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Malaysian Franchise Act Simplifies Entrance To Market

Kuala Lumpur, Malaysia – Any U.S. company seeking to sell franchises in Malaysia must write a letter requesting approval from the Registrar of Franchise Ministry of Entrepreneur Development, Malaysia, according to Mahadi Mohd Ibrahim, ministry undersecretary.

The letter must include a statement of the company’s intent to sell a franchise in Malaysia, as well as information on the products, the company and the prospective franchisee. The ministry will reply within seven days after receiving the letter. No request has been rejected since the act was passed.

“This is a significant development for franchise companies that want to tap the Malaysian market,” said Marcel Portmann, International Franchise Association (IFA) vice president of emerging markets and global development. “IFA began discussions in 1999 with Malaysian officials on behalf of our members for simplification of the registration process, and those efforts have paid off with positive results.”

Prior to clarification of the act, U.S. companies wishing to sell franchises in Malaysia were required to submit a disclosure document, the franchise agreement, the operation manual, the training manual, the company’s latest audited financial statements and auditor’s report, and any additional information required by the registrar.

“The registration process was extremely complex and deterred franchise companies from exploring the Malaysian market,” Portmann said. “Now there is a whole section of the global market open to IFA members.” –IFA Insider

-ENTREPRENEUR.COM

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Bursa Malaysia trails behind key Asian markets

KUALA LUMPUR: Malaysian equities trailed behind the key Asian markets at midday on Monday with Petronas Chemicals the main drag on the FBM KLCI while the trading value of total stocks declined, reflecting the poorer buying quality.

However, a rebound in crude oil prices could provide some support to the oil and gas stocks after Saudi Arabia and Russia have agreed to extend crude oil output cuts until March 2018 in their latest effort to rebalance the global crude market.

The FBM KLCI fell 2.2 points or 0.12% to 1,773.67. Turnover was 2.05 billion shares valued at RM1.12bil. There were 364 gainers, 444 losers and 377 counters unchanged.

The ringgit rose against the US dollar but slipped against the other key currencies. It rose 0.26% to 4.3345 from the previous close of 4.3457 but weakened against the pound sterling to 5.5921 from 5.5807; slipped against the Singapore dollar to 3.0891 from 3.0867 and was lower against the euro at 4.7368 from 4.7199.

US light crude oil jumped 77 cents to US$48.61 and Brent gained 78 cents to US$51.62.

Refiner Hengyuan gained 38 sen to RM4.79 with 1.39 million shares done while Petron was flat at RM8.62. Petronas Dagangan added six sen to RM24.06.

Petronas Chemicals fell 11 sen to RM7.12 and erased 1.44 points from the KLCI while Petronas Gas shed two sen to RM18.58.

Among the banks, AmBank fell eight sen to RM5.44, RHB Bank six sen to RM5.48, CIMB she done sen to RM5.94 while Public Bank and Maybank were flat at RM19.98 and RM9.38.

Crude palm oil for third-month delivery rose RM18 to 2,669 per tonne. IOI Corp lost three se to RM4.61, KL Kepong and Sime were flat at RM24.92 and RM9.33 while PPB Group rose four sen to RM17.10.

F&N was the top performer, up 44 sen to RM25.12 and Ajinomoto gained 14 sen to RM19.86 but BAT fell 56 sen to RM45.64 and Dutch Lady lost 26 sen to RM58.

Poultry company CAB Cakaran lost 17 sen to RM2.77 and the warrants were down 15 sen to RM2.17. However, CCK Consolidated added 10 sen to 84.5 sen after CIMB Equities initiate3d coverage of the company.

As for semicon makers, Globetronics gained 14 sen to RM5.90.

Among the key regional markets,

Japan’s Nikkei 225 fell 0.09% to 19,866.04;

Hong Kong’s Hang Seng Index rose 0.58% to 25,301.50;

CSI 300 gained 0.48% to 3,401.53;

Shanghai’s Composite Index 0.28% to 3,092.28;

Hang Seng China Enterprise jumped 1.23% to 10,409.63;

Taiwan’s Taiex added 0.16% to 10,002.64;

South Korea’s Kospi gained 0.14% to 2,289.15; and

Singapore’s Straits Times Index advanced 0.36% to 3,267.02.

Spot gold  rose US$1.98 to US$1,203.41.

-THE STAR

 

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Retail needs more than just size to survive

IS retail an art or a science?

To most, it may be more art than science but to property consultancy Savills (Malaysia) managing director Allan Soo, it is both. Creating desire and aspiration is all about art while the science bit comes in the form of numbers, catchment area and household income.

Considering that technology is based on which retail – as with other economic sectors – thrives today, the intrepid traveller and shopper who has just returned from a spree in Italy says: “There is the hardware – which is the sq ft – and there is the software, which are the tenants, merchandise and demand from shoppers. You need to look at both,” says Soo.

Soo believes that instead of thumping our chests on the sq ft (or burgeoning retail space), it is important to paint a more wholesome picture of how retail can evolutionise amid the space and technology against the maturity backdrop of the Malaysian retail.

“It may be hard to see the good news, but there are good news,” Soo says.

The millennial generation, those between 20 years and 35 years old, will dominate. “Young people are good at swiping (cards) which will impact retail, and which they already have,” says Soo.

Online transactions are rising. So retail today is in a sort of flux; as in the banking industry because of fintech, and in the property sector, because of proptech, says Soo. An online property website may have 100,000 visitors in a day, but does the bricks and mortar property consultancy have that?

“Online is big today and it will become bigger,” says Soo.

