Malaysian GST hammers retail sales

Grocery retailers in Malaysia have reported a slump in retail sales of up to 20 per cent in the second quarter of this year – the three months after the introduction of Malaysian GST.

Malaysian GST of a modest six per cent was imposed on April 1. Prior to that there was evidence of consumers stockpiling products – especially fast moving consumer goods – many of which the new tax was not applied to anyway.

The nation’s largest convenience store operator, 7-Eleven, says the scale of the downturn took many retailers by surprise.

“I think all retailers anticipated a slowdown in sales as a result of GST, but they probably did not anticipate the weak consumer sentiment and low consumer confidence at the same time,” 7-Eleven CEO Gary Brown told The Malaysian Reserve.

With 1840 stores across Malaysia and 80 per cent of the c-store market, 7-Eleven is well placed to gauge the national spending mood.

It plans to respond to the downturn in sales by broadening the range of services it offers customers and expanding the in-store experience beyond mere convenience.

“We will continue to expand our innovative promotion activities and campaigns to reward our existing shoppers and to attract new shoppers.

“This includes expanding our in-store services such as mobile phone reloads, bill payment, Touch n Go reloads and eCommerce.”

The 7-Eleven CEO’s comments come just weeks after the Malaysia Retailers Association (MRA) lowered its growth projections for retail sales growth this year for the third time – down nearly one per cent to four per cent.

While the tax has had an arguably short term effect, the local currency, the Ringgit has weakened substantially during the last six months, causing price increases on imported goods and raising transport costs. The arrival of GST weakened consumer sentiment.

According to the MRA, retail sales overall declined three per cent in the second quarter after a 4.6 per cent increase in the first quarter, partly due to consumers stockpiling or buying big ticket items before April 1.

The MRA expects third quarter growth of 4.8 per cent and fourth quarter growth of 6.9 per cent.

“Malaysian consumers will get used to the GST by the last quarter of 2015. Retail spending will return to normal again by this period. This industry is expected to recover strongly with a 6.9% growth rate,” it said.

But anecdotal feedback from retailers Inside Retail Asia has spoken with suggests those projections may well be overly optimistic.

Malaysian retailers say consumers have been slow to resume spending even after recognising the overall impact of GST is lower than they feared.