Can Malaysia’s shopping malls make it?



By Lee Yan Li


A RECENT report by Bloomberg stating Singapore malls’ occupancy rate reaching its lowest level in ten years, despite declining rental rates, was echoed by several reports that there is an oversupply of retail space in Malaysia.

Henry Butcher Retail managing director Tan Hai Hsin shared his take on local retail industry.

What is the situation of the retail market in Malaysia? Could you share some figures?
Yes, the average occupancy is down but there is no official statistics yet as the year has not ended.

In 2015, there were 927 shopping centres in Malaysia with 147 million sq ft of retail space. The average occupancy rate was 78.5%. In 2016, the average occupancy rate should drop to about 75%. Shopping centres in all parts of Malaysia have been affected by the weak economy.

From this year to 2018, another 102 shopping centres with 31 million sq ft will be completed, with Kuala Lumpur and Selangor receiving the major supply.

The current retail market is weak and retailers are very cautious on business expansion. It is considered good if a new mall is able to open at 80% occupancy rate during the first month.

However, the oversupply of retail space has been apparent for many years in Malaysia, especially in Klang Valley. It is not a recent situation in this industry.

There are some people who said that it has been the worst time the retail market has ever seen on decades. Is this true? Is it the same for every sector across the board or did it hit some sectors particularly hard?
The current predicament started from last year due to the introduction of Goods & Services Tax (GST) in April. This year, the main contributor is the weak economy. Consumers’ purchasing power has not recovered from GST. They are still cautious in their spending. All retail sub-sectors have been affected.

Some said the lack of tourism spending, particularly Chinese tourists and rise of online shopping are among factors of the situation in Singapore. How about Malaysia?
Compared to last year, more Chinese tourists are coming to Malaysia. The consumers are still visiting shopping malls, especially during weekends and especially large shopping malls. They just spend less, compared to two years ago.

The performance of Malaysia retail industry is directly related to the economy of the country. To energise the retail industry, we need to improve the national economy.

When our economy improves, consumers will buy more. When our economic outlook remains weak, consumers will stay cautious.

For the last few years, the service as well as the food and beverage (F&B) sectors had driven strong growth rate in the private consumption component of the Malaysian economy.

F&B have been one of the most vibrant trades during Malaysia’s economic uncertainty for the last three years. The rapid growth of coffee cafes, bakery cafes, fine-dining restaurants, overseas chain restaurants and food trucks has proven that urban Malaysians are still willing to spend on good foods or dine in nice environment despite the increasing cost of living.

The service sector (including online banking, airline ticket purchase, hotel booking, movie ticket, food delivery, home repair, Uber, Airbnb and etc.) has been enjoying sustainable growth rates during these few years.

Another sector that has been growing strongly for the last few years is online retail sales. More brick-and-mortar retailers are setting up online channel to get consumers to spend. Many Malaysians are also using social media platforms to launch their products and services from handmade cupcakes, handmade soaps, costume jewelleries, limited edition clothing and many more.

Nevertheless, online sales do not account for more than 2% of total retail sales.

You mentioned that start-ups are relatively easy due to low cost of rent, labour and renovation. Is it still the case?
Yes, it is still easy at this moment because there is still no standard government regulation to control this industry. This is in comparison with the regulatory measures introduced on food trucks and hail-riding cars recently.

Is the rise of start-ups using e-shops, food trucks and pop-up stores part of the reason that the shopping malls in Malaysia are facing these problems?
Food trucks are now going through the consolidation stage. The cost of running this business is increasing and the profit margin is dropping due to competition.

Pop-up stores are usually found inside shopping centres. Thus, it helps the malls.

Perhaps the changing consumer behavior of younger generation has rendered traditional “brick-and-mortar” less desirable?
Changes are not obvious at this moment in Malaysia and around the world. Therefore, online sales are not ‘killing’ shopping malls for the time being.

Malaysians are active in online shopping but the transaction amount is still low compared to the entire retail industry. Online retail sales only accounts for less than 2% of total retail sales in Malaysia. The services such as buying movie tickets, Telco, banking and government services account for the largest portion of online shopping.

More brick-and-mortar retailers now offer online shopping facility. This trend covers almost all retail sectors including international luxury brands, fashion clothes, fashion accessories, gifts, toys, books, electrical & electronics, furniture, hardware, buildware, grocery, F&B and etc.

At the same time, more online retailers are setting up physical stores. has a permanent premise at Mitsui Outlet Park. The well-known Christy Ng Shoes has set up a showroom in Damansara Utama. Popular Facebook Fatbaby ice cream has set up an ice cream parlor in Subang Jaya.

Visiting shopping centre is already a lifestyle of Malaysian consumers, especially during weekend. It is a family outing, a gathering place for friends, a movie day, a relaxation spot with free air-conditioning, an exciting place to see nice things and a one-stop centre for grocery shopping, fashion buying, dining and entertainment.

In terms of F&B, there seems to be more niche and unique cafes or eateries opting to rent shop lots rather than going into shopping malls in recent years. Is there a trend or just some isolated cases?
It is not a trend for the following reasons.

Firstly, it is much cheaper to rent a shop lot than a retail shop in a shopping centre. For a new business, it is cost at least 50% more to set up shop in a shopping centre.

Secondly, it is not subjected to all the strict guidelines imposed by shopping centre. In shopping centre, you have to open from 10am to 10pm from Monday to Sunday, including public holidays. There is no late opening and no rest day. If you want to quit ahead of your lease term, you have to pay the landlord for all the unpaid rentals.

Do you think Budget 2017 will benefit any party in the retail business?
No, not significantly. The disposable income will be raised through the increased distribution of BR1M and other cash handouts. These government incentives do not necessary converted into retail spending. Some will be used to repay debts or as savings.

Do you think that more young people are willing to create their own business as a result of the government’s effort?
Many Malaysians are already trying to set up their own businesses without the government’s encouragement. In Malaysia, the rental and set-up cost are still relatively low. Thus, it is very easy to set up new retail business.

Just like retail businesses in any part of the world, the failure rate is still around 80%.

There are some who said that local shopping malls often offer the same brands over and over again, what is your take on this? Does it in any way contribute to the cooling interest on shopping malls?
No. This is not true. There are always similar retailers found in shopping centres. For example, there are only few players in the sectors of supermarket, pharmacy, children wear, discount store and etc. This is the same everywhere throughout the world.

It does not lead to the current situation in shopping centres. The current poor occupancy rates of many shopping centres in Malaysia are mainly due to the weak economy.

Is the operation method of shopping malls less conducive for small business owners that squeeze out more boutique small brands in the major shopping malls?
Yes, but it cannot be helped. Running a shopping centre is a very costly business. This is the same everywhere.

However, due to the current weak retail market, many shopping centres are trying to attract small retailers to operate in their premises at lower rental rates.


The article was first published in Chinese in Property Trends. 

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