Reconfiguration of malls to quell extinction
Filipinos love going to the malls as these retail establishments have become our de facto public spaces due to the lack of parks in Metro Manila. Visiting malls during weekends is now an integral part of the Filipino lifestyle.
Lately, we have been seeing some challenges hounding the country’s retail sector. Retailers and mall operators should thus be quick in responding to these challenges to remain afloat.
One indicator is the overall vacancy in Metro Manila which rose to 10 percent in the first quarter of 2019 from 9 percent six months ago. This was the first time that retail vacancy in the metro rose after seeing three consecutive quarters of decline. Despite this, we see opportunities as developers have been aggressive in renovating spaces and housing experiential and lifestyle-centric tenants to improve consumers’ retail experience and sustain footfall.
Lifestyle-centric
Over the past 12 to 24 months, Colliers has observed an increased effort among Metro Manila malls to differentiate. Mall operators, for instance, have been using pockets of vacancies to incorporate a lifestyle-centric retail mix to retain old consumers and appeal to a younger profile of mall-goers.
While e-commerce has been disrupting traditional retail, Filipino consumers still enjoy seeing items and receiving face-to-face service. This is something that mall operators and retailers should take advantage of.
Colliers believes that shoppers will likely be drawn to physical malls if retailers offer a wide array of food and beverage (F&B) options; spacious public seating; interactive kiosks and pop-up stores; Instagrammable spaces; and limited edition items. Differentiators may include airconditioned chapel; organic vegetable garden; gourmet food hall; and an expansive retail space for bazaar tenants.
Bricks complement clicks
Unlike in Western economies where brick-and-mortar shops have shuttered due to fierce competition from online businesses, malls are seen to remain an important part of the Filipino lifestyle.
This is why developers and retailers do not fully migrate to e-commerce, but instead use online platforms to complement physical stores.
It should be noted that despite the growing acceptance of online shopping in the country, only 3.5 percent of Filipino adults make purchases online according to World Bank Global Financial Index; only 2.2 percent use a credit card to make payments; while a mere 4.2 percent have mobile accounts.
High disposable incomes
Retailers are still enticed by consumers’ rising purchasing power especially after the implementation of lower personal income tax rates in 2018.
In our opinion, retail spending in Metro Manila should continue to receive a major boost from overseas Filipino workers’ (OFW) remittances, which reached $5.3 billion in the first two months of 2019. These should result in the entry of more innovative and interesting retail concepts in Manila.
F&B to dominate
Over the next three years, we see a sustained retail space absorption from F&B retailers which account for nearly 40 percent of incoming tenants in malls across Metro Manila.
For Filipinos, food will remain king. Despite disruptive technologies that redefine the way we shop, retail space absorption from F&B firms is likely to dominate while clothing and footwear will cover about 17 percent of tenants due to occupy space from 2019 to 2021.
Interesting to note is the Filipinos’ propensity to spend on cosmetics, personal care and miscellaneous items. These items were popular among Filipino consumers even with the threat of high inflation in 2018.
But how should mall operators and retailers cope with fast evolving retail preferences of discerning and millennial shoppers?
Foreign retail experiences
The ongoing renovation of malls is another opportunity for developers to bring in interesting foreign retailers. Malls tht will have such retail concepts should provide a complete foreign shopping experience. Local developers need to highlight partnerships with foreign brands popular among travelers, high-spending consumers.
Test the waters
Colliers believes that opening pop-up shops is an ideal option for F&B, sporting goods, e-commerce and clothing brands that are testing the Manila retail market. This is also an option that exhibitors in weekend markets in posh villages should explore if they want to cater to a larger consumer base.
Leverage showrooming
Developers should be open to online retailers who want to use brick-and-mortar space for showrooming or product testing, but whose purchases are still made online. Clothing and footwear brands, for instance, should consider incorporating augmented reality window shopping and interactive mirrors.
Bright spots
Overall, the sector’s growth hinges on the implementation of key government policies.
One investment vehicle that developers can tap is Real Estate Investment Trust (REIT). Malls should remain an attractive property for REIT listing due to sustained economic growth supported by rising disposable incomes and improving consumer outlook. But the listing won’t happen without the much-awaited amendments to the law’s implementing guidelines.
Another bright spot for the sector is the government’s plan to reduce minimum paid up capital required for foreign retailers to open shop in the country to $200,000 from $2.5 million.
It’s an interesting period for the retail segment. We see the sector growing on the back of a sustained economy backed by the government’s implementation of pro-foreign investment policies.
