Consumers to tighten belts: Survey

PETALING JAYA: Consumers are likely to cut down on discretionary spending and tighten their belts while retailers are bracing for the worst slowdown since the SARS epidemic in 2003, findings from OSK Research Sdn Bhd’s first Consumer Survey Investigation showed.
A team headed by OSK Research’s Eing Kar Mei found that consumers “are by and large pessimistic on the economic outlook” with 59% of 224 respondents over a period of four days believing that the country’s economic fundamentals would deteriorate further next year and another 40% believing that the economy would improve.
The survey found that 77% of respondents would be cutting down on spending with 90% of those earning RM7,000 and above saying that the current economic conditions would affect their lifestyles and spending habits versus 65% of those earning below RM7,000.
“This indicates that the affluent segment is generally more cautious on spending compared with the low-mid income earners whose marginal propensity to consume is higher,” Eing said, adding that luxury-brand retailers are at higher risk compared to non-luxury retailers.
The survey found that 55% of respondents would cut down on shopping, reduce fuel consumption (41%), taking on part-time work (39%), taking fewer holidays (37%) and down-trading to cheaper brands (23%).
Eing said consumers were also less likely to cut spending on inelastic items such as cigarettes, alcohol and lottery tickets.
She added that more than half of respondents have a formal savings plan, of which 44% have set aside 10% to 30% of total personal income for rainy days.
“We see the low-income segment being the worst hit during an economic downturn by virtue of their low savings rate while cutbacks on discretionary spending and downtrading are the likely outcomes among the mid-income segment,” Eing said.
She said for the more affluent, there would likely be major cutbacks on big-ticket items and higher savings.
Eing said of the 50 retailers and shopkeepers surveyed, 42% claimed sales had slowed significantly after the fuel and electricity tariff hikes while another 50% claimed that their businesses were only slightly affected.
“The majority of businesses have reported a drop in sales year-on-year. Some 52% and 21% of respondents revealed that their businesses have fallen 11% to 30% and 31% to 50% respectively,” she said.
Eing said lower fuel price would have a limited impact with a 10sen reduction in the pump price only releasing an additional 03% to 0.9% in disposable income depending on income level.
She said the Hari Raya festivities helped boost sales with 20% of the retailers posting consecutive month-on-month growth in the September to October period.
Eing said food retailers, as expected, showed the most tenacity with 75% in this group recording a less than 10% drop year-on-year followed by non-fashion retailers and fashion retailers.
“Although business conditions have generally improved on lower crude oil prices, retailers are generally still bearish on their business prospects going forward,” she said.
Eing said 87% of retailers said that their businesses would continue to be affected by the global economic meltdown with 58% of retailers believing that economic conditions in 2009 are headed for the worst.

By FINTAN NG, The Star 23th Dec 2008