Magazines Archives - 2007 January

Retail Outlook 2007- Opportunities and challenges ahead
Cover Story

The new year brings new challenges and opportunities for the Asian retail trade. Industry leaders give their take on new developments, upcoming trends, forecasts and expectations in several of the region’s key markets. The reports are filed by Angeline Yeo in Singapore; Eu Hooi Khaw from Kuala Lumpur, Malaysia; Tina Arceo Dumlao from Manila, the Philippines; and Shirish Nadkarni from Mumbai, India.

MALAYSIA

Malaysia has much to celebrate this year as the country commemorates its 50th year of nationhood amid a continually improving economy. This augurs well for the nation’s retail industry.

In fact, Tan Hai Hsin, managing director of Henry Butcher, which handles retail properties and is an affiliate member of the Malaysia Retailers Association (MRA), is anticipating that retail business will expand by 8% this year, compared with the 7.5% estimated for the year just ended.

As part of its 50th Merdeka (Independence) anniversary, the country has designated 2007 ‘Visit Malaysia Year’ in a concerted effort to woo more international visitors. The government is targeting for 20 million tourists, up by 22% from the more than 16 million recorded in 2005 and 16% higher than the 17.3 million expected to be recorded for 2006, says Tan.

“In 2005, Malaysia enjoyed 16.43 million tourist arrivals. Total tourism receipt for the year was RM31.95 billion (US$9.07 billion), of which shopping accounted for about 23%, or RM7.3 billion,” he says.

This retail-property specialist sees tourism shopping, which formed 13.3% of the Malaysian retail industry’s total sales value of RM54.9 billion in 2005, continuing to play a significant role in the industry.

Says Allan Soo, managing director of Regroup Associates: “The increase in tourism will impact positively on overall sales turnover in the country, at least up till this September. We believe this year’s economy will be per-forming better than the current 5.5% growth rate, as the release of money into the system with the Ninth Malaysia Plan will have a multiplier effect on retail.”

Also looking forward to a vibrant year in Malaysia is Joyce Yap, director of leasing & marketing of Kuala Lumpur Pavilion Sdn Bhd, and president of Persatuan Pengurusan Kompleks (PPK) Malaysia, or the Association for Shopping Complex and High-rise Management.

“Fifty programmes for Visit Malay-sia Year 2007 have been [planned] to the tune of RM300 million for government and private sectors to promote tourism. Airlines, hotels, shopping centres and tourism-destination areas are gearing up for this major event. The infrastructure has been improved [in anticipation of] visitors. Personnel from tourism-related areas such as shopping centres, and taxi operations have been sent for training,” details Yap.

Realising the targeted visitor numbers means revenues of RM45 billion could be generated for the retail business, translating into a very lively retail scene.

Three major shopping centres coming up this September are: The Pavilion Kuala Lumpur (KL), Mid Valley Gardens and Sunway Pyramid 2.

“This will see foreign brands coming in, as operation costs in Malaysia are still low, compared to those [elsewhere] in the region,” says Yap. “The nation also has a young population, and is experiencing good growth, political stability and rising affluence.”

Her take on the retail scene here is that shopping centres are not well defined, with hyper-markets, sizeable shop lots and arcades included in the category. She also sees rentals continuing to escalate although quality shopping centres’ queue for tenants is long.

Maintaining that “good tenant mix and good centre management are prerequisites for retail success”, Yap says: “It’s not a question of number but quality. The Pavilion KL has [to date] leased out 70% of its space, with 1.3 million sqf on the waiting list [for tenants].” Even Suria KLCC, with its ready space, still has a long way to go on the list, she adds.

Kuala Lumpur needs a shopping district like Ginza in Tokyo, Japan, and Orchard Road in Singapore, says Yap, highlighting that the Bukit Bintang district is holding its own, with the existing Starhill Gallery and the upcoming Pavilion keeping it ahead.

Sectors that tend to do well are, she says, fashion and F&B.

“Asians just love eating. If you have quality in terms of food, merchandising and services, [business] would not be an Kong’s EQ.IQ; Joan & David, Francesco Biasia, Mandarin Duck and Bebe from the US; River Island and Ted Baker from London; and Spanish brand Massimo Dutti.

