As Malaysia undergoes its second major movement control order, Think City has released its first Malaysia Business Community Pulse Check Report, conducted in the third quarter of 2020. Focusing on the downtown areas of Kuala Lumpur, Johor Bahru and George Town, the survey was designed to develop an understanding of the market conditions that business operators have faced during the COVID-19 pandemic. In addition to gauging current business sentiment, the survey also set out to document future plans and discover how the pandemic may have affected investment and expansion plans.
Commenting that the survey results show how vulnerable downtown heritage areas are to shocks, Hamdan Abdul Majeed, Managing Director of Think City, adds: “Many heritage areas in Malaysia are over-reliant on international tourism. While it is an important economic contributor, we need to invest into diversifying the cultural economy and ensuring there are authentic experiences for locals and visitors alike. We also need to offer a range of economic activities, housing and amenities so that people can live and work nearby,”
The survey found that many businesses were vulnerable to the fallout from COVID-19, as they were reliant on either office workers or tourism. At least 77% of the businesses surveyed reported a decrease in sales and profit in the 12 months preceding August 2020, with the vast majority, at least 73%, anticipating that sales would not increase (either remaining stable or declining) in the year ahead.
Despite the decline in business performance in the 12 months leading to August 2020, over 62% of businesses were confident they would remain open at the end of 2021. At least 23% of respondents did not know if they would remain open at the end of 2021, most likely due to the uncertainty Covid-19 has brought to the economy, especially to the tourism and hospitality sectors.
The study also brought some interesting regional variations into focus. George Town businesses were more confident that they would be open in 12 months (74% versus 64% and 62% for KL and JB respectively), perhaps buoyed by a strong domestic tourism response during the pandemic while businesses in the downtown district of JB Johor experienced the greatest effects and losses, due to the local economy’s traditional reliance on visitors from Singapore. Nearly a third of businesses reported a decline in the number of employees in the 12 months preceding August 2020, and at least 10% expect reductions in the year ahead.
Survey data were collected by means of an intercept survey, where five to six surveyors in each city were tasked to ask respondents 13 questions relating to the following six topics: past and future business performance, impact of COVID-19, improvements to their business, sentiment on development projects, top priority for improvement, and business demographics.
The Citymaker spoke to one of the report’s authors, Think City’s Senior Analyst, Joel Goh, about the report’s inception, its findings, and how its results will inform actionable policies, approaches and strategies at Think City.
Can you explain a little bit about the background of the Malaysia Business Community Pulse Check report? Tell us some of the reasons that it was conducted and explain a little bit about the methodology.
Joel Goh: The survey was conducted around August/September of 2020. Firstly , [we wanted] to better understand the effects of COVID on businesses in downtown areas in the cities where Think City has projects. Secondly, it was to collect data on business sentiment on a regular basis. This is the first time we’re embarking on the survey. The idea is to repeat it on an annual basis, potentially. Ultimately, these [studies] will help [inform] our work in terms of developing policies, strategies, and planning.
In terms of methodology, we had surveyors on the ground in the three different cities, going from door to door interviewing business owners or managers with a five-minute survey that was pretty short and straight to the point. We collected basic demographic data as well as [posing] specific questions on their perspectives on past and future performance in terms of the sales of their business, profit, investment, number of employees, that kind of thing. And also questions on what they felt would improve their business and how COVID has impacted their businesses.
You mentioned that you’d like to see the survey becoming an annual report. What kind of patterns would you like to see emerging from that data as it evolves?
Joel Goh: We would like to see that the sentiments of those businesses are more positive, that their sales and profits have actually gone up rather than down. It will be interesting to see [if] the businesses that we’re surveying in 2020 still exist in 2021 or not, and if their sentiments have changed over time.
Downtown KL, Downtown JB and George Town. Why were those specific locations chosen?
