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I couldn't find the thread on Malaysia Retail Scene, can Administrator move this thread later?

http://www.retailasiaonline.com/magazine/archive/2007/mag2007-01_coverstory01.html

Magazines Archives - 2007 January

Retail Outlook 2007- Opportunities and challenges ahead
Cover Story

The new year brings new challenges and opportunities for the Asian retail trade. Industry leaders give their take on new developments, upcoming trends, forecasts and expectations in several of the region’s key markets. The reports are filed by Angeline Yeo in Singapore; Eu Hooi Khaw from Kuala Lumpur, Malaysia; Tina Arceo Dumlao from Manila, the Philippines; and Shirish Nadkarni from Mumbai, India.

MALAYSIA

Malaysia has much to celebrate this year as the country commemorates its 50th year of nationhood amid a continually improving economy. This augurs well for the nation’s retail industry.

In fact, Tan Hai Hsin, managing director of Henry Butcher, which handles retail properties and is an affiliate member of the Malaysia Retailers Association (MRA), is anticipating that retail business will expand by 8% this year, compared with the 7.5% estimated for the year just ended.

As part of its 50th Merdeka (Independence) anniversary, the country has designated 2007 ‘Visit Malaysia Year’ in a concerted effort to woo more international visitors. The government is targeting for 20 million tourists, up by 22% from the more than 16 million recorded in 2005 and 16% higher than the 17.3 million expected to be recorded for 2006, says Tan.

“In 2005, Malaysia enjoyed 16.43 million tourist arrivals. Total tourism receipt for the year was RM31.95 billion (US$9.07 billion), of which shopping accounted for about 23%, or RM7.3 billion,” he says.

This retail-property specialist sees tourism shopping, which formed 13.3% of the Malaysian retail industry’s total sales value of RM54.9 billion in 2005, continuing to play a significant role in the industry.

Says Allan Soo, managing director of Regroup Associates: “The increase in tourism will impact positively on overall sales turnover in the country, at least up till this September. We believe this year’s economy will be per-forming better than the current 5.5% growth rate, as the release of money into the system with the Ninth Malaysia Plan will have a multiplier effect on retail.”

Also looking forward to a vibrant year in Malaysia is Joyce Yap, director of leasing & marketing of Kuala Lumpur Pavilion Sdn Bhd, and president of Persatuan Pengurusan Kompleks (PPK) Malaysia, or the Association for Shopping Complex and High-rise Management.

“Fifty programmes for Visit Malay-sia Year 2007 have been [planned] to the tune of RM300 million for government and private sectors to promote tourism. Airlines, hotels, shopping centres and tourism-destination areas are gearing up for this major event. The infrastructure has been improved [in anticipation of] visitors. Personnel from tourism-related areas such as shopping centres, and taxi operations have been sent for training,” details Yap.

Realising the targeted visitor numbers means revenues of RM45 billion could be generated for the retail business, translating into a very lively retail scene.

Three major shopping centres coming up this September are: The Pavilion Kuala Lumpur (KL), Mid Valley Gardens and Sunway Pyramid 2.

“This will see foreign brands coming in, as operation costs in Malaysia are still low, compared to those [elsewhere] in the region,” says Yap. “The nation also has a young population, and is experiencing good growth, political stability and rising affluence.”

Her take on the retail scene here is that shopping centres are not well defined, with hyper-markets, sizeable shop lots and arcades included in the category. She also sees rentals continuing to escalate although quality shopping centres’ queue for tenants is long.

Maintaining that “good tenant mix and good centre management are prerequisites for retail success”, Yap says: “It’s not a question of number but quality. The Pavilion KL has [to date] leased out 70% of its space, with 1.3 million sqf on the waiting list [for tenants].” Even Suria KLCC, with its ready space, still has a long way to go on the list, she adds.

Kuala Lumpur needs a shopping district like Ginza in Tokyo, Japan, and Orchard Road in Singapore, says Yap, highlighting that the Bukit Bintang district is holding its own, with the existing Starhill Gallery and the upcoming Pavilion keeping it ahead.

Sectors that tend to do well are, she says, fashion and F&B.

