Malaysians tighten purse strings on non-essentials

KUALA LUMPUR: Malaysians are tightening their purse strings on non-essential spending, with rising costs prompting households to prioritise necessities and value for money despite continued economic growth.

CIMB Securities Sdn Bhd analyst Walter Aw Lik Hsin said shoppers are increasingly seeking cheaper products, convenience and value, while cutting back on clothing, lifestyle goods and other non-essentials.

"Consumers will likely continue prioritising daily essentials and value-for-money purchases while discretionary spending remains subdued," he said in a note.

This comes as the latest second-quarter earnings of 16 consumer companies tracked by CIMB Securities point to a widening divide between spending on everyday necessities and discretionary purchases.

Of the 16, five are staples companies, namely Nestle (Malaysia) Bhd, 99 Speed Mart Retail Holdings Bhd, Life Water Bhd, QL Resources Bhd and Fraser & Neave Holdings Bhd (F&N).

The discretionary names include value and convenience retailers Eco-Shop Marketing Bhd, Mr DIY Group (M) Bhd, MyNews Holdings Bhd and 7-Eleven Malaysia Holdings Bhd, as well as Aeon Co (M) Bhd.

The remainder comprise fashion and lifestyle players Bonia Corp Bhd and Padini Holdings Bhd, bedding products maker Yoong Onn Corp Bhd, Amway (Malaysia) Holdings Bhd and food and beverage operator Empire Premium Food Bhd.

Aw said revenue among consumer staples rose 8.6 per cent year-on-year in the second quarter (Q2) of 2026, while core net profit increased 11.1 per cent.

On the discretionary side, retailers still managed 4.3 per cent revenue growth, but core net profit fell seven per cent as softer underlying demand collided with rising costs.

The numbers suggest the question is no longer simply whether Malaysians are spending, but what they are willing to spend on – and at what price.

Among the discretionary retailers, Eco-Shop's revenue grew 12.2 per cent year-on-year in Q2, while MyNews and 7-Eleven recorded increases of 12 per cent and 9.7 per cent, respectively.

CIMB Securities attributed the growth partly to continued store expansion and steady footfall, suggesting value and convenience remain areas where consumers are prepared to spend.

At the other end of the spectrum, Padini's revenue fell 6.7 per cent and the fashion retailer slipped into a RM10.5 million core net loss – its first quarterly core loss in four and a half years.

Leather handbag maker Bonia's core earnings fell 64.6 per cent, while Yoong Onn's declined 66.8 per cent. Yoong Onn is the home linen and bedding products maker behind brands such as Jean Perry and Novelle.

Aw said the divergence between revenue and earnings indicated that discretionary spending was still growing but was increasingly concentrated in lower-value and semi-durable categories.

Such retailers, however, are also among the most exposed to cost inflation and competitive pricing pressure.

The pattern points to consumers adapting to higher living costs rather than simply stopping spending.

Against this backdrop, CIMB Securities expects value-focused retailers such as Eco-Shop and Mr DIY to remain relatively better positioned as shoppers seek cheaper alternatives.

"Convenience operators such as 7-Eleven and MyNews should also sustain top-line growth, supported by network expansion, modest same-store sales growth and recurring daily purchases across ready-to-eat food, beverages, and tobacco," Aw said.

By contrast, he said businesses with greater exposure to aspirational, lifestyle and higher-ticket purchases such as Bonia and Amway are likely to face a more challenging environment as consumers scale back non-essential spending.

BENEATH THE SPENDING NUMBERS

The apparent caution among households comes even as broader economic indicators continue to point to relatively healthy consumption.

Malaysia's private consumption expanded 4.8 per cent year-on-year in Q2, slightly faster than the 4.7 per cent growth recorded in the preceding quarter, the Statistics Department data show.

Household spending on restaurants and hotels, transport, food and non-alcoholic beverages and communication were among the main contributors.

In its Q2 2026 economic update, Bank Negara Malaysia said household spending during the quarter was supported by steady income growth and ongoing policy support.

More recent retail data also show that money is continuing to flow through the economy.

Malaysia's wholesale and retail trade sales rose nine per cent year-on-year to RM170.5 billion in July, with retail trade alone increasing 6.4 per cent to RM71.3 billion.

But the volume of wholesale and retail trade increased at a more moderate 4.1 per cent, indicating that sales value grew considerably faster than the quantity of goods sold.

The figures reinforce a distinction that has become increasingly important in assessing the strength of the consumer: higher spending in ringgit terms does not necessarily mean households are buying proportionately more goods.

Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the divergence in consumer spending reflected a growing disparity within the economy, making it important to look beyond headline macroeconomic indicators.

He pointed to workers' compensation, which accounted for 33.9 per cent of the country's gross domestic product in 2025, as one indicator.

