This article first appeared in The Edge Malaysia Weekly on April 7, 2025 - April 13, 2025

AS the nation’s retail sector braces for a seasonal cooling following the Hari Raya festive holiday, industry players and economists anticipate challenges ahead. The impending hike in electricity tariffs, higher workers’ wages and the mandatory Employees Provident Fund (EPF) contribution for foreign workers are expected to burden businesses. 

Yet, higher salaries can also mean a boost in consumer spending in the months ahead, they say.

An electricity tariff hike to 45.62 sen per kWh from 39.96 sen per kWh from July 1 will remain in effect until 2027, increasing operational costs for businesses. This will add to the burden of employers with five or more employees, which are now mandated by Putrajaya to pay higher minimum wages of RM1,700 per month starting Feb 1, from RM1,500 previously.

In addition, employers will need to contribute 2% of foreign workers’ salaries to their EPF, starting from the fourth quarter of this year.

In its Malaysia Retail Industry Report March 2025, Retail Group Malaysia (RGM) says this could be compounded by the removal of the current RON95 fuel subsidy from the middle of the year, as well as the expansion of the coverage of sales and service tax from May 1, both of which are expected to result in higher retail prices for selected food products.

Speaking to The Edge about his outlook for the retail sector and observations about ongoing retail trends, RGM managing director Tan Hai Hsin concedes that retail sales will slow down during the second quarter, but he deems it as “normal”.

“With reference to our March 2025 report, we project a growth rate of 4.8% for 2Q2025 (from a projected growth rate of 5.9% for 1Q2025) due to the Hari Raya festival, during which celebrations [including retail spending] will last for at least two weeks,” Tan says, adding that retail sales growth is expected to slow further in 3Q2025 to 2.8% due to the lack of major festivals and sales events during this period.

According to the report, which polled members of Malaysia Retailers Association (MRA) and Malaysia Retail Chain Association (MRCA) on their retail sales performances for 2024 and 1Q2025, 4Q2024 recorded a less-than-expected growth rate of 3.5% in retail sales, despite the national economic growth rate of 5% during the same period.

The report notes that retail prices of goods and services, which was a significant driver of economic growth during 4Q2024, continued to rise, with the higher cost of living eroding the purchasing power of Malaysian consumers.

Overall, the Malaysian retail industry reported a positive growth rate of 3.8% for 2024 (see Table 1), which was just shy of RGM’s earlier forecast of 3.9%.

RGM has revised its annual growth rate for retail sales in 2025 to 4.3%, an upward adjustment of 0.3% from the 4% projection made last November. This revision takes into account factors such as the encouraging growth during the Chinese New Year festivities and month-long school holidays in the first quarter, the attractive Malaysian currency and the visa-free entry for Chinese visitors, as well as the Hari Raya festivities starting in the first week of April in the second quarter.

RGM anticipates the retail sector to expand moderately by 2.8% in 3Q2025 and 3.5% in 4Q2025.

“Large shopping malls with high occupancy rates are crowded on weekdays and weekends. Despite locals spending long hours window shopping and dining at food and beverage (F&B) outlets, the trend does not necessarily translate to high retail spending at shopping malls,” Tan observes, adding that many shopping centres including those that opened in the last five years continue to face challenges with tenant occupancy and footfall.

Tan says last year, many retail brands from China entered the F&B, fashion and fashion accessories, health and beauty, lifestyle and products, furniture and furnishing, children’s products as well as automotive scene, and expects the trend to continue this year.

“The blind box trend reached its highest point in Malaysia during 2024. The craze of Labubu collectibles (dolls) boosted retail sales at China-based retail brand Pop Mart located in the Klang Valley, while Gashapon machines (vending machine for capsule toys) found in shopping centres were popular among youngsters. Some retailers used blind box as part of their promotional activities to generate sales. We foresee this trend to subdue in 2025,” notes Tan. The blind box trend revolves around consumers purchasing products in opaque packaging, with its content remaining a mystery until it is opened.

He also notes the efficacy of social media in driving retail sales for numerous F&B outlets, with local and overseas key opinion leaders and celebrities popularising these outlets.

Meanwhile, the retail veteran shares that more space in small and large shopping centres had been allocated for recreational and learning facilities, with more slated to be opened this year. New players that opened last year in the Klang Valley included the likes of Game On Sports Hub Pavilion Bukit Jalil and Game On Theme Park Melawati Mall, rock-climbing facility Batuu Climbing at 3 Damansara, Themepark Popoland in IOI Mall Puchong as well as padel and pickleball facilities PadelKu in Space U8 and 91 Pickleball Club at Giant USJ.