Joel Goh: These are cities where Think City operates in and that we have offices in and where we are most actively involved. So the results of this survey will actually supplement our existing databases on these three cities. And we may actually consider expanding the reach of the survey in the future, depending on our resources, of course. But it’s also interesting to better understand how COVID has impacted on downtown areas.
For example, Downtown KL, the area where central market – pasar seni – is, is an area where, traditionally, a lot of financial institutions are based. Now we’re seeing an exodus from some of them, to areas like TRX (Tun Razak Exchange) COVID has kind of accelerated this trend of hollowing and policies like working from home have exacerbated this trend.
In George Town we focus specifically on the World Heritage Site, which has been significantly impacted because they’re pretty much reliant on foreign and local tourists. Penang’s twin economic engines are manufacturing and tourism. Many tourists visit the George Town World Heritage Site and its vicinity. For downtown Johor Bahru, JB is a border town, so they‘re heavily reliant on tourists from Singapore.
And what types of businesses or business sectors were actually surveyed for the report?
Joel Goh: We attempted to survey the whole range of businesses that are present in downtown areas of the three cities. We were guided by existing data from past surveys. What that means is that we found that say in the George Town World Heritage Site heritage site, for example, 20% of businesses are food and beverage (F&B) outlets. So, we tried to make sure that businesses that we surveyed maintained a proportional representation of actual businesses. We interviewed businesses from different industries; clothing and fashion, restaurants, hotels, F&B. We interviewed a range of businesses in terms of the levels [between] large [and] small, say a bank versus a corner sundry shop.
Because of that, the questions had to be pretty straightforward and easy to answer, whether you’re a bank manager or the uncle that runs the corner sundry shop. We also had to keep the questions and the questionnaire short to increase the likelihood of response. We started off with a very long list of questions and filtered it down to just a handful.
I would like to mention some of the limitations of the survey. As I mentioned, while we tried to get a fairly representative number of businesses by type of industry based on our existing knowledge, we had to make sure that different parts of the downtown areas were adequately covered. So not just interviewing businesses on one or two adjacent streets but spreading out the reach of the survey. Thirdly, there’s an issue of survivorship bias. What this means is that we could only survey businesses that were still up and running; businesses that were closed permanently would have been excluded from our sample.
Can you take us through some of the, the key findings and highlights of the report and explain what those results are telling us about the health of the businesses that were surveyed? Especially given some of those limitations – like survivor bias – that you referred to.
Joel Goh: It’s fairly obvious from the results that a large majority of businesses in all three cities were negatively impacted. It’s a no-brainer and the result is pretty trivial, but it provides some hard data for comparison in future surveys and for future analysis. We surveyed downtown businesses, so I would say that there’s some skew in terms of these businesses being slightly older or having been in business for a longer time, than if you were to take the average of Malaysian businesses as a whole. What we saw was that COVID had specifically impacted businesses in terms of a decrease in sales, temporary shutdowns and difficulties in getting supplies.
What the response was, [in terms of] some of the key strategies to improve their businesses, they felt that there was a need for better marketing, advertising, and promotion. Increasing their online presence and having proved strategies for long-term planning for the survival of the business. While businesses need support – definitely financial support is welcome – but it’s not financial support that is needed per se by these businesses. There are also issues of how they up-skill management, how they improve their relevance for this age of online businesses, for example.
What is interesting to think about is whether some of these businesses would have had poor performance anyway, assuming the pandemic didn’t happen. Maybe COVID just accelerated what was already happening. For example, I mentioned online businesses. If you look at digital disruption from online businesses such as Lazada and Shopee and Amazon, people may go to physical stores to look at a product to test it out, but they don’t actually buy it in the store. They go home and order it online. At a cheaper price as well. It’s difficult for small, individual businesses to address this wider trend.
