• Distributive trade sales surged 28.3% yoy

• Double-digit growth due to expansion in all distributive trade sub-sectors

• Global retail sales slow as consumers freed from lockdown

• Distributive trade to be lifted by low base effect

Malaysia’s distributive trade recorded sales of RM108.3bn in May, registering a double-digit growth of 28.3% yoy, after hitting the fastest pace in the previous month. The growth marks the third consecutive month of growth, partly explained by the low base effect. Softer expansion was recorded in all sub-components especially motor vehicle sales which grew at 71.1% yoy in May after a recordbreaking growth in April. Similarly, wholesale and retail trades surged by double digit growth of 31.2% yoy and 17.3% yoy, respectively, albeit at a more moderate pace.

Sales value of motor vehicles sub-sector rose by 71.1% yoy (RM4.8bn) to RM11.6bn, after skyrocketed in the previous month. This growth was higher due to the low base effect in all sub-components of motor vehicles. A total of 46,663 units were delivered in May 2021, which was 11,249 units or 19.4% lower than the 57,912 units sold in April. On a year-on-year basis, total industry volume (TIV) surged by 99.7% from 23,366 units sold in the same period a year earlier. Likewise, year-to-date May 2021, Malaysia's new vehicle sales increased 91.0% to 245,932 units from 128,790 units.

Sales of retail trade rose 17.3% yoy or RM6.4bn to RM43.4bn. The growth expansion was due to retail sale of information & communication equipment in specialised stores (35.6%), retail sale of other household equipment in specialised stores (32.2%) and sale of cultural & recreation goods in specialised stores (28.0%). Meanwhile, wholesale trade generated sales value of RM53.4bn in May, an increase of RM12.7bn (+31.2% yoy) mainly due to the increase of other specialised wholesale trade which grew 70.5% to settle at RM21.7bn. This was followed by non-specialised wholesale trade & wholesale of machinery, equipment & supplies which rose by 25.9% and 27.9%, respectively.

On a monthly basis, the sales value of wholesale & retail trade dropped 2.5% in May. Sales of wholesale trade sub-sector rose marginally by 0.8% mom. Sales of motor vehicle contracted 16.2% whilst retail trade sub-sector fell 2.2%.

Global retail sales slow as consumers freed from lockdown

Indonesia’s retail sales growth slowed in May, rising 14.7% yoy after rising 15.6% a month earlier. The slowdown was partly due to a deterioration in food, beverages tobacco and clothes sales due to softer demands after the Muslim fasting month while tighter restrictions to curb COVID-19 infections also hindered mobility during the Aidill-Fitri celebrations. In contrast, motor vehicles, parts and accessories sales gained steam. Bank Indonesia predicted an even slower 4.5% rise in retail sales in June as consumption returned to normal after the Aidill-Fitri celebration.

Singapore’s retail sales surged 79.9% yoy in May 2021, clocking a new record growth rate from April’s 54.4% yoy expansion. On a month-on-month seasonally adjusted basis, retail sales fell 6.8%. Excluding motor vehicles, retail sales rose 61.6% yoy in the same period. Accounting for the latest data, Singapore’s retail sales has grown 19.1% in the first five months of 2021. The record high growth is due to the low base in May 2020, when Singapore entered a circuit breaker to contain the COVID-19 pandemic. The expansion was led by a broad recovery across key clusters except for supermarkets and provision & sundry shops. Domestic demand remained soft in May, given the decline in online retail demand. Online retail demand in May fell for the second straight month at -1.1% yoy, highlighting the shift of consumer behaviour away from shopping behind screens, to the patronisation of brickand-mortar shops. Online sales as a percentage of total retail sales remain sizeable at 13.7% in May, slightly higher compared to 11.2% in April. Note that online demand as a percentage of total sales still commands a sizeable portion when compared to a meagre level of 5.0% in 2018.

China’s retail sales growth slowed more markedly to 12.4% yoy in May from 17.7% yoy in April. Compared to pre-pandemic level in May 2019, retail sales were up 9.3% yoy with an average 2-year increase of 4.5% in May. Year-to-date, retail sales were up 25.7% yoy while e-commerce sales rose 24.7% yoy. On a month-on-month comparison, retail sales growth strengthened 0.81% in May compared to 0.25% in April. Restaurant sales rose 40.8% yoy in May, a slowdown from 46.4% yoy in April with year-to-date increase of 64.2% yoy.

