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Malaysia's Magnetic Pull

Comprehending Malaysia’s dynamic fashion market is about understanding its fans and neighbours as much as its melting pot culture. This instalment of Market GPS is sponsored by Marvin Traub Associates.
Kuala Lumpur | Source: Shutterstock
By
  • Robb Young

KUALA LUMPUR, Malaysia — Something pretty remarkable must be happening here. Just fifteen years after the launch of an advertising campaign designed to attract tourists with the tagline of 'Malaysia Truly Asia,' the number of foreign visitors to this country has trebled. Tempted by the pitch that Malaysia will offer them the authentic Asian experience, 25 million tourists flock to this destination each year expecting that heady mix of the exotic with a faintly familiar flavour.

Nowhere else on the continent, save China, can boast higher numbers than this. Not perennially intriguing places like Japan or India. And not even a holiday hot-spot like Thailand. If the government's latest targets are also met, Malaysia will welcome an astonishing 10 million more tourists annually by 2020, meaning that the country could become more popular than some of the most picturesque parts of Europe. What is it then, besides a persuasive ad campaign, that keeps enticing so many people to this corner of the world?

Some mighty serious retail therapy, for one. It goes without saying that Malaysia has more than its fair share of breathtaking vistas, cultural attractions and warm, hospitable people. And in more ways than one it does live up to its reputation as a deceptively modern microcosm of Asia, albeit one with a very particular spin. But beyond this, for many tourists, the juiciest bait of all is Malaysia's merchandise – the mega malls, mega sales and mega shopping festivals where fashion is almost inevitably the star attraction.

Three of the world's largest shopping centres — 1 Utama, Mid Valley and Sunway Pyramid — are within a short drive of central Kuala Lumpur, leasing shops to virtually every international fashion chain on the planet across the low-to-moderate price bracket. The selection of brands available at the top end is also very impressive elsewhere in the capital, leading Kuala Lumpur to be fêted by a number of global shopping surveys year after year.

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"Malls are key for market expansion due to the absence of street-front shops here, so securing prime real estate in top malls like KLCC, Pavilion and The Gardens is one of the most important aspects of our business," says Dato' Farah Khan, president of the Melium Group, which operates franchised boutiques for brands like Saint Laurent, Givenchy and Tod's, and owns multibrand stores Aseana and M Store, which stock labels including Mary Katrantzou and Balmain.

Thanks to nationwide duty-free shopping on over 300 categories of goods, including apparel, shoes, jewellery and handbags, Malaysia's retailers are generally able to offer fashion at more competitive prices than their counterparts in neighbouring countries around South East Asia, a region where import duties are still imposed on fashion brands from the West. No wonder that over 80 percent of Malaysia's tourists come from either Singapore, Indonesia, Thailand, Brunei, the Philippines and Australia, according to 2012 data from the United Nations World Tourism Organization.

Although the recent influx of Chinese is showing some signs of slowing, they still make up the country's third-largest single source market. "Malaysia has been duty-free for the past three years, which is something that has spurred the growth of shopping tourism for us here, especially from mainland China," says Dato’ Farah Khan.

In 2012, tourists' receipts totalled 60.6 billion Malaysian Ringgit (about $18.3 billion) but what proportion of this shoppers spent on the fashion category is not broken down by the UN report.  While tourists to Malaysia tend to spend less on average per head than international shoppers travelling to places like Singapore or Thailand, their sheer numbers guarantee that they make a very big impact in a country where they may soon outnumber the locals.

Most high-end fashion brands continue to count the inbound 'TLC' (travelling luxury consumer) as a vitally important revenue stream.  According to Ermenegildo Zegna, the latest data from his firm reveals that 52 percent of its sales in Malaysia are made to foreign shoppers. And Zegna is not alone. Insiders have suggested that about half of many luxury brands' turnover here is down to tourism (although more affordable fashion brands may be selling a considerably greater proportion than this to locals).

