This article first appeared in City & Country, The Edge Malaysia Weekly on February 3, 2025 - February 9, 2025

The retail sector suffered significantly during the pandemic, with outlet malls — typically located far from city centres and offering discounted luxury, high-street or mid-fashion brands — being particularly hard hit. However, these malls are recovering.

Savills Malaysia group managing director Datuk Paul Khong says, “Most of the outlet malls in Malaysia have seen solid recovery in the last two years, especially after the pandemic. It is driven by a rebound in consumer spending and stronger tourism receipts. These outlet malls continue to remain popular as a discounted haven for ‘branded goods’, attracting both local and international shoppers alike.

“Occupancy rates seen at major outlet malls have remained strong and new expansions have been done to accommodate new tenants. For example, Mitsui Outlet Park KLIA Sepang opened its Phase 3 expansion on April 24, 2022.”

JLL Malaysia managing director Jamie Tan says the pandemic resulted in a pullback effect, causing outlet malls to suffer greatly for two reasons. “Firstly, outlet malls are typically located far from city centres, often near tourist spots or airports. This strategic choice is made to avoid direct competition with full-price stores in the city. However, during the pandemic, these decentralised locations became a major drawback. With strict government movement restrictions in place and no air travel, foot traffic to outlet malls ground to a halt — many of them saw zero visitors for months on end.

“Secondly, unlike traditional retail malls, outlet malls do not usually offer essential goods and services. This meant that while retail malls could stay partially open during lockdowns, outlet malls were forced to shutter their doors completely,” he adds.

CBRE | WTW group managing director Tan Ka Leong says outlet malls along with the rest of the retail sector had a varied performance. “Since the end of lockdowns, outlet malls in Malaysia have experienced a mixed recovery. Overall retail sales surged by 33.3% in 2022, according to the Malaysian Retail Association (MRA), as consumers returned to physical stores and embraced online shopping. However, growth slowed by 2.2% in 2023, reflecting market stabilisation amid inflation and changing consumer behaviour.

“For the first nine months of 2024, a growth rate of 3.8% was recorded, which reflects a return to normalisation, aligning with pre-Covid trends that ranged between 2% and 5.3%. MRA expects retail sales to achieve a steady growth of 4.4% by the end of 2024.”

At present, there are six outlet malls in Malaysia, which are Johor Premium Outlets (JPO), Mitsui Outlet Park KLIA Sepang, Freeport A’Famosa Outlet (Melaka), Design Village Outlet Mall (Penang), Genting Highlands Premium Outlets (GHPO) and, the latest, Silverlake Village Outlet Mall in Batu Gajah, Perak, which was opened in December 2023.

According to Savills Malaysia’s Khong, “Given the geographical clustering, the market for outlet malls seems relatively saturated within the strategic tourist locations of Genting Highlands, Johor and Penang. The existing six outlet malls capture a wide spectrum of buyers across the key regions in Peninsular Malaysia. The million-dollar question is whether there is still room for more outlet malls. This will strongly depend on factors such as population density, tourism growth and future market demand.”

His colleague, head of retail services Murli Menon, remarks, “Outlet malls in general need the support of a large tourist customer base combined with a good number of local shoppers. While Malaysia does have a reasonably strong tourist base, there are perhaps not enough numbers as far as local shoppers are concerned to help support a large number of outlet malls.”

He adds that GHPO and JPO are strong performers due to their strong tourist base, with the former pulling in customers due to the cool weather and Genting Highland’s theme park facilities, while the latter has the support of Singapore shoppers.

According to JLL Malaysia head of research and consultancy Yulia Nikulicheva, “Outlet malls are typically considered destination retail locations where shoppers are often willing to travel to for discounts, making accessibility by car more important than proximity to urban centres. Customers are expected to spend more time at these malls due to their specific format, brand offerings and attractive discounts.

“With only a few established outlet malls across the country, Malaysia’s retail landscape still has plenty of room for expansion. These outlets offer a relatively wide range of popular brands but there is potential for more outlets to enter the market, particularly those featuring broader as well as more unique selections of brands.

“As demand for value-driven shopping grows and tourism ramps up, opportunities to develop new outlets that cater to diverse consumer preferences could further enhance Malaysia’s retail offerings.”

