AN economist, Professor Hoo Ke Ping, has seen all sorts of business cycles and says retailers are in for a bumpy ride in 2017.

Hoo said a week after Chinese New Year in late January, there were signs of many retailers struggling to keep their businesses afloat.

Consumers are holding back in the face of a weaker economy.

“The malls are not closing but the retailers are folding up because they cannot sustain their business. Many are negotiating for lower rental, asking discounts of up to 20%.

“The struggling ones are in Quill City Mall, Avenue K, Fahrenheit 88 and Vivo Mall. The reason is that there are too many malls competing against established players.”

Hoo said it was unlikely that retailers would give up their locations in the prime malls despite high rental and less customer traffic.

“Retailers in prime malls will not shift to smaller shoplots or other locations. However, the retailers in the less popular or smaller malls who can’t cope are expected to close shop. This is mostly due to the high rental and no business.”

About 10 malls in the Klang Valley are successful, said Hoo. Among them are Mid Valley Mega Mall, 1Utama, Sunway Pyramid, Pavilion, IOI Mall and The Curve.

Shoppers, too, are feeling the pinch with their purchasing power decreasing in the last two years.

“We are in a recession and this is when people tend to conserve and spend less. More people are laden with household debts, personal loans, car loans and property loans.

“Those who earn less than RM4,000 don’t have the capacity to spend as the bulk of their earnings is used for transportation, rental, fuel, food and other daily essential items.

“About 80% of the Malaysian workforce earns less than RM4,000. The loans tend to trap the spender and prevent them from shopping at the malls.”

According to Khazanah Research Institute’s (KRI) The State of Households II Report, Malaysia’s average household income in 2014 was RM6,141 per month and median household income was RM4,585 compared with RM5,000 and RM3,626 respectively in 2012.

Another factor affecting retailers is the move to online shopping.

“At least 30% of Malaysians shop online and this has hurt retailers at the malls.

“Studies from the Chinese Academy of Social Science have shown that Ali Baba (an online retail giant) and others will soon cause 40% of shopping malls in China to fail.

“The younger generation are only going to malls for entertainment, social activities and to eat. They hardly shop at malls.”

Another factor Hoo cites is China’s imposition of capital controls. Chinese tourists are one of the biggest shoppers in the region.

“Prime malls in tourist hotspots will continue to thrive while other malls will continue to struggle.

“The decline in the number of rich Chinese tourists will also affect business. In the past, the rich tourists came in large numbers, now only the not-so-affluent ones are coming.

“The numbers might be there, but the spending power is less. Shopping malls will be affected as Chinese tourists tend to stay longer and spend more.”

Hoo added that malls outside the Klang Valley were also expected to face challenges.

“The mall in Kuantan is getting worse while in Johor Baru, malls in certain areas are doing well. In Penang, the malls are thriving, while Perak and Malacca are struggling.” – March 31, 2017.