There will be a variety of two-storey and three-storey flagship stores boasting such names as Hermes, Ferragamo, Versace, Escada and Mont Blanc, Esprit and True Fitness, along with local brands Bonia, Poh Kong Chye, Padini and Voir. Meanwhile, the outlook for Starhill Gallery stays rosy, according to Steffanie Chua, director of YTL Corporation Bhd, the property’s developer.

On the tenants at Starhill Gallery, which enjoys 95% occupancy rate, Chua says: “We have stand-alone shops like Louis Vuitton (LV) and Valentino.

“The first day LV opened in Malaysia (last October), it hit RM4 million in sales. In fact, LV in Starhill Gallery has the highest capital returns of all the brand’s outlets in the world,” she says.

“We are the biggest fine-watch retail [establishment] in the world, with seven watch giants carrying 108 big brands. Wealthy Russians fly into Kuala Lumpur in their private jets to buy a few million dollars’ worth of watches,” she adds.

Based on the traffic flow to the LV boutique and the watch floor, the future looks bright beyond this year. “Visitors from the Middle East just love to shop at the Fendi store [here], the only one in Malaysia,” says Chua, who expects more watch and jewellery brands to make their presence at this retail stop next year.

Attractions at Starhill Gallery, which is in the heart of the city where it is considered to be safe, include restaurants in the Feast Village which stay open till 1am. Painting the year ahead as challenging and exciting, Chua says: “We look forward to maximising our retail- issue,” Yap reckons.

Still, Yap acknowledges that competition in Asia is “very intense”, seeing how “Singapore is building casinos, Thailand is thinking of abolishing import duties, Hong Kong is the gateway for China and India is opening doors for retailers”. Conceding that “Malaysia has never been a shopping haven, compared with Singapore and Hong Kong”, she believes, however, that each country has its own niche.

And it helps to know that Europeans like ecotourism and “Asians are shopaholics, which augurs well for retail”. Says Yap: “Malaysia has to be more focused on the total package.

“Here, we have cheap hotel rates, no language barrier, and beautiful beaches and mountains. However, public transportation and taxi service have to be improved, and negative legislation and red tape removed.

“In Kuala Lumpur, a few good shopping centres are constantly competing. We want to enlarge the cake.”

Here, The Pavilion is poised to be yet another retail landmark. This mixed development, comprising a shopping podium, office block, two high-end residences and a six-star boutique hotel, will be positioned between KLCC and Starhill Gallery. Its shopping centre will have a net lettable area of 1.37 million sqf, spanning seven levels, with approximately 450 shops.

“It’s a pivot point connecting Bukit Bintang to KLCC, elevating the [city’s] retail landscape,” says Yap. The Pavilion has signed on new brands from Singapore, Hong Kong, the US, London, Italy, Paris and Taiwan. These include Taiwan’s Liu Li Gong Fang; Hong Kong’s EQ.IQ; Joan & David, Francesco Biasia, Mandarin Duck and Bebe from the US; River Island and Ted Baker from London; and Spanish brand Massimo Dutti.

There will be a variety of two-storey and three-storey flagship stores boasting such names as Hermes, Ferragamo, Versace, Escada and Mont Blanc, Esprit and True Fitness, along with local brands Bonia, Poh Kong Chye, Padini and Voir.

Meanwhile, the outlook for Starhill Gallery stays rosy, according to Steffanie Chua, director of YTL Corporation Bhd, the property’s developer.

On the tenants at Starhill Gallery, which enjoys 95% occupancy rate, Chua says: “We have stand-alone shops like Louis Vuitton (LV) and Valentino. “The first day LV opened in Malaysia (last October), it hit RM4 million in sales. In fact, LV in Starhill Gallery has the highest capital returns of all the brand’s outlets in the world,” she says.

“We are the biggest fine-watch retail [establishment] in the world, with seven watch giants carrying 108 big brands. Wealthy Russians fly into Kuala Lumpur in their private jets to buy a few million dollars’ worth of watches,” she adds.

Based on the traffic flow to the LV boutique and the watch floor, the future looks bright beyond this year. “Visitors from the Middle East just love to shop at the Fendi store [here], the only one in Malaysia,” says Chua, who expects more watch and jewellery brands to make their presence at this retail stop next year.