US retail sales dropped more than expected in May, with spending rotating back to services from goods as vaccinations allow Americans to travel and engage in other activities that had been restricted by the COVID-19 pandemic. Retail sales shrank 1.3% mom in May, reversing from a 0.9% mom rise in April. It is the first decline in 3 months as the sector continues to come down from the stimulus-fueled high of recent months. The culprit dragging the May sales down was autos, with car sales declining 3.7%. Stripping them out entirely, retail sales fell by 0.7% last month. May retail sales were still 28% higher than they were last year when many non-essential stores were closed.

Japan’s retail sales rose for a third straight month in May, but failed to dispel worries that the economic recovery will take time to gather steam as COVID-19-linked pressures remained. Retail sales jumped 8.2% yoy in May, but underlying trends in consumption remain hostage to COVID-19-linked pressures and suggest the economic recovery will take time to gather steam. The broader rise in retail sales, which was largely due to statistical base effects that reflected last year's slide, was underpinned by year-on-year gains in spending on items such as general merchandise, clothing, cars and fuel. Compared with the previous month, retail sales lost 0.4% on a seasonally adjusted basis, in a sign the trend for spending by Japanese consumers was losing steam.

Eurozone monthly retail sales rose more than expected in May after a drop in April, driven mostly by purchases of non-food products and car fuel. The seasonally adjusted retail trade rose by 4.6% mom, reversing a 3.9% drop in April 2021. It is the biggest increase since June amid the easing of coronavirus restrictions in many countries in May. A rebound was seen in sales of non-food and auto fuel while sales of food, drinks and tobacco edged down 0.2%. Year-on-year, retail sales were up 9.0%. Sales rose by 28.4% yoy for automotive fuels, by 14.8% yoy for non-food products and by 0.1% for food, drinks and tobacco.

Elsewhere, retail sales in the UK declined by 1.4% mom in May, following a 9.2% increase in April when retail coronavirus-induced restrictions were eased. Receipts at food stores fell 5.7%, as the easing of hospitality restrictions had an impact on sales as people returned to eating and drinking at locations and on-line trade dropped by 4.2%, following the reopening of non-essential retail. On the other hand, non-food stores reported a 2.3% rise, with household goods stores, and “other” non-food stores reporting the largest growth of 9.0% and 7.7%, respectively. Automotive fuel sales increased by 6.2%, as people continued to increase their amount of travel. Still, total retail sales were up 9.1% when compared with their pre-pandemic February 2020 levels. On annual basis, retail sales rose by 24.6% yoy in May, following a 42.4% increase in April. Retail sales in South Korea grew 3.1% yoy in May, following a revised 8.7% jump in the prior month. It was the fourth straight month of gains in retail trade. On a monthly basis, retail sales dropped 1.8% in May, following a revised 2.1% gain in the prior period. Retail sales in Taiwan advanced 2.8% yoy in May, following a 18.3% jump in the previous month. It was the slowest expansion in retail activity since February, as health authorities rolled back restrictions amid a surge in COVID-19 infections. On a monthly basis, retail sales fell 5.8%, following a 0.7% increase in April. Retail sales in Australia rose by 0.4% mom in May, after a 1.1% growth a month earlier. This was the third straight month of increase but the softest pace in the sequence, amid COVID-19 restrictions in Victoria during the last week of May. On yearly basis, retail sales increased 7.7% yoy (seasonally-adjusted) whilst two-year growth (vs May 2019) remains elevated, +13.9%. Meanwhile, Vietnam latest data give some indication of how global retail sales will perform in the coming month. Retail sales in Vietnam fell by 6.6% yoy in June 2021, much faster than a 1.0% yoy drop a month earlier. This was the second straight month of decline in retail trade, as consumption weakened due to a resurgence of local COVID-19 infections.

