Issue cover-dated April 25, 2002
MALAYSIA
The Retail-Shopping War
Malaysia searches for a balance between backing hypermarkets that offer lower prices, more choices and employ thousands and protecting small businesses that feel threatened by the big competition.
By Cris Prystay/KUALA LUMPUR Issue cover-dated April 25, 2002
SUBITA KRISHNAN used to do all the shopping for her family of five at her neighbourhood provision shop in Petaling Jaya, a suburb west of Kuala Lumpur. Then Carrefour opened an outlet not far from her home. She still stops by the neighbourhood shop a few times a week to pick up odds and ends, but the bulk of her shopping is now done on twice-monthly trips to the sprawling hypermarket. "The [provision] shop owner always complains that he's losing so much business," says Krishnan. "But if you buy in bulk the prices are lower here. And look at the selection," she adds, pointing to a vast row that holds a seeming endless variety of packaged noodles. Foreign hypermarket companies have swept through Asia over the past few years, bringing controversy in their wake. Last year, the Thai government said it would consider limits on the number of hypermarkets, now close to 100 outlets, after local retailers reported an alarming drop in business and a spate of closures. Now Malaysia is taking up the battle. Malaysian officials have frozen all applications from new hypermarket companies and are studying possible industry controls. That may include barring new market entrants and restricting expansion of existing operators. Retail analysts worry this could spook foreign investors, who would be hardest hit by the move. While a few of the hypermarket chains are run by local companies, most are controlled by foreign concerns, like France-based Carrefour, Britain's Tesco and Giant TMC, which is owned by Dairy Farm in Hong Kong. Tesco, the newest entrant, formed a 1.2 billion ringgit ($315.8 million) joint venture with Malaysian conglomerate Sime Darby last year, and plans to open 15 outlets over the next five years. While Tesco did not respond to faxed questions, its Malaysia chief executive told the Business Times that the company has obtained government approvals for its planned 1.2 billion-ringgit investment. The debate comes while Malaysia is looking for ways to shore up small and medium-sized enterprises, to help stave off lingering effects of the continuing economic slowdown. And there are plenty of good arguments on both sides. Mom-and-pop provision stores, the backbone of the traditional retail-distribution channel, are on the decline. Their numbers dropped by 38% to 28,659 in 2001 from 46,544 in 1992, according to a private study conducted by ACNielsen for a client. At the same time, the number of hypermarket outlets grew to 21 in 2001 from one in 1995. Hypermarkets aren't solely to blame; a slowing economy and greater competition from grocery stores and other outlets that offer more variety also play a role. So does natural attrition. In some cases, children have declined to take over family-run businesses when their parents retired. But studies in other markets show megastores are fast changing the face of the retail sector--often to the detriment of individually owned operators, who just can't compete with the sheer economies of scale that hypermarkets can obtain. Alfred Gobal & Associates, a California-based company that conducts market studies for real-estate projects, reported last month to the city economic development council for San Juan Capistrano that a planned Home Depot megastore would take as much as $9.1 million in annual sales away from 27 of the town's small businesses, driving many under.
REPACKAGING HYPERMARKETS
In Malaysia, the government has garnered support from Dutch-owned Makro, a hypermarket chain that began to refocus its global business on the nonconsumer market two years ago. In 2000, Makro increased its packaging sizes and cut its offerings--axing consumer-oriented products like toys and bikes--in a bid to beef up margins and refocus on the professional-sales niche market. "Hypermarkets do kill a lot of small businesses. It's been proven," declares Anton van Gorp, managing director of the Malaysian unit of Makro. "Expansion should be regulated." Van Gorp has a stake in the matter as his client base includes the distributors and provision shops that are now under threat. Consumers also make up about 30% of his business. Hypermarkets maintain they nonetheless contribute a great deal to the local economy. Carrefour, for instance, employs 2,300 at its six Malaysian stores, and sources about 80% of its goods in Malaysia. Carrefour officials also say hypermarkets should lease existing space for future outlets. This would help eat up some of the vast real-estate overhang that's weighing on Malaysia's property market. In March, Bank Negara estimated there are 1.7 million square metres of unoccupied, incoming and planned retail space in Malaysia, and that it will take 4.4 years, given the annual take-up rate, to fully use even the existing unoccupied retail space in Malaysia. "It's an issue of being penny wise and pound foolish. You have to look at it from all the different angles," says Zalina Raja Safran, corporate communications manager for Carrefour's Malaysian unit. Hypermarkets, meanwhile, draw just 12% of total household expenditure on packaged food, toiletries and household goods in peninsular Malaysia, according to research firm Taylor Nelson Sofres. The fastest-growing sales categories are liquid soaps, breakfast cereal and chilled products that traditional shops can't provide due to space constraints. Malaysia needs only to look over the border to see how fast all this can change. The market share in urban Thailand climbed to 32.6% in 2001 from 22.7% in 1999. Proposed controls, meanwhile, have yet to materialize. "They've been talking for a year already, but so far, nothing has happened," says Pittaya Jearavisitkul, president of the Thai Retailers' Association. That may be for the best, he says. The government should help Thai retailers modernize, beef up selection and compete, rather than beat competition back, he argues. "The situation is severe," he says. "But we have to think about the consumers, not just protect inefficient operators."
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