• Distributive trade sales declined 2.7% yoy

• Negative growth due to contraction in all distributive trade sub-sectors

• Global retail sales plummeted in January

• Retail trade to be bolstered by improving disposable income & low base effect

Malaysia’s distributive trade recorded sales of RM111.7bn in January registering a negative growth of 2.7% yoy. This contraction was due to motor vehicles which slipped -13.8%. Similarly, retail trade and wholesale trade also decreased -2.5% and -0.4% respectively.

Sales of retail trade contracted 2.5% yoy (-RM1.2bn) to RM45.6bn. The negative growth was due to sales of non-essential products namely retail sale of automotive fuel in specialised stores (-14.1%), retail sales of other goods in specialised stores (- 7.0%) and retail sale of cultural & recreation goods in specialised stores (-5.1%). However, sales of essential goods depicted a positive yoy growth, with sales in non specialised stores registering 1.4% yoy growth to RM16.6bn. This was followed by retail sales of food, beverages and tobacco which rose 6.0% to RM2.9bn. Meanwhile, wholesale trade generated sales value of RM55.4bn in January, a decrease of RM0.2bn (-0.4% yoy) mainly due to the declined in agricultural raw material and live animals and wholesale on a fee or contract basis which recorded a fall of 6.0% yoy and 4.9% yoy respectively. However, wholesale of food, beverages and tobacco grew 4.9% to settle at RM10.7bn and wholesale of household goods which increased 4.2% to RM11.6bn.

Sales value of motor vehicles sub-sector fell for the first time since June 2020 to record -13.8% yoy (RM1.7bn) to RM10.6bn. This decrease was attributed to sale of motor vehicles which registered a double-digit contraction of 17.6% (Dec’20: +15.3%) and maintenance & repair of motor vehicles which decreased 9.5% (Dec’20: -3.2%). A total of 32,829 units were delivered in January 2021, which was 36,007 units or 52.3% less than the 68,836 units sold in December. On year-on-year basis, total industry volume (TIV) fell by 23.6%.

On monthly basis, sales value of Wholesale & Retail Trade dropped 3.3% in January. Sales of motor vehicle declined 20.5% whilst retail trade sub-sector decreased 2.6%. However, sales of wholesale trade sub-sector increased 0.2% mom.

Global retail sales plummeted in January

The restrictive measures on retail in some of the countries continue to bite as most retail industries continued to see sales decline in January. This rough start to the first quarter for retail sales could affect GDP growth.

Retail sales in Singapore fell 6.1% yoy in January, compared with the 3.3% yoy decline recorded in December last year. The larger decline was due partly to a higher sale recorded in January last year, when Chinese New Year was celebrated. Excluding motor vehicles, retail sales fell 8.4% mom in January, compared with the 4.2% decline last December. Compared to the previous month, seasonally adjusted retail sales also decreased 1.8% in January. Excluding motor vehicles, seasonally adjusted sales fell 2.4% mom. E-commerce demand for goods sold by domestic retailers stayed strong at +75.8% yoy in January. Online sales as a share of total retail sales also remained significant at 10.3% in the same month, slightly lower than the 10.9% recorded last December. Retail sales in Indonesia tumbled by 16.4% yoy in January, slower than the 19.2% yoy fall a month earlier, as sales of food and beverages, tobacco and clothes improved. This marked the fourteenth straight month of fall in retail trade, amid the prolonged impact caused by the COVID-19 crisis that made people to stay at home most of their time. On a monthly basis, retail sales declined by 4.3% in January, reversing from a 4.8% growth in December

US retail sales surged in January by the most in seven months, suggesting fresh stimulus checks helped spur a rebound in household demand, following a weak fourth quarter. The value of overall sales increased 5.3% from the prior month after a 1% decline in December. It was the first monthly gain since September and all major categories showed sharp advances. Non-store retailers, which includes online stores, rose 11%, the most in two years. Food services and drinking places rose 6.9%, as restrictions eased at restaurants and bars across the country. Core retail sales, automobiles, gasoline, building materials and food services which correspond most closely with the consumer spending component of gross domestic product, rose 6%, the largest gain since June, rebounding from a 2.4% fall in December. On an annual basis, retail sales rose 7.4% in January (December: +2.5% yoy), the best result since September 2011. Retail sales in Japan declined by 2.4% yoy in January, a sign that households tightened their purse strings as the coronavirus staged a resurgence.

The fall was largely due to sharp contractions in general merchandise and fabrics apparel spending. It followed a 0.2% yoy fall in December. Compared to a month earlier, retail sales in January fell 0.5% on a seasonally adjusted basis for the third straight month of declines. But the pace of decline was slower than in the previous two months. Eurozone's retail trade slumped 5.9% mom in January, the steepest decline since last April's record slump, as a number of member states re-imposed or extended coronavirus lockdown measures. Nonfood products sales plunged 12.0% mom (Dec’20: +1.0%), despite a 7.1% mom increase in on-line trade; while fuel sales were down 1.1% mom (Dec’20: 4.7%). Meanwhile, food, drinks and tobacco trade rose 1.1% mom, compared with a 2.3% growth in December. On a yearly basis, retail sales shrank 6.4%, the steepest decline in nine months. Clearly, the restrictive measures on retail in some of the larger eurozone economies continue to bite. The retail shutdown in Netherlands and Germany started mid-December and lasted for all of January, which caused another sharp decline in activity. In France, sales also contracted sharply, again related to the cancelled sales period and curfew put in place.