“[In addition], promotional activities on weekends such as fairs and new product launches are helping shopping centres to retain shoppers, while artisan markets — offering a wide variety of retail goods not found in retail shops — held on weekends in the Klang Valley draw large crowds to the shopping centres,” Tan explains.

Looking ahead, UOB Malaysia senior economist Julia Goh expects the retail sector to be buoyed by stable labour markets, continued fiscal support including the Sumbangan Asas Rahmah (Sara) aid initiative of RM13 billion, flexible EPF withdrawals from Account 3 and higher salaries. In a statement last Wednesday, the Ministry of Finance said those eligible for the Sara cash aid would receive up to RM2,100 each for the entire year, compared with RM1,200 last year.

“The implementation of RON95 subsidies rationalisation is also expected to be targeted with mitigation measures in place to manage any fallout on consumers,” Goh tells The Edge.

“Bright spots [in the retail sector] could stem from exclusions applied to some countries, successful negotiations and higher diversification, spelling upside for growth.”

Similarly, a research report by MIDF Research dated March 17 shows the research house to be optimistic about the sustainability of domestic consumption, given the stable employment conditions, rising wages and government policy support.

To the research house, which is positive on the consumer sector, increased minimum wages and higher civil servant salaries as well as continued cash assistance programmes are seen to strengthen spending power.

“Given this positive outlook, we continue to favour consumer staples and general merchandise retailers, which are well-positioned to benefit from sustained consumer demand,” says MIDF Research, which has “buy” calls on retail groups Aeon Co (M) Bhd (KL:AEON) and Padini Holdings Bhd (KL:PADINI) with target prices (TPs) of RM1.77 and RM2.19 respectively.

MIDF Research notes that Aeon outperformed with FY2024 core profit after tax and non-controlling interests rising 18.7% year-on-year (y-o-y) to RM151.4 million, driven by strong festive retail sales and resilient property management revenue.

Padini’s net profit of RM64.3 million for the second quarter ended Dec 31, 2024 (2QFY2025) was 21% higher than the RM53.1 million recorded a year earlier.

“The primary risk to consumer spending remains the fuel subsidy rationalisation. However, with the majority of Malaysians — about 85% — remaining unaffected by the subsidy cuts, consumer confidence is likely to strengthen, encouraging an increase in discretionary spending,” surmises MIDF Research.

Meanwhile, RHB Research, in a March 20 report, says most companies that it talked to are seeing a positive momentum in the numbers quarter to date on the back of wage hikes in the public and private sectors, boosting disposable incomes and consumer sentiment.

Bursa Malaysia-listed retail players such as optical retailer Focus Point Holdings Bhd (KL:FOCUSP) are confident that international tourist growth will contribute positively to the retail sector, besides employment and wage growth. Focus Point’s net earnings of RM33.2 million on revenue of RM292.5 million in FY2024 was an improvement from a net profit RM30.15 million and revenue of RM260.9 million in FY2023.

Bonia Corp Bhd (KL:BONIA), while expecting Hari Raya spending and civil servants’ remuneration to stimulate retail sales in the first quarter, says it “will be more strategic in resource allocation”.

“By streamlining expenses and addressing stock levels, we aim to maintain financial resilience while aligning our offerings with current consumer demand,” Bonia says in a Bursa Malaysia filing. For the second quarter ended Dec 31, 2024 (2QFY2025), the mass prestige retailer recorded a 10% dip in net profit to RM10.6 million from RM11.77 million a year earlier.

The group says revenue was 8% lower at RM108 million as a result of weaker consumer spending in both Malaysia, no thanks to rising prices of many goods and services following the increase in the service tax rate to 8% (from 6% previously), as well as the goods and services tax (GST) rate hike in Singapore, flotation of diesel prices and higher interest rate environment.

Carlo Rino Group Bhd, another fashion retailer that posted a net profit of RM4.67 million on revenue of RM26.6 million for 2QFY2025 ended Dec 31, 2024, says it experienced an increase in revenue from its e-commerce platforms.

Revenue from e-commence platforms grew 29.52% y-o-y to RM8.03 million from RM6.2 million. Moving forward, the mass prestige retailer says it is counting on higher wages to buoy household spending this year.

Bloomberg data shows the majority of analysts covering the counters of Aeon, Padini and Focus Point have “buy” calls with consensus TPs of RM1.73, RM2.24 and RM1.08 respectively.

Of the two analysts covering Bonia, one has a “buy” call on the stock with a TP of RM1.50 while the other has a “sell” call and TP of 97 sen. There is no equity research coverage on Carlo Rino. 

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