Mustafa's delayed flagship store in Johor Bahru reveals challenges of the Malaysian city’s retail scene

JOHOR BAHRU: Singaporean Nur Hafizah Daud, 35, travels to Johor Bahru at least once a month to shop for her household needs.  

The kindergarten teacher told CNA that she, her husband and two young children would endure the weekend Causeway jam - typically around 90 minutes each way - to visit various shopping malls for groceries, clothes, toys as well as pharmaceuticals. 

“It’s very satisfying when you calculate the savings, and compare them to how much these things cost in Singapore. Shopping in JB is still more shiok,” said Mdm Nur Hafizah.

She was buoyed by news reports earlier this year that Singapore retailer Mustafa was set to open its first flagship overseas outlet in the end of 2023 at Capital City Mall. The mall is being developed in Tampoi, a 20-minute drive from the Causeway. 

While Mustafa’s main retail outlet in Singapore’s Little India appeals to her with its value-for-money deals for electronics and groceries, Mdm Nur Hafizah said she feels its planned outlet in Johor Bahru could offer these products for even cheaper, given the weakened Malaysian Ringgit against the Singapore Dollar.

However, CNA reported on Oct 6 that the opening of Mustafa’s JB store has been delayed until the fourth quarter of 2024, a year later than originally planned due to ongoing negotiations between Mustafa and some strata title owners who own space in the mall as well as slow progress in planning and construction work.

Mdm Nur Hafizah said: “It’s a little disappointing that there’s a delay. It raises doubts as to whether the project will eventually happen. There are some mall projects in Johor Bahru that have failed, and it would be unfortunate if Mustafa does not eventually follow through (with its plans to open in JB).”

Industry experts say the recent news regarding Mustafa has outlined the sheer unpredictability of Johor Bahru’s retail scene, highlighting how an oversupply of mall spaces and legacy issues surrounding ownership have complicated matters in the shopping mall business across the city.

While the retail industry has seen mixed results in recent times, with abandoned and derelict malls littered across the city’s landscape, observers added that Johor Bahru continues to be a key retail destination, leveraging on its close proximity with Singapore to attract footfall.

BOOST FROM SINGAPORE VISITORS 

While the retail scene in key Malaysian cities such as Kuala Lumpur and Penang are seeing a decline in activity, experts have outlined that Johor has been an exception.

Mr Allan Soo, a principal at his own boutique property consultancy firm Allan Soo RE Consultants, told CNA that many malls in the Klang Valley near KL have reported a decline in footfall and business from the second quarter of 2023, due to the waning impact of revenge spending post COVID-19.

However, he noted that some key malls in Johor Bahru - such as JBCC Komtar, City Square and Mid Valley Southkey -  have reported uptrends in business and that the rental rates have even increased, especially for prime retail space on ground floors. 

“Two malls in the city centre, JBCC Komtar and City Square, are registering 65,000 footfall on weekdays and 100,000 on weekends. At least 30 per cent of that are Singaporean visitors,” said Mr Soo.

He added that the current footfall figures are between 85-90 per cent of pre-pandemic levels. 

“There is a high spend in these malls, and also at Mid Valley Southkey, because of the currency (disparity between Singapore Dollar and Malaysia Ringgit), safety, better quality of malls in terms of tenant mix and concept, great food, and trendy cafes. They are simply good places to enjoy during the weekends.”

Based on his research, he outlined that many of these locals work in Singapore, and have a higher disposable income than Malaysians in the rest of the country. 

“The Singaporean visitors are another catchment group on top of these locals. The average household income (of both groups) is above RM7,000 (S$2,009), placing them in the middle income group (in Malaysia) and that is where retail thrives,” added Mr Soo. 

Mr Samuel Tan, the executive director of KGV International Property Consultants in Johor, echoed similar sentiments.

He noted how some JB malls such as Mid Valley Southkey, have reinvented the retail scene and are now offering outlets like artisan bakeries and international fashion brands which have “attracted crowds from across the Causeway”. 

Mr Tan added that based on his firm's research, the retail market in Johor Bahru is "bucking the trend" of retail decline in Malaysia, due to the influx of Singaporean visitors to the malls, which he estimates to be around 40,000 daily.

He predicted that the upcoming Singapore-Johor RTS Link project due for completion in end-2026, which aims to connect Bukit Chagar to Woodlands in Singapore, could double the volume of retail visitors to malls in Johor Bahru city when it starts operations.

Currently, an average 320,000 people cross the Causeway daily between Johor and Singapore.

The Singaporean teacher Mdm Nur Hafizah maintained that malls like Mid Valley Southkey and Toppen Shopping Centre, which is linked to Swedish furniture store IKEA, are her family’s “go-to choices”.

She said that before the COVID-19 pandemic, she did not enjoy visiting malls in JB as she does now as many of them have refined the type and quality of offerings.

“Previously it was very boring, we would do the groceries, buy what we needed and head home. But now many of these malls have things like indoor kids' playground, rock climbing and quality restaurants,” said Mdm Nur Hafizah.

“Visiting these malls have become whole-day affairs,” she added.

