On weekends, the Singapore-Johor Causeway is teeming with Singaporeans heading to Malaysia for day trips or short weekend getaways. With one Singdollar equivalent to MYR3.3, Singaporeans enjoy better value for their money across the border.
Long queues at the Woodlands checkpoint are commonplace despite efforts to streamline immigration and transport for both drivers and public transport users. The Rapid Transit System (RTS) is set to address this, with its high-frequency trains connecting both checkpoints.
This situation is similar to what happens in Hong Kong, where weekends are quieter in the city as many Hongkongers head across the border to Shenzhen for activities Singaporeans typically enjoy in Johor — eating, shopping and indulging in beauty services that are much more affordable.
While Hong Kong consumers enjoy a budget-friendly weekend across the border, the Hong Kong retail sector is feeling the pinch. According to the Census and Statistics Department of Hong Kong, retail sales in November 2024 fell by 8.3% y-o-y, slipping further from a downwardly revised 4.8% decline in October. This marks the ninth consecutive month of falling retail activity, as sales declined across the board.
The Hong Kong government has attributed the declining retail sales and dampening domestic spending to a shift in consumer behaviour patterns, citing the strong Hong Kong dollar and surge in overseas travel.
Meanwhile, China’s slowdown has also impacted Chinese tourists who go to Hong Kong, once a popular shopping destination for Chinese visitors.
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Similar to Singaporeans heading into Johor, these consumers typically spend money on groceries, mass-market shopping brands, mid-scale restaurants and beauty services like haircuts and spas.
As a result, retail businesses in Hong Kong (and Singapore) targeting the mass market are likely to face challenges, with consumers crossing the border to spend their money. However, the luxury retail sector appears set to remain resilient.
Looking at both Shenzhen and Johor Bahru — these two cities are indeed cheaper than Hong Kong and Singapore. Still, international luxury brands, such as Louis Vuitton, Hermes and more, are for now less represented. Hence, luxury retail is expected to remain strong in Hong Kong. This is evident as Hongkong Land Holdings (HKL) recently announced its plans to redevelop the Landmark, a luxury retail mall in Central Hong Kong and HKL’s largest property in Hong Kong.
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In an announcement on June 26, 2024, HKL says it will contribute US$400 million ($549 million), while 10 of Landmark’s long-standing luxury tenants will contribute more than US$600 million. These include Cartier, Chanel, Dior, Louis Vuitton, Prada, Saint Laurent, Sotheby’s, Tiffany & Co and Van Cleef & Arpels, who will design and create new offerings within Landmark.
With no similar luxury names in Johor, aside from those in the Johor Premium Outlet (JPO) selling off-season items, the closest that high-end consumers can go to purchase these luxury goods would be in Singapore.
With the Johor-Singapore Special Economic Zone (JS-SEZ) and RTS underway, what will it mean for the retail sectors in Singapore and Johor once it is easier for both sides to cross the border?
RHB Singapore notes that connectivity between Malaysia and Singapore already exists, but the JS-SEZ is expected to enhance it further.
“Depending on the execution and implementation of the various plans under the JS-SEZ, a significant improvement in connectivity is likely to entice more Singaporeans to spend in Malaysia, given the price disparity. That will, in turn, attract more investments from the retail brand owners to strengthen their presence in the region to capitalise on the opportunities,” says the research house, which believes retail companies such as SDS Group, Aeon and Focus Point will benefit from this.
As for the Singapore retail sector, RHB analyst Alfie Yeo expects to see more interconnectivity between residents of Johor and Singapore in the future with the RTS. “If more Singapore residents head into Johor on a more regular basis and over a longer duration, their absence here would affect sectors including consumer staples such as F&B and grocery retail. We believe a lot would also depend on the ease of commuting,” he says.
RHB’s analyst Vijay Natarajan adds: “For retail REITs (in Singapore), we believe the impact is manageable as the price differential from shopping across the causeway is likely to be offset by the additional cost of commuting and the convenience of shopping at neighbourhood malls. We also expect retail landlords to actively tweak the tenant mix and improve the brand offerings and mix at shopping malls to mitigate any negative impact.”
Meanwhile, Maybank Securities analyst Jade Tam has an optimistic view of the Malaysian consumer sector this year on the back of higher consumer spending momentum from improved disposable income arising from government-supported measures. “There are cost pressures arising from higher utilities and labour costs though we believe would be manageable. Consumer companies would be focused on building sales volumes to mitigate margin pressures in our view. Within the sector, we believe F&B staples would be best positioned,” she adds, with Aeon, Mr DIY and Farm Fresh Malaysia as her sector top picks.