“Asians just love eating. If you have quality in terms of food, merchandising and services, [business] would not be an Kong’s EQ.IQ; Joan & David, Francesco Biasia, Mandarin Duck and Bebe from the US; River Island and Ted Baker from London; and Spanish brand Massimo Dutti.

There will be a variety of two-storey and three-storey flagship stores boasting such names as Hermes, Ferragamo, Versace, Escada and Mont Blanc, Esprit and True Fitness, along with local brands Bonia, Poh Kong Chye, Padini and Voir. Meanwhile, the outlook for Starhill Gallery stays rosy, according to Steffanie Chua, director of YTL Corporation Bhd, the property’s developer.

On the tenants at Starhill Gallery, which enjoys 95% occupancy rate, Chua says: “We have stand-alone shops like Louis Vuitton (LV) and Valentino.

“The first day LV opened in Malaysia (last October), it hit RM4 million in sales. In fact, LV in Starhill Gallery has the highest capital returns of all the brand’s outlets in the world,” she says.

“We are the biggest fine-watch retail [establishment] in the world, with seven watch giants carrying 108 big brands. Wealthy Russians fly into Kuala Lumpur in their private jets to buy a few million dollars’ worth of watches,” she adds.

Based on the traffic flow to the LV boutique and the watch floor, the future looks bright beyond this year. “Visitors from the Middle East just love to shop at the Fendi store [here], the only one in Malaysia,” says Chua, who expects more watch and jewellery brands to make their presence at this retail stop next year.

Attractions at Starhill Gallery, which is in the heart of the city where it is considered to be safe, include restaurants in the Feast Village which stay open till 1am. Painting the year ahead as challenging and exciting, Chua says: “We look forward to maximising our retail- issue,” Yap reckons.

Still, Yap acknowledges that competition in Asia is “very intense”, seeing how “Singapore is building casinos, Thailand is thinking of abolishing import duties, Hong Kong is the gateway for China and India is opening doors for retailers”. Conceding that “Malaysia has never been a shopping haven, compared with Singapore and Hong Kong”, she believes, however, that each country has its own niche.

And it helps to know that Europeans like ecotourism and “Asians are shopaholics, which augurs well for retail”. Says Yap: “Malaysia has to be more focused on the total package.

“Here, we have cheap hotel rates, no language barrier, and beautiful beaches and mountains. However, public transportation and taxi service have to be improved, and negative legislation and red tape removed.

“In Kuala Lumpur, a few good shopping centres are constantly competing. We want to enlarge the cake.”

Here, The Pavilion is poised to be yet another retail landmark. This mixed development, comprising a shopping podium, office block, two high-end residences and a six-star boutique hotel, will be positioned between KLCC and Starhill Gallery. Its shopping centre will have a net lettable area of 1.37 million sqf, spanning seven levels, with approximately 450 shops.

“It’s a pivot point connecting Bukit Bintang to KLCC, elevating the [city’s] retail landscape,” says Yap. The Pavilion has signed on new brands from Singapore, Hong Kong, the US, London, Italy, Paris and Taiwan. These include Taiwan’s Liu Li Gong Fang; Hong Kong’s EQ.IQ; Joan & David, Francesco Biasia, Mandarin Duck and Bebe from the US; River Island and Ted Baker from London; and Spanish brand Massimo Dutti.

There will be a variety of two-storey and three-storey flagship stores boasting such names as Hermes, Ferragamo, Versace, Escada and Mont Blanc, Esprit and True Fitness, along with local brands Bonia, Poh Kong Chye, Padini and Voir.

Meanwhile, the outlook for Starhill Gallery stays rosy, according to Steffanie Chua, director of YTL Corporation Bhd, the property’s developer.

On the tenants at Starhill Gallery, which enjoys 95% occupancy rate, Chua says: “We have stand-alone shops like Louis Vuitton (LV) and Valentino. “The first day LV opened in Malaysia (last October), it hit RM4 million in sales. In fact, LV in Starhill Gallery has the highest capital returns of all the brand’s outlets in the world,” she says.

“We are the biggest fine-watch retail [establishment] in the world, with seven watch giants carrying 108 big brands. Wealthy Russians fly into Kuala Lumpur in their private jets to buy a few million dollars’ worth of watches,” she adds.