This means that for every RM100 of economic output generated, about RM33.90 went to employees in wages, salaries and other employment-related compensation.

The housing market also showed differing trends across price segments, he said, with the share of unsold residential properties priced at RM500,000 and below rising, while that for homes priced at RM1 million and above was declining.

"Hence, one would need to look into further details. This does not mean macroeconomic numbers are not useful. They are, but we may have to look into a further breakdown – the microeconomics part," Afzanizam said.

THE TWO-SIDED COST SQUEEZE

CIMB Securities said rising input, labour, rental, utility and distribution costs remained a key constraint on earnings, particularly for companies with large store networks and labour-intensive operations.

On the input side, commodity prices tracked by the research house illustrate some of those cost pressures.

As at Sept 10, crude oil prices were 63.5 per cent higher year-on-year, while Brent crude had risen 60.7 per cent.

Wheat was 38.2 per cent more expensive, polyethylene 20.5 per cent, sugar 18.8 per cent and crude palm oil 5.8 per cent.

Coffee and cocoa moved in the opposite direction, falling 29.2 per cent and 19.9 per cent year-on-year, respectively.

Most of the commodities were also more expensive than at the start of the year, with crude oil up 78.8 per cent, Brent crude 77.2 per cent, wheat 42.8 per cent, polyethylene 36.6 per cent, sugar 28.4 per cent and crude palm oil 16.4 per cent.

Coffee and cocoa, meanwhile, were down 18.6 per cent and 2.1 per cent year-to-date, respectively.

For consumer companies, the pressure is coming from both directions: their costs are rising while shoppers are becoming more careful about what they are willing to pay.

Passing those higher costs on to shoppers risks hurting volumes, while absorbing them means sacrificing margins.

"Given the still-price-sensitive demand environment, we expect companies to rely on selective average selling price adjustments, sales mix optimisation and tighter cost control rather than on broad price increases," Aw said.

The analyst expects price increases to become more visible in the second half of the year as companies run down cheaper raw material inventories secured earlier and contend with higher oil and logistics costs.

But rather than raising prices across their product ranges, companies are expected to selectively increase prices, reduce discounts and introduce new products at higher price points.

INFLATION CONTAINED – FOR NOW

For consumers, headline inflation remains relatively contained despite those emerging cost pressures.

Malaysia's consumer price index rose 1.8 per cent year-on-year in July, easing from 1.9 per cent in June, according to the Statistics Department.

Food and beverages inflation, however, accelerated to 1.8 per cent from 1.4 per cent, while housing, water, electricity, gas and other fuels also accelerated to 1.8 per cent.

Inflation averaged 1.8 per cent in the first seven months of the year, compared with 1.4 per cent over the same period in 2025.

Bank Negara has acknowledged the potential for further cost pressure.

The central bank kept the overnight policy rate unchanged at 2.75 per cent earlier this month, saying its current monetary policy stance was consistent with continued price stability and sustainable economic growth.

Despite elevated costs and strong economic growth, Bank Negara said the pass-through to consumer prices had so far been contained by domestic policy measures and stable demand conditions.

But elevated global commodity prices continued to exert upward pressure on costs, prompting the central bank to say it would remain vigilant to both cost pressures and domestic demand conditions.

The distinction is important for consumer spending.

Malaysia's economy expanded six per cent in Q2 2026 and 5.7 per cent in the first half, while Bank Negara expects full-year growth of around five per cent.

Yet strong economic growth does not necessarily translate evenly into household spending, particularly when consumers are simultaneously adjusting to higher everyday costs.

AFFORDABILITY BECOMES THE BATTLEGROUND

CIMB Securities expects the divide between essentials and discretionary purchases to persist in the near term.

Consumer spending is expected to remain subdued in Q3 before improving towards the year-end festive period, helped by government cash assistance and potentially more consumer-friendly measures under the 2027 Budget.

Further government assistance through the Sumbangan Asas Rahmah (Sara) could reinforce that trend rather than drive a broader recovery in consumer spending.

The firm said higher Sara allocations would probably benefit mass-market staples, value retailers, convenience stores and affordable food and beverage operators the most.

Additional disposable income among lower- and middle-income households is more likely to be spent on necessities and recurring purchases.

Meanwhile, Aw said a potential increase in the minimum wage could similarly boost household purchasing power, although it would also add to labour costs for retailers.

Against that backdrop, CIMB Securities maintained a "Neutral" stance on the consumer sector, saying affordability would remain the central theme for the remainder of the year.

"Within discretionary consumption, we expect any recovery to remain concentrated in semi-essential, low-price-point categories as consumers continue to trade down.

"Broader discretionary spending is likely to remain subdued until consumer sentiment and purchasing power improve," Aw said.