PH retail scene remains upbeat

The Philippines is regarded as one of the key focus markets of global retail brands within the Asia Pacific region.

The apparent shift in the global retail landscape may, after all, work out in the country’s favor.

While many retail stores in the United States and elsewhere in the world had been shuttered over the last few years, rendered obsolete by the consumer’s growing preference for online shopping among other factors, the Philippines meanwhile has been attracting a number of major foreign brands to set up brick-and-mortar stores in the country.

Attractive destination

“The Philippine retail scene is set to have a more dynamic narrative moving forward as the country is poised for further growth. As foreign retailers continue to seek new growth markets, we anticipate the Philippines to be one of the key focus markets by global brands within the Asia Pacific region,” said global real estate advisor Cushman & Wakefield.

In a report entitled, How Global Brands are Shaping the Metro Manila Retailer Landscape, Cushman & Wakefield noted that the Philippines is an attractive destination for global brands, underpinned by its solid macroeconomic fundamentals and the rising disposable income of its young population.

“The country is enjoying positive economic conditions and anticipated to benefit from the demographic dividend in the next 20 years, if managed properly,” it said.

It added that apart from its solid macro fundamentals, strong investment in infrastructure and construction, and solid household consumption, stimulated by low inflation and interest rates, are boosting the country’s economic growth.

Beyond these indicators, the potential gains from the demographic dividend, combined with the large volume of mall space and competitive occupancy costs, remain its two distinct advantages, overall, which should help the country become one of the attractive retailer destinations in the region.

“Brands and developers alike are expected to take advantage of these opportunities while quickly adapting to the evolving consumer tastes combined with the increasing, albeit healthy, competition from new and existing foreign brands entering and expanding in the country,” the report stated.

“There is no denying that the Philippine retailer market is on a positive trajectory and we are excited to see how this sector transforms and shape the future retail scene,” it said.

Foreign brands

Despite headwinds from the global retail scene, the retail market in Metro Manila remained positive with the entry of 113 new foreign brands in the past two years, according to Cushman & Wakefield.

“While encouraging, the figure is a slight slowdown from the 128 new brands that entered the capital region between 2013 and 2014,” it said.

This could be attributed to two major factors namely: poor-performing parent companies of major retailers in key markets, which are now focusing on rationalizing costs instead of expansion; and tightening local competition on two levels namely, the high volume of new concepts under the same retail categories and segment, and the concentration of retail demand within select markets that have limited shopping mall space.

Based on the report, the mid-tier market continued to dominate the local retailer scene with at least 100 new foreign mid-range brands entering the Philippines since 2015.

It disclosed that food and beverage (F&B) brands continue to outpace other retail types with 64 new concepts that were introduced in the country over the same period.

Thirty eight F&B concepts were reported to have entered the market in 2016, an all-time high in the past seven years. New concepts include Atelier Vivanda, Denny’s, Moe’s Southwest Grill, Texas Roadhouse, Namoo House, and Uma Uma Ramen/Horse’s Mouth, among others.

After a banner year in 2014, retail activity from the clothing and apparel segment meanwhile exhibited a slowdown in subsequent years as select brands are facing bankruptcy and downsizing operations across the globe.

“Nonetheless, select fast fashion brands continued with their aggressive expansion within and outside Metro Manila. This has resulted in the tightening competition within the clothing and apparel space as fast fashion brands offer a wide array of products at price points comparable to local apparel brands,” it added.

E-commerce

Although the emergence and growing importance of the online space in retail operations have threatened brick-and-mortar stores elsewhere in the world, the case is quite the opposite in the Philippines.

“Considering the psychographics of Filipino consumers where there is a strong malling and dining culture, we expect physical stores to remain relevant. This is particularly true for F&B brands as brick-and-mortar stores play a significant role in creating a unique customer experience,” the report stated.

Cushman & Wakefield pointed out that the development of key infrastructure will be crucial to support the growth of e-commerce.

In the Philippines, limited access to fast and reliable internet may likely discourage potential consumers from using mobile apps or accessing web stores.

Similarly, the lack of infrastructure and restricted mobility in other parts of the Philippines may limit the markets that can be tapped by retailers.

Finally, traffic congestion within Metro Manila and other highly-urbanized and dense cities throughout the country is projected to impact productivity and increase logistics costs.

Still, local retailers seem to be preparing for the inevitable. Two of the largest local conglomerates—the Ayala Group and SM Group—bought a 49 percent stake in Zalora Philippines and a 34.5 percent stake in the parent company of 2GO Group Inc., respectively, thus suggesting a positive outlook on the sector and tangent industries.