This article first appeared in The Edge Malaysia Weekly on April 27, 2020 - May 3, 2020
DESPITE scenes of long queues outside grocery stores and overflowing trolleys at checkout counters over the past few weeks, retailers are hardly ringing up a strong profit and some may be even struggling.
At least one retailer says the initial surge in grocery purchases at the start of the first phase of the Movement Control Order (MCO) on March 18 has definitely tapered off.
“After the first two to three days of panic buying, [the crowds] began to normalise,” Ameer Ali Mydin tells The Edge in a phone interview on April 15.
Ameer Ali is the managing director of 63-year-old Mydin Mohamed Holdings Bhd, which operates Mydin — a retail business that rakes in some RM2.5 billion in annual sales from a total of 69 stores, including hypermarkets, emporiums and supermarkets.
Currently, only 64 outlets are open for business and, as with most businesses, Mydin is bracing for a challenging year ahead as multiple factors weigh heavily on its performance.
For one, unlike smaller stores such as supermarkets, large-format stores such as hypermarkets are required to cordon off the non-food area from consumers. This means that only the section offering food can remain open.
Non-grocery takes up 60% of Mydin’s retail space, and grocery the remaining 40%.
“Our general merchandise range is wider compared with other players like Tesco or Giant,” Ameer Ali points out.
A smaller space allocated for food, coupled with razor-thin grocery margins, does not work in Mydin’s favour.
Add to that the MCO rules, which do not allow the public to travel beyond 10km to shop, thus cutting off some of the retailer’s regular shoppers.
Exacerbating the situation is the retailer’s target market, which comprises the low to middle-income group. Unlike affluent shoppers who can afford to shop at premium supermarkets and stock up on items such as toilet paper and frozen food, the low to middle-income group tends to buy only essential items.
Sugar, flour, cooking oil and rice are the main items for the group, which also opts for cheaper fish such as kembung (mackerel) and keli (catfish).
Touching on the MCO, Ameer Ali acknowledges an initial shortage in certain food items, mainly eggs and bread. Cheap rice — 5% 5kg rice and 10% 5kg rice — is sought by many, especially non-governmental organisations (NGOs). But supply has not been consistent, as cheaper rice has a higher uptake.
He recommends that NGOs consider other essential items. “There are other necessities,” he says, singling out the Ayam brand sardine as a particularly popular choice with NGOs.
“NGOs should go for brands that allow them to stretch their budget and not just buy items sold by MNCs.” He notes that not only are local brands cheaper, but purchasing them will help small and medium enterprises survive.
A major concern for Ameer Ali is the RM100 million worth of Hari Raya stock carried by the outlets.
“Even if the MCO is lifted on April 28, things are not going to be back to normal soon. The Hari Raya sale begins 1½ months prior to the fasting month. RM100 million worth of our Hari Raya business is gone. This is a big chunk of our business,” he laments, as up to a fifth of Mydin’s annual business is clocked up during the Hari Raya period.
As fashion changes so quickly, Mydin could end up stuck with clothing items such as baju Melayu, baju kurung, songkok and tudung. The lack of sales also limits cash flow.
Regarding the option of selling these items online, he says it is not so easy during a pandemic because of hygiene issues, as clothing items sold could be worn and then returned by customers.
Mydin owns 27 of the 69 stores it operates, and it is worth noting that Ameer Ali is not collecting any rent or service charge from his tenants who have been forced to close their stores during the MCO even though the waiver is costing Mydin “millions of ringgit”.
FY2020 is not looking good. Mydin posted its first net loss in six decades in the financial year ended March 31, 2016, but swung back with a small profit the following year before posting a loss again in FY2018.
In FY2019, it managed to eke out a small profit of RM345,879 on the back of a revenue of RM2.51 billion.
Mydin has outstanding Islamic papers rated by RAM Ratings. On Mydin’s RM350 million Danajamin Guaranteed Islamic MTN Programme (2011/2024), the ratings issuer said in a Dec 20, 2019 report: “The group’s bottom line improved, underpinned by a pre-tax profit of RM11.3 million amid the absence of substantial losses from its discontinued operations (amounting to RM56 million) and the recognition of a RM6.6 million gain from the sale of the Mutiara Rini mall (in Johor).”
At end-FY2019, the retailer had total liabilities of RM1.29 billion, of which RM1.14 billion was current. It also had accumulated profits of RM237.57 million (see table).
How did Mydin perform in the financial year ended FY2020 and what is the outlook for FY2021? Ameer Ali discloses that the business slipped into the red in FY2020 even though the group had initially projected “a profitability, but that has disappeared in one month because of the MCO”.
He says that, theoretically, it would be difficult to be profitable in the current financial year, as the entire industry is unlikely to perform well.
Retail Group Malaysia, which tabulates retail data on behalf of the Malaysia Retailers Association, has projected that retail growth will contract this year for the first time in 22 years, shrinking as much as 5.5%.
On preparations ahead of the lifting of the MCO, Ameer Ali suggests that the lifting be done in stages to allow the economy to get back on track and retailers to open up their non-grocery segment. As customers are already going to be in the store, they might as well be allowed to pick up other items along the way — but under strict Standard Operating Procedures, including social distancing. This will help retailers survive, he adds.
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