Based on the traffic flow to the LV boutique and the watch floor, the future looks bright beyond this year. “Visitors from the Middle East just love to shop at the Fendi store [here], the only one in Malaysia,” says Chua, who expects more watch and jewellery brands to make their presence at this retail stop next year.

Attractions at Starhill Gallery, which is in the heart of the city where it is considered to be safe, include res-taurants in the Feast Village which stay open till 1am.

Painting the year ahead as chal-lenging and exciting, Chua says: “We look forward to maximising our retail- trade potential in conjunction with Visit Malaysia Year, dove-tailing our efforts with those of other YTL establishments like hotels and resorts.

“Personalised shopping [with concierge in tow] for VIPs, world-class recognition programme YTL Platinum Plus, and [a continuing line-up of] events to add value and prestige to brands in Starhill will help boost retail this year.”


The challenges

The cost of living will continue to impact purchasing power of Malaysian con-sumers, says Tan of Henry Butcher. For them, price is a major consideration, he says, with the latest burden the road-toll hike in Klang Valley.

Retailers, big and small, are sus-taining their business through price discounts to retain shoppers and lure new ones. Of course, low price means low-profit margins and those without strong financial resources will find it tough going. Already, many small outfits unable to continue competiting on price have to close down, Tan notes.

Although all retail sectors are expected to contribute to the overall growth of the industry next year, major department store-cum-supermarkets, foreign hypermarkets and national speciality chains are, in particular, expected to enjoy relatively strong growth.

To ensure the overall success of Visit Malaysia Year 2007, strategies to boost tourists’ retail spending have been mapped out. MRA, whose members comprise major local and foreign retailers, has worked with the ministry, various other government departments and retail-related associations on the game plan. It plays a significant role to ensure the country’s retail industry stays healthy.

Retail prospects and competition Regroup Associates’ Soo sees lots of opportunities in Klang Valley, which is “currently very competitive”, with 34.9 million sqf of retail space spread out across 113 shopping centres. He works this out to 5.9sqf per capita, based on the catchment of 5.8 million people in Klang Valley and Selangor.

The addition of 5.7 million sqf this year will bring the total retail space in the area to 40 million sqf, yielding 7sqf per capita, “one of the highest in the world”, says Soo.

The shopping malls coming up this year in Malaysia include: Bangsar Village 2 this month, Cap Square in Jalan Ampang in March and, in September, Mid Valley Gardens, and Mid Valley Megamall and Sunway Pyramid extensions, along with The Pavilion KL.

Aeon Bukit Tinggi in Klang is set to open towards the year-end or early 2008 while other developments under construction are Wangsa Walk in Wangsa Maju, Metro Point Complex in Kajang and Centrepoint KL Sentral.

As many retailers, according to Soo, have either grown to saturation point in the Malaysian capital or are unable to get into the shopping centres of their choice, the 11 centres to come will give them room to maintain their market share or seek additional opportunities — inevitably diluted though this may be.

KLCC, Mid Valley and Sungei Wang are three dominant players projected to continue doing well, with the former two up for rent review this year. The rate hikes, if any, will depend on tenants’ turnover.

“Will the prime rent at the next review go beyond 18% or 19% as in Orchard Road Singapore where it has surpassed 20%? If that happens, what will be the outcome three years after, with the addition of newcomers?” Soo questions.

Whether older shopping centres will up their rents remains to be seen.

New developments are enjoying good rentals with names the likes of Din Tai Fung (said to be the best-known Shanghainese food, made famous in Taiwan), Robinsons and Jason’s Super-market in Mid Valley Gardens and Shanghai Tang in The Pavilion KL. Well-known US brand Gap is also present while Wal-Mart may join the scene.

Soo foresees that these foreign entrants will place upward pressure on rents and retailing standards in Kuala Lumpur, with intensifying competition calling for strategic repositioning.

“It would be interesting to see how Mid Valley Gardens and Mid Valley Megamall will be able to [cater for their respective] markets,” he says.

With the existing mall serving the middle and mass market, and Mid Valley Gardens targeting the upper segment, the two will, together, form one of the largest mixed-shopping developments in Asia, Soo adds.

