Don't believe the hype about the end of brick-and-mortar retail, especially department stores, said Tan Hai Hsin, managing director of Retail Group Malaysia.
Department store bankruptcies and store closings were common even before the pandemic.
Tan said that for the last three years, the Covid-19 pandemic has led to the closure of several department stores in Malaysia.
However, the number of closures is still much lower as compared to the 1998 Asian financial and economic crisis, he told NST Property.
"During the Asian financial crisis, several established department store operators closed down. They included Ocean, Fajar, Printemps, Mun Loong, Yaohan, and Chujitsu. Retail is always in a state of flux, and shop closures indicate that consumer preferences are changing and that companies are on the right track," he said.
Parkson Holdings Bhd, an early participant in the Malaysian retail business, has reduced its shop count from 102 to around 80 since 2020.
For the past five years, the company has been in debt. Parkson lost RM129 million in the fiscal year ending June 30, 2019. It had a net loss of RM119 million in fiscal year 2022. The financial year's end was revised in 2021 to December 31.
Parkson's Vietnam division filed for bankruptcy last month, after closing its last store there.
Debenhams, another prominent brand owned by London-listed Debenhams plc, had also closed many outlets in Malaysia.
Debenhams originally opened its doors in Malaysia in November 2003, with a 100,000-square-foot store in Berjaya Times Square, Kuala Lumpur. Berjaya Group's BTS Department Store Sdn Bhd brought it in. The BTS Department cancelled its franchise arrangement in 2006 after the enterprise proved unprofitable.
Debenhams left Malaysia in 2006 but returned in 2008 after securing a new master franchiser. It operated three stores in Malaysia until November 2018: one in Gurney Plaza, Penang; another in The Curve, and a third in Starhill Gallery, Kuala Lumpur, which was later closed.
Sunway REIT recently announced that it would not renew its lease with Sunway Pyramid's key tenant, AEON, which is set to expire in September. The space will be converted into smaller lots for specialty stores that can fetch higher rentals for Sunway.
Tan said the stores' functions are evolving, and nationwide retail square footage has also increased rapidly in recent years.
"Today we still have big brands in Peninsular Malaysia like Parkson, AEON, Isetan, Sogo, Metrojaya, The Store, and Kamdar," he said.
Tan noted that Malaysia will soon see the entry of new brands like Seibu from Japan, which is bringing Malaysia's first "depachika" Japanese food hall and taking up 250,000 sq ft across four levels at The Exchange TRX, Kuala Lumpur, and Mustafa Centre from Singapore, which will open in Capital City Mall in Tampoi, Johor.
Department stores & retail are not dying businesses
Tan said that department stores are not going out of business.
"Every day, cafes close. Every day, stores close. Retailers close every day...this does not imply that the industry is dying," he explained.
To stay afloat, they simply need to reinvent themselves, refresh themselves, and implement a differentiation strategy, he said.
"They should avoid brand duplication. If the mall has a specific brand, department store owners should avoid having the same brand in their stores," he said.
While store closures may feel apocalyptic, it is startling to find that Malaysia's total retail sales are expected to increase this year.
Retail Group Malaysia said in its March 2023 report that members of the two retailers' association project an average growth rate of 9.2 per cent for the local retail industry during the first quarter of 2023 (Q1FY23).
The department store and supermarket operators are hopeful of a sustainable growth rate of 6.4 per cent for Q1FY23.
After achieving steep growth rates last year, the department store operators will experience normalisation of their business with a growth rate of 15.8 per cent for Q1 FY23.
The supermarket and hypermarket sub-sector will see its business return to normal with a growth rate of 3.9 per cent for Q1 FY23.
Operators of mini-markets, and convenience stores are predicting their businesses to strengthen with a growth rate of 15.8 per cent during the first three months of this year.
Retailers in the fashion and fashion accessories sub-sector enjoyed an amazing recovery last year. For Q1FY23, it is eyeing a healthy growth rate of 12.3 per cent as compared to the same period a year ago.
Operators of furniture and furnishing, home improvement, as well as electrical and electronics, are expecting their businesses to soften with a growth rate of 0.6 per cent in Q1 FY23.
According to the report, the Malaysian retail industry is anticipated to grow by 2.8 per cent in Q2 FY23, with a contribution mainly from the Hari Raya festival.
The growth rate is estimated at two per cent for Q3 FY23 only due to a high base in the same period a year ago.
For Q4FY23, the industry is hopeful of a three per cent growth rate after a rosy performance a year ago.
Tan said although Malaysia's retail industry had successfully rode through the Covid-19 pandemic, new market challenges emerged this year.
"Since the beginning of last year, retailers have been facing depleting profit margins." Contributing factors include rising staff costs due to a shortage of staff, increased rental rates, and rising costs of goods due to higher material costs, higher production costs, and higher transportation costs.
"During the pandemic, Malaysian retailers were focused on generating sales in order to survive. For this coming year, many will be paying great attention to cost control," he said.