Distributive trade to be lifted by low base effect

Malaysia’s distributive trade growth accelerated at a moderate pace of +28.3%yoy in May after hitting the record high in the previous month. The growth was the third consecutive month of increase amid low base effect last year and picked up in domestic economic activities. The growth was propelled by all sub-components, which registered double-digit growth during the month. The sub-sector that contributed the most was wholesale trade, which increased 31.2% yoy, followed by retail trade, which expanded 17.3% yoy. Motor vehicles also showed an uptick with an increase of 71.7% yoy. The growth was supported by the rollout of government fiscal supports, inflationary climate, and vehicle sales tax exemption. On the other hand, the imposition movement control order (MCO) in May had impacted the distributive trade performance. Compared with May 2019, which was before the COVID-19 pandemic, wholesale and retail trade sales were down by 2.2% or RM2.5bn.

However, looking at the month-on-month momentum, where the distributive trade dropped further by 2.5% mom in May 2021 (Apr: -1.5%; Mar: +4.4%; Feb: -3.4%; Jan: -3.2%). whilst retail trade recorded negative growth of 2.2%, there has been some softening in consumption spending. This suggests that MCO did have some dampening effect on private consumption, and it may be more appropriate to focus on the on-month changes to get a clearer picture of the economic health of the retail sector.

As the distributive trade growth moderates, the growth in online retail sales index, which portrays e-commerce activity grew only by 15.8% yoy (Apr: 22.0%; Mar: 18.3%; Feb: 23.1%; Jan: 28.7%; 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, potentially reflecting the retightening of the mobility and lockdown restrictions during the month.

On the other hand, uses of electronic payment instruments (credit, charge and debit card and e-money) data revealed that there had been a depletion 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 dropped by 4.3% mom (+36.6% yoy) to RM22.37bn in May from RM23.38bn in April. The volume of the total usage of the electronic payment instruments fell in May to 260.77m from 301.86m in the previous month.

Following the reinstatement of MCO, consumption indicators deteriorated slightly in May. The credit card data used by local cardholders in Malaysia dropped by -8.29% mom (Apr: - 3.9%; Mar: +27.8; Feb: -12.1%; Jan: -15.3%) or (RM0.86bn) to RM9.7bn in May as consumers mobility constraint further amid a resurgence of daily COVID-19 cases. On a yearly basis, the credit card usage by local cardholders increased by 24.6% due to low base effect (Apr: +98.1%; Mar: +28.0%; Feb: -10.6%; Jan: -14.0%). Overall, domestic credit card transactions expanded 25.2% in the first five months of the year

The distributive trade is likely to be lifted by the low base effect in the upcoming months. Since the trade contracted to the troughs of-36.6% in April and -23.8 in May 2020, the figures had narrowed in June onwards but still in negative territory. In June 2020, the distributive trade fell 8.4%. Average contraction for 3Q20 was 1.8% and 4Q20 at 0.7%, bringing the average contraction for 2H20 at -1.3%. With the presence of a low base comparison from last year data, the remainder months probably sustained the positive growth. Although the low base effects will start to wear off probably by 4Q21, there may be more respite for the retail sector ahead with the transition to phase 2 and 3 of the NRP as well as the pickup in vaccination pace. The relaxation of restrictions and the reopening of the economy may result in an increase in pent-up demand as consumers will be allowed to go out and increase their discretionary spending.

For the rest of 2021, we opine that the low base levels seen in the months between June and December 2020 will be a strong factor to explain the rebound in retail sales growth. Note that retail sales had stayed in contraction territories till February 2021.

Overall, distributive trade is expected to continue registering annual growth despite the resumption of COVID-19 related restrictions in the country, mainly due to the low base effect. Moving forward, we expect consumption activity to be constrained by lockdown which further limits people’s mobility and outdoor activities. Nevertheless, in comparison to last year’s performance, we expect consumers and businesses are more familiar and comfortable with online shopping and trading which has been the new norm because of the pandemic. Although there could be some slowdown however it could still better than last year’s performance as consumers and businesses have largely adapted to the new norm in terms of digitalization. However, to return to the pre-pandemic level, the absence of restrictions is needed to amplify the consumer sentiment, also uplifting the inter-district and state travel ban.

Source: BIMB Securities Research - 13 Jul 2021