Magazines Archives - 2008 September

Modern retailing taking over Thai shopping scene
Story 4 - Focus

With near full occupancy, there is no slowing of momentum in Thailand’s mall development — not even in the face of economic and political problems, with traditional retail shops ceding the market significantly to giant developments.

Thailand’s mall developers are racing to build more retail space to accommodate demand for modern retailing. Occupancy rates of 95%-100% are enough impetus for developers to expand, despite negative economic factors that are expected to weigh on consumer spending.

The country has become one of the most popular shopping destinations in Asia. Locals and tourists consider the capital city of Bangkok, with its wide product range and famed unbeatable prices, a shopper’s paradise accommodating everyone’s taste and budget.

From the bustling hot markets of Chatuchak and the clothing havens of Pratunam or Bobae, this city — and indeed the rest of Thailand — is now offering more than just clothes and food. Mall developments have been aggressive, with the Thai Chamber of Commerce noting a “stunning growth” in the number of retail giants to the present 6,505 from 1,821 in 2001.

The malls are growing in influence and gaining market share, too, the Chamber acknowledges, with traditional retail shops ceding almost 70% of the market to modern retailers since 2001. Mall developers have reasons to look forward to more growth. Statistics from the Thai Retailers Association (TRA) show an average annual retail sales increase of 9%-10%. Last year alone, the sector was valued at 1.4 trillion baht (US$41.51 billion), accounting for 18% of the country’s GDP.

“Our major customers are still Thais as foreigners are seasonal — the Europeans normally come in winter and Asians in summer,” says TRA president Thanapon Tangkananan.

And, developers are losing no time building more malls, with particular interest in a presence in major cities like Pattaya, Phuket and Chiangmai. Malls in busy areas are already, if not close to being, fully occupied, say industry officials.

The Central group, which is the largest developer and operator of shopping centres in the Thai market, has earmarked around 6.6 billion baht to open eight new department stores within two to three years in Bangkok, Pattaya, Chiang Mai, Chiang Rai, Chon Buri, Khon Kaen and Ubon Ratchathani. The company has also allocated 10 billion baht to open a new 160,000sqm shopping complex on prime land purchased from the British Embassy at Wireless Road in Bangkok.

Thanapon, who is also vice-president for business development at Central group subsidiary Central Retail Corp (CRC), says CRC is separately planning to construct 10-20 community malls in Bangkok over five years, with each outlet costing 150 million to 200 million baht.

The company is also opening Robinson Department Stores in Chon Buri, Khon Kaen and Ubon Ratchathani by next year-end.

At CentralWorld, international marketing executiveVarayu Ovadhana says Pornpailin Development and Interfac Development have jointly invested 200 million baht to open the Centre Point @ CentralWorld by this month, followed by another investment of 1.2 billion baht over the next 10 years.

“Cool is the word now. They are targeting the younger group, ranging from high-school to university students and those who have just entered the job market. This is also in line with our aim to be the hub for lifestyle activities,”Varayu maintains.

Meanwhile, others like Seacon Development plans to invest up to 300 million baht on the renovation of Seacon Square to tap new customers. Following a revenue growth of 7% to 992 million baht last year, the company expects its revenue to hit 1.1 billion baht this year, in anticipation of new customers from the rapid expansion in residential areas.

Although Thailand relies heavily on tourism dollars, Varayu says more than 60% of CentralWorld customers are locals. A population of 65 million, with 10 million in Bangkok alone, also assures the country of a solid customer base.

However, the sector faces some challenges, among which is the Retail Business Act, viewed as detrimental to expansion. In a move to curb aggressive expansion by multinational companies, the Commerce Ministry last year ordered hypermarkets and superstores to suspend all expansion plans until the passing of the new law.

Thanapon voices concern that “the Retail Business Act ... will slow down the expansion of new malls”. The impact of a weakening global economy is also felt in the Thai retail sector, albeit in a more subdued waythan in others.

Shopping-mall executives are projecting “almost the same” single-digit business growth this year as for last year, which was affected by political uncertainties, 2007 New Year’s Day bombings in the capital city and slower economic growth.

Still, Thanapon expects the shopping-mall sector to grow by 8%-9% in the first half of 2008 and 4%-5% for the whole year, after factoring in the escalating oil prices in the world market, runaway inflation, guarded consumer spending, domestic political uncertainty and other problems.

“If there is growth in the third quarter, I think the fourth quarter will be as good as last year’s. Last year, we had more problems as there was only an interim government,” says Thanapon.

Now, much rests on the government’s policy to build the confidence of Thai consumers and investors, he adds. “The government should start the mega projects (infrastructural projects aimed at providing jobs for the locals),”

Thanapon urges. “This will spur the business sector as there will be more construction, more employment andmore money flowing into the system ... [which] will be good for consumption.”

Based on feedback that Varayu has received from tenants, the impact of the global economic slowdown on CentralWorld has been minimal. “Most of our products are branded and our customers are mainly high-income workers. It’s the small malls which depend on smaller brands that are feeling the pinch,” he says.

Siam Piwat Co, which runs Siam Center and Siam Discovery, tells a similar story, chalking up a 5% revenue growth in the first half of 2008 due to stable rental fees and its release of more retail space. The group is expecting the year’s figure to rise by 10% over 2007, aided by more marketing and promotional campaigns.

Meanwhile, The Mall Group, which operates the Mall Department Stores, Emporium and Siam Paragon, has projected sales of 20 billion baht in the first half-year, and 2.7-billion baht, or a 6%- 7% growth, for the full year. From the look of things, there is no slowing of momentum in Thailand’s mall development — not even in the face of economic and political problems.

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