This article first appeared in The Edge Financial Daily, on March 24, 2016.

KUALA LUMPUR: Malaysian retailers are expecting a 0.4% contraction in sales in the first quarter of this year, after growing by a mere 1.4% in 2015 — their worst performance since 2010.

The total retail sales turnover for 2015 was RM96.2 billion.

“Last year (2015) was the worst annual retail growth rate since 2010. In 2009, the retail industry growth rate was 0.8%,” Retail Group Malaysia (RGM) said in its latest Malaysia Retail Industry Report released yesterday.

The 2015 performance also came in below RGM’s estimate of 2% for the year.

As such, Malaysia Retailers Association (MRA) members, who were interviewed on their retail sales growth forecast for 2016, are of the view that the projected 0.4% contraction is “realistic” considering the higher pre-goods and services tax (GST) sales during the same period last year, as well as the weak Chinese New Year sales last month.

“Despite low fuel prices, the weak Malaysian currency has led to higher prices of raw materials, semi-finished goods and finished goods that are meant for final consumption by Malaysians,” said RGM.

“Prices of retail goods and services have been increasing gradually since the beginning of this year. This has further deteriorated the spending power of Malaysian consumers.

“And the recent higher retrenchment rate in key economic sectors, such as manufacturing, finance, insurance, and oil and gas industries, may slow down the growth of Malaysia’s retail industry further,” it added.

RGM also sees another round of price increases of retail goods and services in the near future, following the removal of the subsidy on wheat flour (per 25kg bag) from March 1, and an increase of foreign worker levy rates in the peninsula from March 18.

“[We don’t see] the 3% cut in employees’ EPF contribution from March contributing significantly to overall retail sales in 2016,” it said.

Nevertheless, RGM is maintaining its forecast of 4% growth rate for the Malaysian retail industry in 2016.

The year-end school holidays and festive season failed to lift retail sales growth in the fourth quarter of last year (4Q15), which saw retail sales grow 1.3% compared with the same period in 2014. 

While the 4Q15 performance met the expectations of MRA members, which had projected a 1.3% growth, it was below the estimated growth rate of 3.8% calculated by RGM.

“The weak ringgit performance during the last quarter of 2015 had resulted in higher import costs. Higher import costs led to increased retail prices. Increased retail prices further deteriorated the purchasing power of Malaysian consumers.

“Despite heavy price discounts and aggressive promotions, retailers could not raise the consumers’ spending. During 4Q15, they suffered further decline in profit margin growths,” said RGM.