Elsewhere, retail sales in the UK slumped 8.2% mom in January, the most since a record 18% fall in April, as all sectors of retailing except for food and online outlets were affected by the imposition of tough new restrictions across the UK. Meanwhile, the proportion spent online soared to 35.2%, the highest on record and up from 29.6% in December 2020 and 19.5% in January 2020. Year-on-year, retail sales were down 5.9%.

Retail trade to be bolstered by improving disposable income & low base effect

Malaysia’s distributive trade fell for the fourth straight month to record -2.7% yoy in January 2021 as sales in all sub-components shrank. Malaysia’s total motor vehicle sales recorded the highest fall of 13.8% since May 2020 (-49.5%). Meanwhile, retail trade fell 2.5% yoy in January 2021, the steepest decline in seven months. The declined in growth was partly due to the resurgence of COVID-19 cases, which led to the movement control order 2.0 (MCO 2.0) reimposed. Under MCO 2.0, the non-essential retailers were forced to temporarily closed their business, depressing their sales. Meanwhile, the semiconductor industry shortage has led to a delay in production and lower vehicle sales in January. Retail sales is expected to improve in February although could still be in a contractionary phase given the seasonal spike in demand during the Chinese New Year festive period in the middle of February 2021.

Meanwhile, following the decrease in retail sales, the online sales as a share of total retail sales had also slowed in January. The online retail sales index, which portrays e-commerce activity grew 28.7% yoy (Dec: 37.3%; Nov: 27.7%; Oct: +26.3%; Sep: +37.8%; Aug: +37.4%; Jul: +34.7%; Jun: +35.5%; May: +39.3%) for the month. Uses of electronic payment instruments (credit, charge and debit card and e-money) data also revealed that there had been a sizeable drop in consumer spending. The data disclosed that consumer spending showed a decline where the total value transacted via the usage of electronic payment instruments had reduced by 8.9% mom (-3.5% yoy) to RM20.93bn in January 2021 from RM22.97bn in December 2020. The volume of the total usage of the electronic payment instruments also fell in January to 236.0m from 273.8m in the previous month. The credit card data used by local cardholders in Malaysia recorded a steep decline of 15.3% mom or (RM1.8bn) to RM9.8bn in January 2021.

Over the course of the year, more Malaysians have turned to websites and apps to buy groceries, comfortable clothing and home goods. While the pandemic has precipitated broader adoption of multichannel services for the retail industry, households are becoming attached to the convenience and product selection of buying online which suggest the ongoing structural shift in retail demand from demand in brick-and-mortar stores to online buying. Many consumers who had not tried ecommerce before the pandemic are likely to continue shopping online. Largely because of COVID-19’s impact on the ability of the public to travel, go out to dinner or attend entertainment, 2020 saw a shift toward spending on goods rather than services. We expect retail to continue to benefit from that shift, but some pre-COVID services spending will return, particularly among affluent households, who spend more on services and are likely to resume those activities once it is safe to do so.

Looking ahead, distributive trade performance is anticipated to be disrupted by the MCO 2.0 which limit consumers outside activities and businesses’ operations hence reduce demand. The retail sector is anticipated to progress well in the upcoming months after MCO 2.0 ended in early March. Retail sales are expected to grow this year as the economy begins to reopen and more and more individuals receive the COVID-19 vaccine. The trajectory of the economy is predicated on the effectiveness of the vaccine and its distribution. Our principal assumption is that that the vaccination will be effective and permits accelerated growth during the mid-year. We are very optimistic that healthy consumer fundamentals, pent-up demand and widespread distribution of the vaccine will generate increased economic growth, retail sales and consumer spending.

Consumer spending could pick up in the months ahead as the government supports continued to roll in. Starting 8 Mac, the government has approved the withdrawal under iSinar scheme to be made without conditions. The measure could provide an additional boost to consumer spending as seen with other relief efforts over the past year. The pace of growth could be “patchy”, but there should be a “return to normalcy” beginning in the second quarter. The upcoming festive season (Aidilfitri in May) could elevate the retail segment if the restriction such as inter-state travel is allowed. The eased of restriction will somehow uplift the consumption, as the household had spared enough funds in the past. This improvement believes enough to bolster the domestic economy with the spending revenge is anticipated.

A wide array of economic indicators points toward potentially record retail sales growth during 2021, but the coronavirus pandemic remains the biggest challenge for the year. There is no doubt the economy is positioned for growth in 2021, but how much growth comes down to a single non-economic force – the coronavirus. We are optimistic about improving macroeconomic conditions as COVID-19 infections decline and distribution of vaccines becomes more widespread. Yet the road is never straight, and we have challenges ahead. The pandemic remains the largest uncertainty and the biggest risk the economy faces in 2021.

We expect retail sales to rise fairly strongly over the coming quarters as the recovery resumes and is soon given a shot in the arm by vaccines. Overall, the distributive trade would perform well this year, bolstered by improving consumer demand coupled with a low base effect.

Source: BIMB Securities Research - 15 Mar 2021