JB RETAIL STIFLED BY OVERSUPPLY

But observers pointed out that while Johor Bahru’s retail scene is promising for consumers and investors, it is also plagued by issues relating to strata title ownership and an oversupply situation.

Mr Soo pointed out that his research indicates that Johor Bahru has 19.3 million square feet of retail space of malls and hypermarkets in total, and that this is equivalent to more than 11.2 square feet per capita. 

“By definition, this means an oversupply of retail space,” said Mr Soo, adding that in comparison, malls in the Klang Valley make up a total of 77 million square feet, and equivalent to 9 square feet per capital. 

He added that that huge array of options for visitors in Johor Bahru would mean that consumers will be more picky and discerning on which shopping mall to visit, and this will mean those with poor location, infrastructure and inferior concept will fail the test of time.

“Retail is a zero-sum game and the quantum is not a measure of success of the broad market. Good malls will attract while bad ones fail,” said Mr Soo. 

He outlined how malls that are close to the Causeway border with an array of international brands are more likely to succeed while those in the suburbs of Johor Bahru are unlikely to attain the right catchment of visitors. 

Malaysian P. Ruventhiran, who lives in Skudai and works in Singapore, told CNA that he is sceptical that Mustafa would be able to compete with local hypermarket chains such as Mydin.

He added that Mustafa’s prospective location - Capital City Mall - is less popular among the local population, as many would prefer the likes of “all-in-one” retail developments offered by Japanese retailer AEON. 

“When I’m in Singapore, I frequent Mustafa Centre (in Little India) because the items there are relatively cheaper, and the mall is close to the town centre. The souvenirs there are also worth the money,” said the car mechanic. 

“But their location in JB is not very good - Capital City Mall is in the middle of nowhere (in Tampoi) and I’m not sure if they can match Mydin’s discounted prices for local Malaysians, many of whom are struggling to cope with the rising costs of living. 

“When I visited the Capital City Mall in 2019, it was a deserted place, most of the shop lots were empty and the indoor theme park was more like a small arcade.” 

Capital City Mall opened in October 2018. However, the mall has been shut since February 2020 after Capital World ran into financial difficulties and had to seek court protection from creditors while restructuring its debts.

Capital World, the parent company of Capital City Mall, announced in January that Mustafa was set to purchase 591 unsold retail units in Capital City Mall, 374 accessory parcels, comprising alfresco and multipurpose areas and all 2,181 car park lots.

LEGACY ISSUES ANOTHER OBSTACLE

Chief executive of Capital World Ivan Hoo had told CNA recently that Mustafa now wants to lease some of the remaining unsold retail units from strata title owners as it needs the extra space for easier management of the store. 

But negotiating with these owners has proven tricky due to “legacy issues”, according to Mr Ho, as the units were purchased at comparatively high prices and so some strata title owners were expecting a return of 7 per cent in annual rental yield.

Legacy issues relating to strata title owners is reportedly a pervasive problem hindering efforts by some parties to rejuvenate abandoned malls in Johor Bahru. 

In July, Johor’s housing committee chairman Jafni Md Shukor reportedly said that the state government was pushing for a “win-win solution” in rejuvenating abandoned shopping malls in the city. 

He identified two malls located in downtown Johor Bahru as examples - Danga City Mall and JB Waterfront Mall. He also identified Skudai Parade, a mall located on the outskirts of the city, as another mall to be redeveloped. 

The Bukit Permai state assemblyman said that these premises were still owned by some parties and that these parties had sold the lots inside their buildings to traders. 

“Solving this issue is not as simple as many people think as demolishing it involves legal issues and huge financial complications,” said Mr Mohd Jafni.

“The real estate value of these abandoned buildings is high with the current value as it is within prime area. But the state government is working towards finding a win-win solution on this matter,” he added.

CNA recently visited the site of JB Waterfront City Mall, which overlooks the Straits of Johor. 

The property was in a dilapidated condition - with peeling walls, graffiti splashed across the pillars and glass shattered all over the ground. 

Johor Bahru resident Dennis Wong, who cycles past JB Waterfront City Mall weekly for exercise, told CNA that he has noticed groups of young people gathering in the abandoned space especially at night. 

“I think it's unsafe to have these abandoned buildings lying around, it invites crime. I hope they can be demolished and repurposed as soon as possible,” he added. 

A report by New Straits Times in April said that the development may be converted into a commercial building similar to KL Tower with an estimated gross development value of RM1 billion, citing unnamed sources. 

Yet, there has been no word since on whether the project is going ahead. 

KGV International Property Consultants Mr Tan told CNA that the JB Waterfront City project will be "a bit complicated” to redevelop due to the fact that plots of the building are now owned by different parties.

Mr Tan said that in 2008, he was assisting in efforts to help negotiate the sale of parts of the mall, but the process was aborted due to the global financial crisis then triggered by the subprime mortgage crisis in the US. 

“The only effective way to resolve this problem is compulsory acquisition (imposed by the government),” he said. 