Jamie agrees and says, “There are several globally recognised luxury brands that have yet to establish a presence in Malaysia’s outlet malls, such as Dior, Saint Laurent, Loro Piana, Celine, Givenchy, Brunello Cucinelli, Thom Browne, Balmain and Dolce & Gabbana. Expanding the brand portfolio in existing and new outlet malls could make Malaysia an even more attractive shopping destination.”

Speaking of international brands, some may not wish to open up in Malaysia just yet, explains Murli. “Most of the premium and luxury brands have strict ratios as far as the number of outlet stores is concerned versus full-priced stores within the same country — usually the rule of thumb is four full-priced stories to one outlet store. Given the smaller size of the market in Malaysia, a lot of brands are not able to maintain that ratio. Hence, many of the premium and luxury brands are unable to expand into newer or all of the outlet malls in the country.”

At the moment, there is no information on new outlet malls, although there are plans for a new Mitsui Outlet Park on Penang island, which is to be located next to the Penang International Airport. Khong notes, “The development order was obtained in 2020 but since then, there has not been much news.”

According to Murli, reliable market sources say the outlet mall is targeted to open in 2027, with a planned size of 200,000 sq ft. However, it is too early to estimate the number of outlets, as the leasing process has yet to begin.

He believes that the proximity of the new mall to the Design Village Outlet Mall will likely impact the latter’s sales, given Mitsui’s strategic location near the airport. However, he points out that Penang’s infamous traffic may pose a challenge in attracting local shoppers.

“Mitsui as an operator also has the advantage of owning and operating multiple outlet malls internationally as well as its existing outlet mall in KLIA Sepang, thereby making it relatively easier for them to attract and sign up key international brands, which are currently missing at the existing outlet mall (Design Village) in Penang,” Murli says.

“At a broader level, the strength of the economy, growing agglomerations and the purchasing power of the population will play significant roles in determining whether these new developments can thrive. As Malaysia’s retail landscape continues to evolve, outlet malls will need to adapt to shifting consumer behaviour and market conditions to stay competitive,” he adds.

“Globally and definitely in Malaysia, shoppers have become more value-conscious post-pandemic and this means better business for outlet malls as they seek better bargains. However, given the overall retail sales pressure, the levels of discounts and markdowns at city full-price shops have also been on the rise, thereby reducing the attraction of outlet malls to a certain extent. The range of brands and products therefore becomes a key success factor for the outlet malls,” Murli explains.

“Given these factors as well as the evolution of shopping habits, outlet malls therefore have to evolve into more than just shopping destinations by offering other attractions such as family entertainment, events and shopping festivals, as well as building up on the location and site attractions themselves, such as mini theme parks, water sports, food festivals, music and other cultural events, that will help justify the time and effort that shoppers put in to visit an outlet mall, which is typically away from established commercial and regular shopping clusters,” he adds.

CBRE | WTW’s Ka Leong agrees and states, “To remain competitive, outlet malls need to adopt strategies used by other successful retail spaces, such as enhancing the overall shopping experience with entertainment, dining and interactive elements that encourage longer visits and higher spending.”

As shopping habits change and full-price stores give discounts, what is the outlook for outlet malls?

For Khong, the market is nearing full capacity. “The outlet malls in Peninsular Malaysia are nearing saturation with coverage from north to south. Future growth opportunities will lie in tapping into under-served regions plus leveraging the growing tourism activities. Most established outlet malls continue to perform well, especially in densely populated and tourist-heavy areas and any new outlet malls entering this market will need to struggle through to stabilise.”

Ka Leong believes other markets will do well. “The outlook for outlet malls is positive, especially for those that are performing well, as they will benefit from the government’s efforts to attract more tourists, like visa-free programmes. Increased tourist traffic will lead to higher spending in local markets, including retail.”

Jamie reckons that there are still bargains to be had. “With the strengthening of the ringgit and the ongoing recovery of the Malaysian economy, local shoppers are expected to enjoy better value at outlet malls. The relaxed visa requirements are set to further boost the country’s tourism industry, which in turn will benefit the retail sector, particularly outlet malls that attract both local and international tourists.

“Looking ahead, there are still opportunities for new outlet malls in the largest Malaysian agglomerations, particularly in Penang, Selangor and Johor, where increased tourism and cross-border shopping could create a strong demand for luxury bargains. As these regions continue to develop, the potential for new retail destinations remains promising.”

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