major economy or an economic zone. It was caused by an invincible virus outbreak. This has never happened before in world history. Although many economists were predicting an economic crisis within these few years, no one ever thought it was caused by disease!
"This virus infected almost every country in the world. It caused economic activities to come to a standstill. All of these happened in just two months! No economic crisis in the past spreads around the world that fast," said Tan.
Bad year for the retail industry
Malaysia's retail growth in April 2020 is expected to plunge by 60.7 per cent compared to a year ago, due to the Covid-19 pandemic and the extended Movement Control Order (MCO) until April 28, 2020.
Tan said the plunge is because the majority of retail shops are having zero sales.
"This has never happened before in history," he said.
RGM, which tabulates retail data on behalf of the Malaysia Retailers Association, says that the data for April was based on the retail sales performance of essential retailers in the first two weeks of MCO in April which has now been extended until April 28.
Only essential retailers are allowed to operate during the MCO period, coupled with a small number of non-essential businesses, with strict social distancing measures.
On April 10, it was announced that non-essential retailers such as barber service, launderettes (not self-service laundromats), hardware stores, electrical, and electronics stores will be allowed to operate in stages during Phase 3 of the MCO.
However, on April 13, Senior Minister (Security Cluster) Datuk Seri Ismail Sabri Yakoob said a blanket ban was imposed after further deliberation and taking into consideration feedback from various quarters including health experts and non-governmental organisations.
In the January to March period, the retail industry contracted by 18.8 per cent which is its highest ever quarterly contraction since 1998, as retailers took a hit from the COVID-19 pandemic and the MCO, says RGM.
Sales in January contracted by 13.8 per cent, as compared to the same month a year ago due to slow sales of the Chinese New Year and a drop in China arrivals.
The impact deepened in February, with sales dipping by 20.1 per cent because of the rapid spread of Covid-19 and the drastic decline of foreign tourists.
By March, Tan said the fear of Covid-19 worsen and had begun to affect consumer spending during the first two weeks of the MCO, which took effect on March 18, causing sales to dip by 28.9 per cent, as compared to the same period in 2019.
Grocery retailers benefitting
Tan said the business of grocery retailers rose 20.9 per cent during the first week of MCO when Malaysians rushed to stock up foods and basic necessities. The increase was 9.5 per cent in the second week of MCO.
Grocery retailers included supermarkets, hypermarkets, mini-markets, provision shops, and convenience stores.
Tan said shopping activities normalised in the second week of MCO as Malaysians were planning their grocery needs wisely.
"As more Malaysians started to cook at home, grocery retailers enjoyed higher sales. On the other hand, the strict social distancing measures implemented by the retail operators affected the shopping traffic and sale receipt per person," he said.
Loss of business for other retailers during MCO
Tan said about 126,000 retailers, including 10 per cent of stalls and markets (wet markets, morning markets, night markets, bazaars, streets, lanes) remain open during MCO, representing 37 per cent of the total retail outlets in Malaysia.
Their combined sale turnover accounts for 35 per cent of the total retail turnover in the country, he said.
On the other hand, more than 209,000 retail stores (including 90 per cent of stalls and markets) were forced to shut down during the same period. They represent 61 per cent of total retail outlets and 63 per cent of total retail sales in the country.
During the second quarter of this year, the retail industry is expected to suffer a decline in sales by 9.3 per cent. This projection takes into consideration the four weeks of MCO in April as well as the expected slow sale during Hari Raya festival.
Tan said the second quarter growth rate of negative 9.3 per cent will be revised downwards again where it will be double-digit, taking into consideration the latest announcement by the government, whereby at least two weeks of Ramadan under MCO, the retail sales during Hari Raya will be affected badly.
He said, assuming the domestic economy will recover from the second half of this year, Malaysia retail industry growth rates for the third and fourth quarters will be 2.5 per cent and 3.3 per cent respectively.
"At this moment, we stay optimistic about the retail industry in the second half of the year. We hope the virus pandemic will be contained by the middle of this year. We expect all economic activities in Malaysia will resume from July 2020," said Tan.