Capital World’s Ivan Hoo, who is Singapore-based, told CNA that while he is optimistic that Mustafa will eventually open its doors, he is less sanguine about the retail mall industry in Johor Bahru overall.

“Most of the malls in Malaysia are not assets that one should invest in. This is because the original developers have moved in and built it in a way that maximises profits but does not optimise the space,” said Mr Hoo. 

“To them, their focus is the profit but whether the mall is usable is a separate thing. I came into Capital (World) hoping to revive some of these assets. We will go along with this (objective) and try and see if we can help revive them but I can say to you most Malaysian malls or properties are not investable,” he added. 

Mr Hoo explained that many of the malls lack a proper loading dock and cargo lifts. 

“How are you going to then bring a product to (sell) in the mall? … Unfortunately you know then that the mall is not operable,” he added.  

The retail consultant Mr Soo posited that a possible solution for the government to consider is to redevelop these malls and turn them for other uses such as office spaces or residential property.

“For the abandoned malls in JB, repurposing them for other uses and keeping a minimal amount of retail will be the answer,” he added. 

FINDING THE RIGHT FORMULA  

Singaporean Nicholas Lee told CNA that he recalled how a decade ago, he and a group of friends would frequent Danga City Mall, which is located on the junction of Jalan Tun Abdul Razak and Jalan Lingkaran Dalam highway, around 10 minutes drive from Woodlands Checkpoint. 

“It was a very quiet and deserted mall. But we would head there because they had a cheap indoor paintball facility and bowling alley,” said the 33-year-old. 

Danga City Mall, a retail space which has strata title lots owned by different parties, have closed since 2018. Its entrances are now boarded up and there have been no concrete reports on plans to redevelop the area. 

Mr Lee told CNA that although he and his wife still frequently visit malls in Johor Bahru, he would now avoid those like Danga City Mall in its heydays out of safety concerns. The couple is currently expecting a baby.

Instead, they now prefer malls like Mid Valley Southkey and Toppen Shopping Centre, which offer international fashion brands as well as “quality options” for food and beverage. 

“I think the time when I would visit shady malls is gone. Now, I would prefer those that have a strong reputation with international brands,” he added. 

Similarly, industry experts are optimistic that the retail industry in Johor Bahru could climb to greater heights if developers adopt the right model. 

They cited how the likes of City Square, JBCC Komtar, Mid Valley Southkey as well as Toppen Shopping Centre have managed to emerge out of the pandemic reporting visitor numbers that are stronger or close to pre-COVID-19 levels, by adopting the “consumer-first” mentality. 

Mr Arnoud Bakker, commercial director at Ikano Centres which manages Toppen, told CNA that while it is unable to disclose specific numbers, the mall has seen visitor footfall return to “nearing pre-COVID-19 levels”.

The mall is also anchored with an IKEA store, the only Malaysian branch outside the Klang Valley. 

He added that on average, 15 per cent of its visitors are Singaporeans but the mall is keen to explore ways to attract more people from across the Causeway. 

Mr Bakker outlined that Toppen has stepped up its quality of offerings recently such as an anchor supermarket Lulu Grocer which opened last November as well as sports retailer Decathlon and Japanese furniture firm Nitori. 

He added that the mall is also looking to add to their offerings with an indoor theme park, badminton courts as well as a retail golf simulator experience. 

“We believe that for our destinations to stay relevant, meeting our customer needs is important to ensure sustainable growth. This is why we constantly evaluate and optimise our tenant mix, offers, and experiences that we create to ensure we can deliver on what our customers truly want,” said Mr Bakker. 

Consultant Mr Soo told CNA that Johor could go from strength to strength as a key retail destination if the city’s retail offerings are streamlined and it focuses on quality over quantity.

He lauded efforts by property developer SKS Group to rehabilitate the abandoned “Pacific Mall” in Jalan Storey, Johor Bahru into a mixed-use development known as SKS Tower. 

He also said fully owned malls, rather than mall lots segmented into different strata title owners, should be the way forward in the retail industry so that a single party has autonomy over how to best utilise the space and attract high quality tenants. 

He noted how the likes of Mid Valley Southkey, City Square and Toppen have benefitted from being wholly owned while the likes of abandoned strata-owned malls such as Danga City and Waterfront City have closed and authorities are grappling with legal issues to have them redeveloped. 

He also cited how Mustafa’s difficulties in opening in Capital City Mall encapsulates this. 

“Retail needs to be planned for retailers and therefore for the customers. It is going to be very demand-led because it's all about the consumers,” said Mr Soo. 

“So if you do it from a real estate play, meaning it's very brick and mortar and it's really to sell and you let the retailer figure out how he wants to do this, then the issues will happen, particularly when you haven't really got the best location,” he added. 

He added the retail scene continues to revolve around consumerism, infrastructure and demography, and he expects all three to be getting a boost in Johor Bahru with improved connectivity plans between the city and Singapore as well as plans on both sides to set up a special economic zone in Iskandar Malaysia. 

“This will pull more mainstream and even premium brands to the market and this in itself will boost the retail offerings, thus creating an even more attractive environment for the consumers,” said Mr Soo.