"With the favourable currency exchange, we do enjoy high tourism, but these are not necessarily luxury buyers. The premium Arab travellers who used to come here en masse, for instance, especially after 9/11 are no longer coming quite like they used to," says Natasha Kraal, chief editor of the Malaysian edition of Harper's Bazaar.

This may be so, but a study published last year by the Muslim travel consultancy Crescentrating ranked Malaysia as the number one destination for the world's Muslim tourists out of 50 countries in the survey. And in just eight months last year, the director of Tourism Malaysia for Saudi Arabia, Yemen, the Levant and North Africa said that over 70,000 tourists from Saudi Arabia alone came to Malaysia and that more than half of them were young people between the ages of 25 and 34. Tourist numbers from Iran have also been increasingly influential at retail.

Besides the availability of halal food, compatible religious values and a family-friendly environment, fashion has played a central role in attracting Muslims here, as many Malaysian designer labels either specialise in or at least include modest Islamic fashion ranges in their merchandise mix.

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Dato' Sri Raja Rezza Shah's eight-year-old event, called the Islamic Fashion Festival, has been positioning the country as a one-stop-shop for local designer apparel needs, showcasing everything from couture to contemporary and for whatever degree of modesty to which their customers may subscribe. International brands of all kinds also cash in on the traffic generated by the lure of this growing global market which has been estimated to be worth $96 billion according to an Esmod Dubai analysis for Bloomberg.

"Malaysia's domestic consumer market is really interesting too," says Melinda Looi, a local designer who has a thriving business spanning demi-couture to bridal and ready-to-wear to modesty wear. "It's comprised predominantly of Malays, who are Muslim by birth, but there are other Malaysian ethnic groups like the Chinese, Indians, Eurasians, and indigenous groups too. Being a tropical country, we only have shopping seasons based on major cultural celebrations like Christmas and New Year, the Chinese New Year and Hari Raya during the holy month of Ramadan."

"As a key trade hub for Middle Eastern, Indian, European and Chinese merchants since the 10th century – not to mention later colonization by the Portuguese, Dutch, and English – we Malaysians have had constant exposure to foreign influences. In my opinion, this is what has laid the foundations for the diverse, multicultural, multi-ethnic society we live in today. And probably that's what has made us flexible and open to accepting new styles of fashion," Looi adds.

Although Malaysians are known around the region for how quickly they adopt the latest catwalk megatrends, most are still brought up with an awareness for their own cultural heritage. Women in the same social circles attending the same event may be dressed very differently due in part to ethnic and religious backgrounds. Some might wear micro minis or super streamlined gowns while others don heavily embellished headscarves and loose-fitting pieces from designer labels that mirror the silhouettes of traditional clothes like the baju kurung, the samfoo or the elaborate patterns found on songket sarong textiles.

"Malaysian are not afraid of vibrant colours but they will wear anything from black to the most striking shades in the palette. Each race and each individual has their own unique taste here. My clients are mostly Malays for the moment but we're overflowing with information from the internet and international magazines so what you end up with is a client who is really hard to categorise," says Muhammad Hatta Bin Dolmat, a young designer for Malaysian pop stars like the musician Yuna, who is a style icon both for women who do and don't wear the hijab.

Looi points out how the combination of a hot climate, diverse interpretations of modest dressing and a tendency for many devout women to mix and match separates results in a market where a great variety of merchandise needs to be available at any one time. "Some Muslim Malaysian women opt for fashion pieces with long sleeved blouses, maxi dresses, blazers, cardigans, and so on. So it's wise for any brand to carry a good mix of both 'conservative' and 'liberal' pieces to avoid alienating any one customer group," Looi explains.

In the bigger picture, there have been concerns whether the Malaysian economy can continue its GDP growth and keep domestic consumption buoyant. Late last year however, growth rates actually exceeded the expectations of most economists, so if that trajectory continues then the government's projection of 5 percent growth for 2014 seems reasonable.

"With the introduction of a 6 percent general sales tax which is expected in 2015, there might be a slowdown," says Kraal. "But the aspirational domestic consumer market is growing so this could offset any potential decline."

