How a furniture shop can afford to be on sale all year

A furniture shop can be on sale all year because the sale price is, more or less, the price, and the tag is the number that moves. Since 2020, Malaysia's rules have stopped counting how many sales a shop can hold.¹

I can't find a sofa's invoice, so part of this is sums on a sofa I made up. I'll say where.

The rule used to say no

Until then, a trader got four sales a year, each up to 30 days, and the government picked three of the dates.² There was also a rule on how much of the shop had to be marked down, and the reports I can find don't agree on it.

The Star in 2016, carrying a ministry clarification, said 70% of the items in a shop.³ The law firm Skrine, describing what was about to be deleted in 2019, said half of the goods displayed.¹ I can't settle that, and I don't need to, because the rule went.

Skrine's note has the amendments taking effect on 2 January 2020, with the yearly limit gone too. A sale of more than three days needs a day's notice to the authorities, and a shorter one needs none.¹ The minister's version was "Traders will be allowed to hold sales whenever they choose to do so", partly so shops could keep up with online selling.²

The condition people skip

Under the 2019 amendment a single sale still stops at 31 days, and running past that takes a fresh notice and a lower price.¹ So I read "all year" as a chain of sales, not one long one, though I couldn't find anyone describing how a shop actually strings them together.

Off what, exactly?

The change I find more interesting is the number a discount is measured from. It used to be the lowest price over at least 28 days in a row.¹

Since the 2020 change it's "the latest price of those goods before the commencement of the cheap sale".¹ I read that as a much easier number to live with, since the shop's own last tag is the starting line.

That isn't a free pass. The same amendment makes a false or misleading statement in a sale advertisement an offence.¹ The Star also reported that in 2017 the ministry found some traders had marked prices up as much as threefold before offering 90% off.²

That was traders in general. I'm not saying it of furniture shops, and I found nothing either way on how often a tag is padded. If you're running a sale, I'd read the regulations themselves, because this is a law firm's summary and my reading of it.

One sofa I made up

I couldn't find a Malaysian furniture shop's margin. The nearest cousin I can get is Courts, which sold furniture alongside electricals and IT, and reported a gross margin of 33.1% for one quarter reported in 2017, across all its countries.⁴

So call it a third, and treat that as my rough guess for a much smaller and different shop. Say a sofa costs the shop a thousand ringgit, and it sells at fifteen hundred.

One made-up sofa, in ringgit

You'd hand over the same money in the last three rows. Only the sentence on the tag changes.

A shop can get away with that more easily on a sofa than on a tin of milk powder, I think. You buy one rarely, you can't remember what it cost, and the model on the floor may not be on sale anywhere else to compare it with. Those are my reasons, and nobody has tested them for me.

Where the rest of the money sits

Margin isn't the only place to look, and it wouldn't surprise me if some of these matter more than the tag:

• Instalments. Courts pointed to a Malaysian ceiling of 15% a year on credit-sale interest, in force from January 2018, for its trouble there.⁵
• Delivery and assembly. I couldn't find what shops charge or clear on these, so I'd guess a fee that covers the van and not much more.
• Stock on the floor. It pays rent the whole time it sits there, so a sale that never ends gives the staff a reason to move it this weekend.

The first one is the only one with evidence. In the quarter to June 2018, Courts' Malaysian revenue fell 24.4%, and it pointed to the cap and new compliance steps, with lower credit yield also pulling down margin.⁵

That's one chain, and I don't know if that ceiling has moved since. But I read it as a shop that had been earning from lending as well as from the fridge or the sofa. It also means the 33.1% I borrowed probably had some lending inside it, so my sofa flatters the margin on goods.⁴⁵

On my made-up sofa, fifteen hundred over two years at that ceiling, in simple interest, comes to about four hundred and fifty.⁵ That's nearly the shop's whole margin again, if the shop runs the plan itself, and I'd guess many small shops hand that to a finance company and keep little of it.