KUALA LUMPUR, Sept 4 — Malaysia’s retail industry shrank by 3 per cent in the second quarter of 2025, signalling that households are spending less even as the wider economy continues to grow, according to the latest Malaysia Retail Industry Report.
The drop was sharper than the industry’s earlier projection of a 1 per cent fall, showing how quickly consumer confidence has weakened.
The report authored by Retail Group Malaysia said rising living costs have forced Malaysian families to cut back on discretionary purchases, with more of their monthly budgets channelled towards essentials such as groceries, fuel and utilities.
Shoppers in urban centres, who face higher rents and transport expenses, are especially cautious about spending on non-essential items.
Retail prices were further pressured by the ongoing US tariff war, which disrupted supply chains and drove up the cost of imported goods, the report said.
At the same time, local businesses faced higher utility charges after the government adjusted electricity tariffs in July, with many retailers passing these costs directly to consumers.
The expansion of the Sales and Service Tax (SST) to sectors such as financial and leasing services also increased the price of selected goods and services.
Luxury items including imported seafood, truffles and certain fruits now carry higher tax rates, making them even less accessible to the average household.
Non-essential retail categories bore the brunt of this shift, with the fashion sector recording an 8 per cent sales decline and personal care plunging by 11.4 per cent in the quarter.
Department stores, already struggling in recent years, suffered their worst performance with a 16.5 per cent slump, underscoring the challenges facing traditional retail formats.
In contrast, mini-markets, convenience stores and cooperatives saw sales rise by 11 per cent, reflecting consumers’ preference for cheaper, closer-to-home shopping options.
The uneven performance shows how inflation and shifting consumer habits are reshaping Malaysia’s retail landscape at a faster pace than expected, the report added.
Noting that Bank Negara Malaysia cut its Overnight Policy Rate in July to 2.75 per cent, analysts cited in ter report said cheaper mortgages and loans could encourage households to spend more on cars, appliances and furniture, but cautioned this effect will take time to materialise.
Retail Group Malaysia also said it has now lowered its full-year growth forecast for the sector to 2.7 per cent, highlighting how fragile consumer sentiment remains despite steady GDP growth and a resilient labour market.