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Malaysia continually ranks high among the world's emerging markets in A.T. Kearney’s Retail Apparel Index which is calculated by analysing metrics such as clothing sales, retail growth and business environment. Last year, the retail consultancy placed Malaysia in its global top ten list, ahead of all other countries in the Far East apart from China.

A 2013 report by Euromonitor International predicts "higher demand in all categories within apparel in Malaysia." Fflur Roberts, head of luxury goods at the firm, forecasts that the number of affluent households with an annual disposable income of more than $75,000 was expected to grow at the South East Asia region’s fastest rate, reaching 458,000 by 2020, up from 280,000 in 2012.

"Malaysia also has real potential of becoming a notable luxury goods market with predominantly young, dynamic and increasingly affluent consumers, which contrasts ageing China and Japan... With real value sales of luxury goods growing by 11 percent in 2013 and a further growth of 11 percent predicted for 2014, Malaysia is an emerging economy to watch as its dynamism and forward-looking investments give it some edge over its neighbours," Roberts explains.

Pure-play luxury operators in the country – namely joint-venture partners like Club 21, F.J. Benjamin, Melium Group, Valiram and Niche Retailing – have until recently focused exclusively on Kuala Lumpur's greater metropolitan area of Klang Valley which stretches from the Bukit Bintang central business district out into affluent suburban areas in Mid City Valley, Bangsar, Petaling Jaya, Mont Kiara, Subang Jaya and Damansara Perdana where the Empire mall is opening.

From Alexander McQueen and Hermès to Chanel and Alexander Wang, nearly every international luxury brand can be found at several locations in the upmarket malls like Starhill Gallery or any number of others in or around the Golden Triangle. Most have at least one monobrand in central Kuala Lumpur but almost none can be found beyond Klang Valley and Selangor state.

One way that some local analysts believe the domestic fashion market could achieve greater growth is for luxury to venture outside the capital region. At present, companies operating in the high-street sector like Gagan Malaysia and parent company RSH Limited (local partner for Zara and the Inditex brands) and DNP Clothing (franchisee for Topshop and several other Arcadia Group brands) are focusing on penetrating deeper in the far north and south of the Malaysian Peninsula.

Most activity so far has been in Queensbay Mall and Gurney Plaza near George Town in the northern state of Penang and shopping centres in the southern city of Johor Bahru, where there are several retail developments being considered alongside the Johor Premium Outlet designer discount stores in the Iskandar Corridor, which links Malaysia to Singapore.

However, among more nimble local players like independent designer Melinda Looi, there is enthusiasm for the potential of new customers in areas once considered backwaters. East Malaysia, she suggests, is a "hugely untapped market" in the less developed half of the country located on Borneo island and separated from the mainland by the South China Sea. Here, vast natural resource wealth is transforming small cities like Kota Kinabalu in Sabah and Kuching in Sarawak.

Suzie Adnan, chief editor of Glam, a leading magazine targeting Malaysian Malays, agrees. "These places were once untapped possibilities and now they are where most of the big spenders come from," she says. "A few luxury brands and magazines like Glam have been trying to reach out to people in these cities through special events where the demand for luxury is very high."

For the time being though, it appears that most business with the eastern half of the country will be through shopping trips to the capital or e-commerce. In addition to global players like Net-a-Porter, Asos, Shopbop and Nasty Gal, local and regional players like Zalora.com.myLelong.com.my and Rakuten.com.my have begun to make strong inroads. Rakuten Malaysia's CEO Masaya Ueno recently told Forbes that online shopping market there is expected to grow at an "accelerated pace" in the next few years.

But a far more important element than any expert forecast or statistic, suggests Glam's Adnan, might be in the national character. "Being religiously sensitive and with deep cultural roots, Malaysia is surprisingly very open when it comes to the many possibilities opened up by fashion.  In moderation, people here are not afraid to try out new things," she offers.

marvin-traub-associates-logoMarvin Traub Associates is a global business development and management consulting firm focused on growing businesses in the premium fashion retail and consumer products industries. Clients range from brands and retailers, to real estate developers and technology companies.

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