However, he questions if the large amount of retail can be sustained — given the four department stores, one hypermarket and one supermarket that the 2.5-million-sqf net lettable space of their combined sizeable real estate will accommodate. “Will the cake be enough for all to share?”

Even as Klang Valley shoppers are spoilt for choice in shopping venues and merchandise selection, new entrants will find it increasingly tough to compete for share, and tougher still should another big Japanese department store come on stream, says Soo.

With oversupply relative to spending power and patterns, one-third of the malls in Malaysia can be expected to do relatively well while the rest will see marginally good performance or fade away. Some casualties are inevitable as bigger players cannibalise the trade of the smaller and poorer ones.


Retail repositioning

As a result of tougher conditions and heightened competition, following the Asian financial crisis, both retailers and mall owners have, over the past five years, been re-examining ways to attract shoppers. “KLCC, for example, has been constantly working with its retailers to improve on visual merchandising and stall concepts,” says Soo.

“Repositioning is constant”, unlike in the 1980s and 1990s when few retailers and mall owners saw the need for it as trading conditions then “were less demanding”.

Where it used to take retail operators more than six years to consider reposi-tioning, “today, most retailers would have to refurbish their stores every three or even two years”, says Soo, adding that all owners, too, are putting aside capital expenditure for improvements every three years now.

He is proud of The Curve in Mutiara Damansara, Petaling Jaya (PJ), which was conceptualised by his company. The development was launched in 2005 during a time of market weakness, and faced extremely keen competition from 1 Utama and other retail establishments in the PJ area, he recalls, citing com-plaints of poor performance from tenants that same year.

The Curve, which started with only about 60% occupancy then, is now 85% filled, says Soo, who expects full occu-pancy come March. “Some outlets [here] have performed better than similar ones [elsewhere] in the city, pointing to the growing strength of suburban centres in affluent catchments, which are sup-portive of advanced new-generation formats such as open-air shopping centres.”

At a national level, he thinks it would be good for Malaysia to be a destination for factory-outlet malls as well. However, to entice shoppers to travel all the way to such malls, Soo thinks there must be other strong attractions beyond just a group of brands. Hailing the New York scene in the US, as an example, he says: “Factory outlets [there] are located 30- 40 miles out of town in beautiful sur-roundings [and] are tourist attractions.”

Set out to appeal to a younger generation, with alfresco dining, The Curve had “faced a lot of scepticism in the market”, Soo recalls. “We managed to convince some of the strong brands to take the risk ... [as] the new concept was obviously the preference as far as the younger and more affluent generation is concerned.

“The Curve proves that the new concept works and that we can’t continue to build big box-like shopping centres,” he says, convinced that, more than just pure grocery and fashion shopping, today’s consumers seek an enhanced experience.

In general, nearly all shopping centres have been raising their rentals since 1997, except for less competitive and more poorly designed develop-ments, which have suffered declines instead.

Says Soo: “Of the best shopping centres, five have [conducted] reviews, with their overall rents growing between 12% and 15% per review, and prime rents jumping beyond 50%.

“Most small and speciality shops are doing well. There are more than 500 Grade A retailers and 500 Grade B ones, with regional, international and national brands which have not only [captured] the majority of the market in [various] trade categories, but have also increased their performances, in many cases registering double-digit growth in the past few years. Grade A includes Guess, Padini, American Chillies, Vinc-ci, The Body Shop, Secret Recipe and Mango.”

Although retailers in Klang Valley appear to have reached saturation point, there remains much territory to be explored by all the brands, he observes.

Besides malls, other categories dominating the market and creating an impact are three hypermarkets, which compete directly with Jaya Jusco, whose ability “to retain its loyal customers” despite the situation has not gone unnoticed by Soo.

Giant, which registered combined total annual sales of RM3 billion in 2006, leads in market size, followed by Jaya Jusco at RM1.8 billion, Carrefour at RM1.1 billion and Tesco, which is fast reaching RM700 million. Ten years ago, no retailer in the country could surpass the billion-ringgit sales mark. This year and the next will be crucial for hypermarkets as “newer submarkets become the battleground for these players”.
 
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