Attractions at Starhill Gallery, which is in the heart of the city where it is considered to be safe, include res-taurants in the Feast Village which stay open till 1am.

Painting the year ahead as chal-lenging and exciting, Chua says: “We look forward to maximising our retail- trade potential in conjunction with Visit Malaysia Year, dove-tailing our efforts with those of other YTL establishments like hotels and resorts.

“Personalised shopping [with concierge in tow] for VIPs, world-class recognition programme YTL Platinum Plus, and [a continuing line-up of] events to add value and prestige to brands in Starhill will help boost retail this year.”


The challenges

The cost of living will continue to impact purchasing power of Malaysian con-sumers, says Tan of Henry Butcher. For them, price is a major consideration, he says, with the latest burden the road-toll hike in Klang Valley.

Retailers, big and small, are sus-taining their business through price discounts to retain shoppers and lure new ones. Of course, low price means low-profit margins and those without strong financial resources will find it tough going. Already, many small outfits unable to continue competiting on price have to close down, Tan notes.

Although all retail sectors are expected to contribute to the overall growth of the industry next year, major department store-cum-supermarkets, foreign hypermarkets and national speciality chains are, in particular, expected to enjoy relatively strong growth.

To ensure the overall success of Visit Malaysia Year 2007, strategies to boost tourists’ retail spending have been mapped out. MRA, whose members comprise major local and foreign retailers, has worked with the ministry, various other government departments and retail-related associations on the game plan. It plays a significant role to ensure the country’s retail industry stays healthy.

Retail prospects and competition Regroup Associates’ Soo sees lots of opportunities in Klang Valley, which is “currently very competitive”, with 34.9 million sqf of retail space spread out across 113 shopping centres. He works this out to 5.9sqf per capita, based on the catchment of 5.8 million people in Klang Valley and Selangor.

The addition of 5.7 million sqf this year will bring the total retail space in the area to 40 million sqf, yielding 7sqf per capita, “one of the highest in the world”, says Soo.

The shopping malls coming up this year in Malaysia include: Bangsar Village 2 this month, Cap Square in Jalan Ampang in March and, in September, Mid Valley Gardens, and Mid Valley Megamall and Sunway Pyramid extensions, along with The Pavilion KL.

Aeon Bukit Tinggi in Klang is set to open towards the year-end or early 2008 while other developments under construction are Wangsa Walk in Wangsa Maju, Metro Point Complex in Kajang and Centrepoint KL Sentral.

As many retailers, according to Soo, have either grown to saturation point in the Malaysian capital or are unable to get into the shopping centres of their choice, the 11 centres to come will give them room to maintain their market share or seek additional opportunities — inevitably diluted though this may be.

KLCC, Mid Valley and Sungei Wang are three dominant players projected to continue doing well, with the former two up for rent review this year. The rate hikes, if any, will depend on tenants’ turnover.

“Will the prime rent at the next review go beyond 18% or 19% as in Orchard Road Singapore where it has surpassed 20%? If that happens, what will be the outcome three years after, with the addition of newcomers?” Soo questions.

Whether older shopping centres will up their rents remains to be seen.

New developments are enjoying good rentals with names the likes of Din Tai Fung (said to be the best-known Shanghainese food, made famous in Taiwan), Robinsons and Jason’s Super-market in Mid Valley Gardens and Shanghai Tang in The Pavilion KL. Well-known US brand Gap is also present while Wal-Mart may join the scene.

Soo foresees that these foreign entrants will place upward pressure on rents and retailing standards in Kuala Lumpur, with intensifying competition calling for strategic repositioning.

“It would be interesting to see how Mid Valley Gardens and Mid Valley Megamall will be able to [cater for their respective] markets,” he says.

With the existing mall serving the middle and mass market, and Mid Valley Gardens targeting the upper segment, the two will, together, form one of the largest mixed-shopping developments in Asia, Soo adds.

However, he questions if the large amount of retail can be sustained — given the four department stores, one hypermarket and one supermarket that the 2.5-million-sqf net lettable space of their combined sizeable real estate will accommodate. “Will the cake be enough for all to share?”

