Malls Still Relevant for Now



The Malaysia Shopping Malls Association (PPKM) records indicate that there were 550 malls in 2014/2015, of which 255 were in the central region. While malls registered a national average of 8% growth per annum, some states experienced double-digit growth such as those in East Malaysia (14-19%), Kelantan and Terengganu (18-21%) and Melaka (12%).

Opinions are mixed on the growth rate of the mall industry. Some are sceptical that it can sustain, while others find it can provide tremendous business opportunities.

Malls share a similar nature and organisation structure. Nonetheless, each has its unique selling points, serving different target markets and capitalizing on them.

Economic value

From the latest PPKM industry survey at the end of last year, information from 33 malls was collected to identify operational benchmarks of a typical one.

The malls registered an average of 25 (contract/non-contract) employees per 100,000 sq ft of retail space, with an average of RM30,000 in annual costs per person.

Hence, a 500,000 sq ft mall will employ 125 persons and pay out about RM3.7 mil in annual wages.

If that number is multiplied by just 500 malls, it translates to RM1 bil in wage contribution to the economy. This does not include employees of mall retailers.

The 2015/2016 data from the selected malls also indicate that they spend an average of 80 sen to RM1 per sq ft (psf) for electricity.

So, taking the total retail space of 136.4 million sq ft, the mall industry could have contributed some RM136.4 mil each month to utility companies such as Tenaga Nasional Bhd and Syarikat Sesco Bhd.

PPKM’s survey also reveals that shopping malls invest up to 50 sen psf in marketing and promotional activities and 46 sen psf on building repair and maintenance.

In short, annually, the malls are driving RM818.4 mil in marketing industry spending and RM752.9 mil worth of engineering and contracting works for building maintenance and related activities.

These numbers give a general overview and answer to the key question asked by many – whether there is a surplus of malls, and if they are doing well enough [to sustain business].

For the overall mall market, we can refer to the performance of three major operators – Pavilion Real Estate Investment Trust (PavREIT), IGB REIT and Sunway REIT, which have some of the country’s larger malls.

The REITs have a share price of around RM1.70-RM1.80, and have successfully delivered distribution per unit of eight to nine sen last year.

If we assume these are the “blue chips” of the mall industry, then they seem to be resilient and sustainable, at least for now.

Still, we must recognise there are new and old malls in the marketplace that are distressed. And each of them has its own set of legacies and challenges.

And, just like any asset, there will always be star performers and those that may fail.

Most importantly, we must recognize the common success factors of performing malls. While these factors may seem universal, they are also different.

To some extent, malls are like any other consumer product. For instance, cars can be similar products, but they remain different in terms of design, price, performance, and others.

The mall business has four pillars – leasing (profit centre), operations (cost centre), marketing, and back-end (finance, administration).

Generally, every individual in a mall’s organisation chart plays a role in one of the four pillars.

In a typical mall, the number of staff in the various departments is x%, y%, z%.

However, there are no fixed rules, and their numbers in each are based on mall size, category and location.

While we need all four sets of talent to be in the game, the wisdom to deploy, strategise and position them determines the outcome – win, lose or draw.

The interesting part of the mall business is that it is not really a level playing field. Malls can co-exist despite being close to each other.

For example, Empire Shopping Gallery, Subang Parade and Aeon Big are all in Subang Jaya, Selangor and located in the same vicinity. However, they capitalize on their different sets of shoppers.

In other words, the three coaches played the game their own way and everyone won.

Subang Parade is worth RM426 mil, while earlier this month, Empire was sold for RM570 mil. These are half a billion ringgit assets operating next to each other.

Harnessing returns

Assets are always one of the larger parts of our investment portfolio.

Property gurus suggest they are always in a musical chair-styled cyclical economy where there are good times for residential properties, offices and shopping malls.

Thanks to the REIT industry, these days with only RM1,000, we can “own” some shares in shopping malls and harness returns from the industry.

On the other hand, while some of us may be pessimistic about the retail market in the region, well-managed shopping malls and retail formats are still well patronised.

You may either be on your way to a mall, be in one while waiting for a friend, having a meal there, or wondering which shopping mall to chill out at.

Asians, particularly Malaysians, still makan, main and berjumpa in retail outlets. We cannot predict the outlook for the mall industry, but we know it is still relevant and will remain so, at least for now.

YL LUM is the vice president of the Malaysia Shopping Malls Association