Another interesting highlight of the results is that, while parking was often cited as a top priority for improvement, this doesn’t necessarily mean that city councils should provide more parking spaces. Perhaps it indicates that public transport isn’t as good as it should be, and there’s a need to improve public transport. As an example, I live in KL, not in the city centre, but on the outskirts. And I commute to my office in Downtown KL by car, a rush-hour journey that takes 30 minutes or less, door-to-door. If I had to take public transport, it would probably take about one to two hours, including walking for about 20 to 30 minutes. it’s not really practical on a day-to-day basis. So the survey doesn’t necessarily ask questions about wider issues like public transport, but it gives an indication of some of these issues as well.
You said that the data skews slightly in favor of older businesses; does the data suggest any reasons for that? Is it because those businesses have greater resources, they have deeper pockets, or they have more established relationships that give them access to tools like bank loans?
Joel Goh: I think it’s simply the nature of the demographics of the area that we surveyed. We conducted this study in the downtown areas, the historical parts of the cities, and you have businesses that have been established for decades operating there. Comparing downtown areas to newer suburbs in Malaysia, in the newer suburbs you have slightly younger businesses.
Does the survey identify which business sectors have experienced the biggest shocks during the pandemic?
Joel Goh: The main businesses that were impacted were the obvious ones: tourism, hospitality, restaurants, and retail outlets that cater to visitors or local workers in the area. To offer a more concrete example, in Downtown Kuala Lumpur, where you have large employers operating. [During the] COVID period there’s been a quite a strict work from home policy. Office populations have dwindled to about 20% to 30% of workers going to the office on a daily basis. Imagine the impact on a restaurant if suddenly you only have 20% to 30% of your daily customers. It’s hard for these businesses to survive in the longer term, if the situation continues and [company] policies encourage working from home.
What types of solutions and measures does the survey suggest that businesses should take to increase their resilience? Both in terms of their ability to survive in this current economic climate, but also strengthening themselves for the longer-term.
Joel Goh: I think it’s important to emphasize that this survey is just one piece of the puzzle in better understanding the issues faced by businesses in downtown areas in Malaysia. There are limitations, as I mentioned earlier, so this survey just scratches the surface. It takes a bird’s eye view. We need to engage with business owners and the wider community to better understand the issues in detail. To understand what they actually need, rather than having a general survey conducted on a mass basis. Each business has distinct challenges.
My hunch is that it is quite difficult for local businesses that offer generic products or services to thrive. It is hard for businesses to address structural changes [to] the demographics of the area. We have also seen shifts; the changing nature of industries. For example, in the F&B [sector], where previously you had dine-ins, now there’s been a shift towards deliveries and takeaways and a shift away from individual cafes and restaurants to crowd kitchens, which is becoming quite an interesting trend.
I would say that, because of the nature of the survey, where we had to keep it short and simple, we would need to dig deeper to understand the issues and to suggest policies and recommendations.
Was there anything that surprised you about the report’s findings?
Joel Goh: What I found surprising was that businesses were generally quite optimistic. COVID aside, you have a natural business failure rate – I don’t have the exact figures – but in Malaysia it’s something like 60% of SMEs fail within the first five years. And when I look back at the data, the number of businesses saying that they are likely to close within a year plus is actually very low, relative to this figure. Next time, when we repeated [the survey, it will be interesting to a look at the trends and the changes, and to compare those same businesses and see how their opinions have shifted, or not.
As we mentioned, the study focused mainly on the downtown areas of Kuala Lumpur, Johor Bahru and George Town. Would you expect that the experience of businesses in other urban centres in Malaysia to be broadly similar, or would you expect there to be regional variations?
Joel Goh: It would depend. If you look at downtown KL, Penang and JB, the three cities that we looked at for this report, they’re quite reliant on visitors and tourists. If you look at other Malaysian cities, like say Ipoh and Melaka, which are also reliant on tourists, I would say you would have broadly similar results. But if you look at other urban centers – I don’t have the data – but say, for example, Seremban or Klang, where you have fewer domestic or foreign visitors, they may be less impacted by COVID. Again, businesses that are closer to housing areas, say in the the suburbs, where you have a local catchment of population and local customers, would generally fare better as well.