Even as Klang Valley shoppers are spoilt for choice in shopping venues and merchandise selection, new entrants will find it increasingly tough to compete for share, and tougher still should another big Japanese department store come on stream, says Soo.

With oversupply relative to spending power and patterns, one-third of the malls in Malaysia can be expected to do relatively well while the rest will see marginally good performance or fade away. Some casualties are inevitable as bigger players cannibalise the trade of the smaller and poorer ones.


Retail repositioning

As a result of tougher conditions and heightened competition, following the Asian financial crisis, both retailers and mall owners have, over the past five years, been re-examining ways to attract shoppers. “KLCC, for example, has been constantly working with its retailers to improve on visual merchandising and stall concepts,” says Soo.

“Repositioning is constant”, unlike in the 1980s and 1990s when few retailers and mall owners saw the need for it as trading conditions then “were less demanding”.

Where it used to take retail operators more than six years to consider reposi-tioning, “today, most retailers would have to refurbish their stores every three or even two years”, says Soo, adding that all owners, too, are putting aside capital expenditure for improvements every three years now.

He is proud of The Curve in Mutiara Damansara, Petaling Jaya (PJ), which was conceptualised by his company. The development was launched in 2005 during a time of market weakness, and faced extremely keen competition from 1 Utama and other retail establishments in the PJ area, he recalls, citing com-plaints of poor performance from tenants that same year.

The Curve, which started with only about 60% occupancy then, is now 85% filled, says Soo, who expects full occu-pancy come March. “Some outlets [here] have performed better than similar ones [elsewhere] in the city, pointing to the growing strength of suburban centres in affluent catchments, which are sup-portive of advanced new-generation formats such as open-air shopping centres.”

At a national level, he thinks it would be good for Malaysia to be a destination for factory-outlet malls as well. However, to entice shoppers to travel all the way to such malls, Soo thinks there must be other strong attractions beyond just a group of brands. Hailing the New York scene in the US, as an example, he says: “Factory outlets [there] are located 30- 40 miles out of town in beautiful sur-roundings [and] are tourist attractions.”

Set out to appeal to a younger generation, with alfresco dining, The Curve had “faced a lot of scepticism in the market”, Soo recalls. “We managed to convince some of the strong brands to take the risk ... [as] the new concept was obviously the preference as far as the younger and more affluent generation is concerned.

“The Curve proves that the new concept works and that we can’t continue to build big box-like shopping centres,” he says, convinced that, more than just pure grocery and fashion shopping, today’s consumers seek an enhanced experience.

In general, nearly all shopping centres have been raising their rentals since 1997, except for less competitive and more poorly designed develop-ments, which have suffered declines instead.

Says Soo: “Of the best shopping centres, five have [conducted] reviews, with their overall rents growing between 12% and 15% per review, and prime rents jumping beyond 50%.

“Most small and speciality shops are doing well. There are more than 500 Grade A retailers and 500 Grade B ones, with regional, international and national brands which have not only [captured] the majority of the market in [various] trade categories, but have also increased their performances, in many cases registering double-digit growth in the past few years. Grade A includes Guess, Padini, American Chillies, Vinc-ci, The Body Shop, Secret Recipe and Mango.”

Although retailers in Klang Valley appear to have reached saturation point, there remains much territory to be explored by all the brands, he observes.

Besides malls, other categories dominating the market and creating an impact are three hypermarkets, which compete directly with Jaya Jusco, whose ability “to retain its loyal customers” despite the situation has not gone unnoticed by Soo.

Giant, which registered combined total annual sales of RM3 billion in 2006, leads in market size, followed by Jaya Jusco at RM1.8 billion, Carrefour at RM1.1 billion and Tesco, which is fast reaching RM700 million. Ten years ago, no retailer in the country could surpass the billion-ringgit sales mark. This year and the next will be crucial for hypermarkets as “newer submarkets become the battleground for these players”.


Singapore

Singapore’s retailers are all hyped up for an exciting year

The word ‘exciting’ keeps surfacing when retailers, property deve-lopers and associations are asked about Singapore’s retail industry in 2006, and this with good reason.

