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  2005 Jan Issue
   
Retail Outlook 2005
Battle lines are drawn as barriers fall
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Better prospects or tougher challenges?
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Affluent urban consumers drive modern retailing
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Higher consumer spending to drive KL’s retail growth
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Vibrant retail prospects for Manila


 



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Retail Outlook 2005
Vibrant retail prospects for Manila

Having one of the highest birth rates in the world has its benefits. While the 2.4% annual population growth is frowned upon by analysts due to the strain on the economy and the country’s finite resources, it augurs well for the retail industry. Add to that the unrelenting exodus of overseas Filipino workers, who bring in over US$11 billion in remittance, the bulk of which go into consumption, rather than investments. The result is a Philippines with a vibrant retail industry that shows no signs of slowing down.

A cursory look at the country’s malls, with customers leaving stores with plastic bags full of purchases, should be enough proof. It makes one question the doomsayers’ dire predictions that the Philippine economy will continue to languish in the cellar.

Roberto S Claudio, vice-chair of the Philippine Retailers Association, says that despite economic problems, the prospects of the retail sector remains bright. Claudio explains that unlike the other countries in South-east Asia, such as Singapore and Hong Kong, the Philippines has a big local population that keeps retailers alive despite problems in the world economy.

With a population of 86 million, there is enough room for retailers to flourish within the Philippine borders. “We are getting about 1.6 million new shoppers a year because more people are joining the labour force and earning their own money,” Claudio says.

He adds that the robust buying activity is not limited to the urban centres. Much activity is also going on in the rural sector, thanks to the improved income brought about by gains in the agriculture sector, the single biggest component of the GDP.

“There is still disposable income and, at the end of the day, people still need to eat, have shelter and clothes. That is a natural source of growth for the retail industry,” Claudio says, also citing the growing phenomenon of shrinking families, which leads to more family disposable income.

Claudio notes the experience of his firm Toby’s, one of the country’s leading distributors of sports goods and apparel, which continues to post solid growth despite the perceived faltering economy.

“Before, people used to have just one to two pairs of shoes. But now, Filipinos have an average of about four pairs,” he says.

Teresita Sy-Coson, president, SM Group, the country’s largest retailer, says that the group is on a constant search for new retail ideas and designs to sustain excitement in its stores. SM will also invest in new technologies to ensure efficiencies in merchandising and its operating system.

Sy-Coson believes that instilling an “everyday value — the right products and services at the right price” is vital to the success of a retail operation. “We aim to understand changing consumer habits and are constantly changing our products and services to meet changes in consumer buying habits,” she says.

Bienvenido Tantoco III, president of the Philippine Retailers Association, says one of the winners in the retail industry in 2004 was the telecommunications industry. Tantoco says that while the retail industry grew by a significant 6.3% in 2004, a big portion of that spending was captured by phone companies.

The latest survey on family expenditures, for instance, showed that less pesos are being spent on food, while more money goes to the purchase of phone cards for cellphones.
This leaves little money left over for other parts of the retail industry, although he says there are still great opportunities for growth.

Filipinos themselves are very optimistic about the growth in the retail sector, according to a recent forecast of MasterCard International. In its study on the retail prospects in Asia, the company says that retail sales are estimated to grow by 7% in the second half of the year, with total sales expected to reach some 352.3 billion pesos. The country received a superior score of 54.8 in the latest MasterIndex of Consumer Confidence compared to its score in the preceding period of 34.3.

“Over the next 12 months, we would likely see more of the same activity. I believe that there is some belt-tightening, so the average basket size is becoming smaller. People are buying less but with more frequency,” Tantoco says.

He adds that the retail industry would be characterised by even greater competition, which will force companies to find their niche and protect it at all costs. “You will really have to distinguish yourself, so that the company will stand out and attract customers. Competition next year will make consumers even more demanding.”

Robina Gokongwei-Pe, group general manager of the Robinsons Department Store, shares Tantoco’s view that the retail industry will be more challenging this year, given some pressure on the Filipinos’ purchasing power.

As such, Gokongwei-Pe says that the pre-paid phone-cards will continue to be the winner next year, with more Filipinos choosing to put their money in communication. She adds that there will also be good prospects this year for small products or products sold in sachets or smaller containers. “These will not necessarily be cheaper, but they are easier to buy because they are smaller.”

She reveals that the Robinsons group is holding off the completion of new malls this year, but will put its capital expenditure budget on the improvement and expansion of existing malls. The group recently opened its latest mall, the Robinsons Pioneer, and Gokongwei-Pei says that the reception has been on target. “Generally, we performed better this year than last year but we see more challenges ahead,” she adds.

PJ Masakayan, vice-president for retail of Rockwell Land Corp, the owner of Power Plant mall, also has a cautiously optimistic outlook on the retail industry, although the mall performed better this year compared to 2004.

“Our market has displayed resilience. Of course, our traffic does not compare with that of the bigger malls, but the spending power of those that do come here is higher,” he says.
Masakayan says fashion remains the best-performing sector, with growth coming in at double-digit levels. Coming in next is food, which has bounced back this year from a decline last year.

“For this year, we are still betting on fashion. We are doing some ‘creative leasing’ or changing our tenant mix to increase sales,” he says.

On the whole, the leading players of the retail industry are looking at inevitable growth next year, if only from the growth of the domestic base. However, if the economy will turn for the better, then retailers can expect cash registers to add up higher sales.


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