A case in point. Chinese e-commerce group Alibaba Singles Day last year reached a record US$14.3bil in one day, Reuters reported.

That is more than 25 years of Suria KLCC annual sales of RM2.5bil for 2016. It took 20 years to get RM2.5bil but Alibaba did it in one day, says Soo.

These are the challenges facing the retail sector, not only in Malaysia, but globally.

“So what I am trying to say is, this goes beyond sq ft and how much space we have. In the midst of all these, there will be winners and losers.”

Why they are winners

If one were to take a ratings poll, there are five malls which constantly come up tops. They are Suria KLCC, KL Pavilion, Sunway Pyramid, 1Utama in Petaling Jaya and Mid Valley Megamall, which is half-way between Petaling Jaya and KL city.

Each of these malls have a net lettable area of more than 1 million sq ft, which gives rise to the term megamalls.

That being the case, there are three other malls that fit that bracket – Sunway Velocity and MyTown, both in Cheras and IOI City Mall in Putrajaya. By the end of this year, there will be Mall No. 9, with 2.4 million sq ft at Empire City in Damansara Perdana, Petaling Jaya.

Soo says IOI City Mall, although isolated according to some, attracts visitors as far as Seremban. It has a catchment area within a 20-minute drive compared with some malls in Petaling Jaya within a five-minute drive.

Put simply, the longer the drive time, the larger the catchment area because there are no competing malls close by.

But what makes the Top 5 always the Top 5?

Tenant mix is one factor. Tenant mix is different from trade mix, which refers to fashion, food, services. Within the fashion mix, there is Zara, which is priced higher than H&M, says Soo. A mall’s tenant and trade mix draws a particular group of audience.

Location, the mall’s catchment area, is another boom or bust factor and the Top 5 malls are located in what may be considered as prime area in the catchment that they serve, he says.

Soo says a mall with a net lettable area of 1 million sq ft will need about 300 tenants, while 2.4 million sq ft, about 700 tenants.

When there is more than 2 million sq ft, the mall owner may need a Louis Vuitton (LV) but does the catchment area within which the mall is located have household incomes that fit the LV bracket?

Two of the Top 5 does not have a LV. In the whole of Malaysia, there are only three LV stores, compared to Tokyo where a single destination can have three LVs. So size does not determine that LV, or some other top luxury brand, will take up tenancy in a mega mall, important though it may be.

LV and other top end luxury brands want access to consumers, and if the median household income of that catchment is not there, space becomes a secondary factor.

“So generally speaking, a mega mall of 1 million sq ft may not need a luxury line. Suburban malls are all about convenience, households, family and entertainment. City malls are about fashion, entertainment and food. And here is where the luxury market comes in.

“The luxury market is important because it provides a benchmark for the retail industry and although it (the luxury market) is softening, city malls need them because it has that aspirational pull,” Soo says.

The luxury market

Luxury brands expanded because of the rise of China, says Soo. After the 2008 global financial crisis, some of the world’s largest luxury goods producers over-expanded in China. LVMH or Louis Vuitton Moet Hennessy, the world’s largest luxury goods maker with over 50 brands, including LV, expanded at breakneck speed in China. Incidentally, that included Chinese property developers.

Top of the range branded goods and property were the darlings of the burgeoning middle class and both sectors – retail and property – fell over themselves to cash in on their propensity to spend. When the Chinese administration threw down the gauntlet on corruption, under the current leadership, and the “gifting” stopped, and the luxury market was impacted. The global economy is still seeing the effects of that today under China’s capital controls.

Some may ask, how does that affect Malaysia? With regard to the property sector, one can monitor the scene in certain parts of the country. As for retail, when MH370 was lost in 2014, it affected retail sales and tourism.

Tourism and retail, particularly at the higher end of the luxury market, are best buddies. In Malaysia, as in other parts of the world, the retail sector is tourism-dependent.

“On many counts, Malaysia is priced lower than most of our neighbours but yet there is this softness in the retail scene. So that is how every shopping centre owner and operator looks at the market. The retail industry goes beyond sq ft and supply of space,” says Soo. New malls need to differentiate themselves.

“If I were to generalise, it is difficult to get a 10% differentiation for a new mall. You can only have differentiating factor for a short time. By next year, they would have lost it. The challenge is today.

Twenty to 30 years ago, that differentiating factor could last longer because things were not moving so fast as today. Another factor is the lack of depth and breath of our retail sector. Unlike Bangkok and some Chinese cities which have a lot of homegrown brands, Kuala Lumpur lacks that.

“Our breath and depth of retail is not established or explored. In Bangkok, in just shoes alone they have so many brands,” says Soo.

How many of the 300 shops in the 1 million sq ft mall will be local or homegrown brands? Hardly any. So how do you fill that 300 shops? Which explains the high degree of cannibalism when malls are located too close to each other, and so the smaller malls of about 700,000 sq ft suffer because whatever they have, their bigger neighbouring malls also have.

Which means retailers need to change their merchandise, their design and/or their target market, says Soo. Do they want to be classic or new and young? Today, the Chinese prefer the smaller brands. So there is a shift.

The intrepid traveller puts it thus: “Retail is about fashion, and fashion is about changes and lifestyle. We have brands which just arrived in Kuala Lumpur which are doing better than some of our older brands because the latter did not change.

The Ralph Lauren flagship store in Hong Kong closed late last year. It was not because the brand lacks quality.

It did not change with the current. Women used to swoon over floras and prints 20 years ago. The baby boomers who like prints are gone. Now the 25 and 30 year-olds are swooning about something else.

– THE STAR

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