The year gone by has, indeed, been exceptionally exciting. With 1.1 million sqf of retail space added, new-to-mar-ket brands on the scene and new con-cepts explored, it has been labelled by industry leaders a watershed year and, more importantly, a precursor of even more thrilling things to come.

One ground-breaking development that has gotten Singaporean consumers buzzing is the newly-opened VivoCity.

After tremendous hype surrounding the long-awaited mall, VivoCity did not fail to deliver. The nation’s newest mall is also its biggest, spanning more than one million sqf of lettable floor space and housing more than 300 retailers, including new brands such as US lifestyle retailer Gap and Spain’s Pull and Bear.

Perhaps the most successful mall located in the suburbs to date, it recorded a staggering 7.28 million local and overseas visitors in the first two months of its soft opening last October. VivoCity currently serves over 184,000 visitors per day on weekends and 114,000 visitors daily on weekdays.

As a suburban mall of such scale and success, VivoCity brings a new pers-pective to Singapore’s retail industry, which, until recently, has been domi-nated by the malls flanking the prime Orchard Road shopping strip. Accord-ing to the latest Singapore Property Market Outlook report, released by Jones Lang LaSalle (JLL), almost 45% of the retail stock islandwide is found in suburban areas.

Another milestone on the republic’s retail scene is the Warehouse Retail Scheme (WRS), located in suburban Tampines. Championed by the Eco-nomic Development Board Singapore (EDB), this big-box concept features three large-format retailers — Giant hypermarket, and lifestyle stores Courts and Ikea.

The opening of the first of the three, Ikea, was warmly received. The same response can be expected for the other two. Industry watchers see the trend for such big-box retailing fast catching on in Singapore.

While it is too early to ascertain if the growing popularity of suburban malls signals a shift in emphasis from the island-state’s primary shopping belt or marks the advent of a new retail landscape, there is no denying that it raises the overall competitiveness of the industry.

Meanwhile, far from being over-shadowed, longstanding Orchard Road malls are undergoing facelifts in an effort to stay relevant to shoppers. The first to go under the knife was Wisma Atria, now featuring a modern glass facade and the first-of-its-kind outdoor escalator that transports shoppers from the ground level straight to a food court — the highly popular and distinctly-Asian Food Republic.

Locals are also looking forward to three new additions on that premium stetch. Singapore’s CapitaLand and Far East Organization, and Australia’s Land Lease Corp have won bids to build malls on the last three available plots in the vicinity.

Among these is Far East’s Orchard Central, expected to be the tallest retail-only mall in the country. With the completion of these malls, the revamp of other properties on Orchard Road, and the addition of VivoCity and the WRS, Singapore’s retail can only get brighter, ultimately benefiting the economy.


Wisma Atria, the first mall on Orchard Road to undergo revamp, now features a glass facade over its front exterior, complete with an escalator that conveys shoppers directly from street level to its food court on the fourth floor.

An artist’s impression of Far East Organization’s Orchard Central, which will be the tallest retail-only mall in the Orchard Road vicinity.
 

2007 forecasts and trends

According to the Ministry of Trade and Industry (MTI), the 2006 economic growth forecast has been revised upward from 6.5%-7.5% range to the 7.5%-8.0% level, with 4%-6% projected for this year.

MTI continues to describe the economic outlook as “benign”, quoting business-expectations surveys that show firms in both the manufacturing and services sectors expecting business conditions to improve.

The Economist Intelligence Unit (EIU), whose projections concur with MTI’s, describes real GDP growth to “decelerate from an estimated 7.5% in 2006 to a still healthy annual average of 4.6% in 2007-08”, driven by private consumption and investment.

Retailer confidence across Asia is also at a high, buoyed by economic growth and rising income levels, reveals a recent JLL survey, which polls 160 retailers from nine key Asian markets across a spectrum of trades. “Our latest survey results have highlighted the broad retailer optimism across Asia,” notes Dr Jane Murray, JLL’s head of research-Asia Pacific.

“Subsequent discussions with retailers endorsed our belief that strong regional economies would drive sales and improve revenues. [However], a number of retailers are tempering this optimism with a clear understanding that increases in costs in other areas would affect their profit margins,” Dr Murray adds.

