Retail Group Malaysia upgrades 2023 retail growth forecast to 2.8% after strong 3Q sales

• For the first nine months of this year, the Malaysian retail industry expanded by 3.3% compared to the same period in 2022.

KUALA LUMPUR (Dec 5): Retail Group Malaysia (RGM) has raised its growth forecast for the retail industry in 2023 to 2.8% from the previously projected 2.7% in September. This adjustment is attributed to a better-than-expected growth rate of 2.7% in retail sales during the third quarter (3Q2023).

In the Malaysia Retail Industry Report released on Monday, RGM said that the latest quarterly result surpassed the expectations of the Malaysia Retailers Association (MRA) and Malaysia Retail Chain Association (MRCA), which projected a 1.4% growth rate in September.

RGM said the retail industry experienced a significant 96.0% expansion in the previous corresponding quarter due to the reopening of retail businesses after a two-year lockdown. Thus, the lower growth rate for 3Q2023 is partly attributed to the high base effect from a year ago.

However, despite shopping traffic returning to pre-Covid levels, weakened spending power has been noted due to higher cost of living.

For the first nine months of this year, the Malaysian retail industry expanded by 3.3% compared to the same period in 2022.

Food and beverage sector

For the food and beverage industry, RGM reported that cafes and restaurants recorded a positive growth rate of 9.6% in 3Q2023, while take-away, kiosk, and stall operators also saw a significant leap of 19.5% compared to the same period last year.

RGM anticipates that in 4QFY2023, the rising cost of living will lead many Malaysian consumers to dine outdoors less. Additionally, higher costs of food supplies and manpower are expected to result in declining profit margins for food and beverage operators.

The group also pointed out that the Israel-Hamas war has led to the boycott of several international F&B franchises with alleged ties to Israel, prompting consumers to shift to Malaysian and other Asian F&B brands.

RGM foresees an 8.3% increase in cafe and restaurant operators' businesses, while kiosk and stall operators anticipate a growth of 11.5% during 4Q2023.

Forecast for next three months

For 4Q2023, MRA and MRCA projected an average growth rate of 2.1%, lower than RGM's estimate of 3.0% in September.

RGM predicts that food prices will continue to rise during the last quarter of this year, and the higher cost of living will continue to negatively impact the purchasing power of consumers.

It said shopping traffic in 4Q2023 is expected to be similar to 2022 levels, and while consumers will still be spending, holiday sales may not reach pre-Covid levels due to the shortened school holiday.

For 2024, RGM forecasts a 3.5% growth rate for the retail industry, pointing out that the biggest challenge for the industry will be the rising cost of living.

It added that two tax-related policies introduced for next year, namely an 8% new service tax rate and high value goods tax, are expected to impact consumer spending.

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