Touching briefly on the effect of Singapore’s retail industry on the job market, Temasek Holdings chairman S Dhanabalan, noted in his speech at the opening of VivoCity that 7,000 new jobs were created at this new mall. (Temasek Holdings is a multi-industry investment arm of the Singapore government.)

“This is a good example of value creation, not just for Mapletree Investments, VivoCity’s developer — [and a Temasek Holdings subsidiary] — and its stakeholders, but also for the economy as Singapore Tourism Board now has a new selling point to add to its overseas promotion efforts,” said Dhanabalan.

The tourist dollar is, and will con-tinue to be, important for retailers to capture, says Ong Choon Fah, executive director and regional head for consulting and research at DTZ Debenhem Tie Leung (SEA). Acknowledging the trend of local shoppers taking short flights to neighbouring countries for their retail therapy despite the glut of new malls back home, she sees no cause for panic yet among retailers.

Ong is confident that malls will continue to thrive on increasing visitor arrivals, as shoppers from abroad “flock in”, reasoning that Singapore’s ability to offer a large range of luxury goods is a big draw for foreigners.

She cites as a case in point the Louis Vuitton flagship at Ngee Ann City which sometimes has to shut its doors “because it is too crowded — a lot of the time with Indonesians, mainland Chinese and Japanese tourists, interspersed with locals”.

She figures retailers today have to “tease” the local dollar out of com-paratively tighter purse-strings as local shoppers who, notwithstanding the positive consumer spending as a result of a buoyant economy, have the luxury to mull over their purchases and are less likely to buy on impulse. Ong advocates that retailers and malls take palliative action by engaging in constant inno-vation and reinvention to stay relevant and exciting so as to lure and retain local shoppers.

“Singaporeans have become more pampered, and have higher expectations because they are travelling more.

According to a recent URA survey that polls mainly yuppies, fewer Singa-poreans are comparing our shopping streets to those in Hong Kong or elsewhere in the region,” she observes, noting that they are looking at shopping destinations as far away as New York City, a clear indication that locals are “scaling up”.

Some retailers are on the right track when playing catch-up, Ong says. These are typically fast-fashion retailers like Zara, Charles & Keith, and Topshop which bring in new, affordable designs as quickly as every six weeks.

“Local shoppers are likely to be able to find something new almost every time” they step into one of these and, because of the affordable prices, tend to make snap buying decisions rather than “think it over”.


Evolving malls

Dismissing the common complaint among local shoppers that retail brands in Singapore are repeated and “boring”, Ong defends mall owners’ stepped-up efforts to scour the globe for new-to-market brands that do much to keep the industry vibrant and shoppers cap-tivated.

Malls have evolved to become more than just places of retail, and “are now placing greater emphasis on F&B”, she says, attributing this to changing lifestyles that see a growing number of yuppies frequenting pubs after work.

“Previously, only 15% of a mall’s tenants are F&B outlets, but now the percentage has doubled,” Ong says.

She labels these F&B joints as “places to see and be seen”, especially for the younger generation. Enjoying “higher disposable incomes”, these consumers are also “more focused on instant gratification” and inclined towards a “let’s-spend” attitude as op-posed to “the older generation’s ‘let’s save’ attitude”.

Increasingly, malls are no longer just where people go to shop but are also regarded as “meeting points” and places of community living or, in Ong’s words, “village living”, as they bring in “new brands and new experiences”.

Ong has also identified a trend that sees a growing number of malls seeking to create their own identities and estab-lishing niches. The 200,000sqf Velocity @ Novena Square, Singapore’s first dedicated sports-and-lifestyle mall that opened last November is an example, not to mention VivoCity, which is positioned as an entertainment-and-lifestyle destination with large recreation zones such as its sky park, play court and sea-front promenade for families, tourists, and both the young and young at heart.

Ong rules that the nation’s mall owners and retailers are generally on track to keeping the industry vibrant and retaining shopper interest. How-ever, she urges more to be done to regain Singapore’s title as the “shopping capital” of the region, a title that has been ceded to Hong Kong.


PHILIPPINES

started picking up from the second week of December all the way up to Christmas Day in a time of giving for most Filipinos.

The nation is reputated for observing the world’s longest Christmas celebra-tion, which starts from September and ends with the Feast of the Three Kings in January, and retailers bank on December to deliver the welcome sales spike.

Christmas 2006 did not disappoint, with the market per-formance raising hopes that the new year will be better for the industry.

Retailers badly need sentiments to turn around following a challenging year just past, one dampened by the combined effects of the increase in the value-added tax (VAT) on goods and services to 12% from 10%, oil-price hike in the import-dependent Philippines and political bickering. As a result, many consumers chose to put their money in savings accounts, shunning malls and shopping centres.

Philippine retailers remain opti-mistic as they look forward to a better year ahead.

Brisk Christmas season heralds good year ahead for Philippine retailers hilippine retailers were about to write off their Christmas 2006 takings as among the worst in recent memory when sales

Johnlu Koa, founder and chief executive of French Baker, one of the country’s leading food chains, says that he is looking to add five to six new stores to his 31 branches this year because he expects the economy to adjust to the VAT increase, and political rumblings to quieten down.

Koa is confident the drop in oil prices from over US$80 to an average of US$62 a barrel will encourage consumers to go shopping again.

He says: “There is some consensus among retailers that the industry really took a beating last year. The sales were there but the margins were not because of rising costs. But we are still very optimistic about good prospects this year.”

Generoso Villanueva, managing director of gadgets distributor Micro-warehouse Corp and Mobile 1, says that retailers catering to the top-income bracket were in the doldrums last year. “Things were not so great last year because the top market did not grow,” says Villanueva.

He says his colleagues at the Young Entrepreneurs Organization were perplexed by the weak sales, considering the significant portion of young gra-duates being snapped up by the growing business-process outsourcing industry, which means hefty pay cheques more people.

“Perhaps, their money is going to food and mobile-phone loads instead of the more expensive goods,” Villanueva says.

But, like Koa, he believes that 2007 will be a good year for the industry, with political concerns easing and the Philippine peso appreciating in value against the US dollar.

The macroeconomic indicators for the Philippines are clearly something to cheer about. The government is expecting the economy to grow by at least 5.5% this year, while keeping inflation down to just 5%, and remittances from the growing legion of overseas Filipino workers (OFW) are projected to exceed US$11 billion.

This is good news for the retail industry, says Alegria Limjoco, vice-president of the Philippine Franchise Association and vice-chairman of the Philippine Retailers Association (PRA).

“Retailers have been talking to each other and comparing notes. The general sentiment is that 2007 will be a better year,” Limjoco says.

She points to the generally good Christmas 2006 sales — which grew by about 10% for the first time in three years — as a primary indicator.

Limjoco says remittances have been a major contributor to the growth, because more money is being spent on goods other than downloads for cell phones in text-crazy Philippines.

“We are also looking forward to [heavy] government spending on infra-structure, which will mean more jobs and employment ... [and hence] more retail sales,” she adds.

PRA also expects the tourism sector to continue bringing in people to the shopping malls, says Limjoco, singling out food and fashion as industries that will continue to do well — comparable with the performance of the beauty-and-wellness sector.

“More and more Filipinos want to look good; they want to accentuate their positive feelings, which partly explains the growth of the wellness-and-beauty sector,” she says.

Toby Claudio of the Toby’s retail chain can vouch for the growth in the wellness industry with the growing sales of exercise equipment and sports apparel in the chain’s 52 outlets across the archipelago.

Claudio says that sales started picking up as early as last July. This was evident in all categories — from high-end exercise equipment to expensive footwear and gym apparel.

“With the trend [towards] fitness — perhaps because Filipinos are becoming more health-conscious — we are looking forward to a very good summer,” Claudio says.

Christmas sales last year for Toby’s stores started the first week of Decem-ber, which was early by previous years’ standards which saw figures improving only starting December 15.

Apart from an earlier kickstart to last year’s Christmas, “all our indicators show that 2007 should be a good year because the spending is there”, says Claudio.

The positive trend in spending is not confined to just Metro Manila, but also across the provinces, the likely result of remittances in precious US dollars as most OFWs are from provinces outside Metro Manila.

Generally, growth is expected, albeit uneven. However, there will be reason enough for Philippine retailers to be optimistic only if the economy meets its target and posts a GDP growth of at least 5.5% this year.