With families increasingly choosing to live independently and with incomes rising, particularly upcountry, Thailand’s home improvement segment has emerged as a dynamic and particularly competitive one. In greater Bangkok alone, an estimated 80, 000-100,000 new houses and some 30,000-40,000 new condos are registered every year.
RAPID EXPANSION: The home improvement industry, which covers everything from hard goods such as construction materials, bath and kitchenware, to electrical appliances and soft goods, has rapidly grown in recent years, driven primarily by increasing competition across the country. The modern segment, which accounted for a predicted 36% of the total BT140bn ($4.46bn) trade in 2009, with traditional stores making up the rest, grew an estimated 8% in 2010, according to several leading local companies, including HomePro. Kasikorn Research Centre forecasts the market to expand at an average of 20% a year over the mid-term, while the home furnishing market is expected to rise to BT60bn ($1.91bn) in 2012, up from the BT55bn ($1.75bn) recorded the previous year. Part of the demand stems from new housing, but renovation of existing units makes up the bulk, at an estimated 70%.
It is here in particular that government policies to support the property market and boost disposable income – under both the Democrat and Pheu Thai administrations – has borne fruit. Although off to a slow start in 2012, mortgage incentives for first-time home buyers that were introduced by the government in 2011 are also likely to contribute. Growth has been especially sustained upcountry, in the north and north-east of Thailand.
HEATING UP: The traditional leader in all segments of the market, Home Product Centre, is facing stronger competition from smaller networks in specific segments. The established groups in this segment – HomePro, Siam Global House, Central Group’s Power Retail, Index Living Mall – are all aggressively expanding their reach and are banking on sustained growth in the provincial centres.
HomePro has established a leading network of 43 outlets, leveraging the strongest economies of scale in this segment. The retailer has long focused on meeting demand in the provinces, with only 19 of its stores located in greater Bangkok. Having already opened five new stores in 2011, it is investing BT2.5bn-BT3bn ($79.75m-$95.7m) in eight new outlets in 2012 – seven of which will be upcountry – and expects to reach 60 by 2014. The firm is also studying a potential first venture abroad, in Malaysia. The company sells roughly 60,000 products, which span the full range of home improvement goods. These strong economies of scale will likely continue to lead the market. Yet, whilst soft goods have led HomePro’s recent organic growth, the firm is facing keener competition in building and construction materials, as well as in home decoration.
Siam Global House has grown from its original base in the north-eastern province of Roi Et in 1997 to establish a strong presence upcountry. The retailer, of which the Suriyawanakul Group holds a 65% stake, is an aggressive second in construction materials (which make up about 40% of the company’s total sales) and decorating supplies (60%). It has opened four new stores a year since 2011, and expects to have a total of 19 stores by the close of 2012. The company is mainly targeting provincial centres such as Nong Khai, Nakorn Ratchasima and Sakon Nakhon. The four new stores will add 34% to its saleable area, to reach 332,858 sq metres by the end of 2012. Siam Global is quickening its expansion (up from an average of 1.6 new stores a year) in a bid to reach similar economies of scale as HomePro. It already wholesales 27% to traditional stores, government agencies and contractors, and retails 73% to individual consumers, adopting a similar low-frills approach. Alongside HomePro, Siam Global has been benefitting from rising incomes upcountry.
Two other key competitors in the construction materials and decoration segment are subsidiaries of Central Retail Corporation’s (CRC) Power Retail – Thai Watsadu, specialising in construction equipment, and HomeWorks, in home improvement. CRC is joining the rush to the provinces, investing BT6bn ($191.4m) in 2012 to open 10 new stores, under both brands. It already opened four new outlets in 2011 (two of each brand), up from only one in 2010, and hopes to catch up with the economies of scale of its competitors in coming years. Individual customers account for some 70% of the group’s sales, while contractors make up 25% and wholesale 5%.
Revenue has already been growing fast, with total sales of BT5.4bn ($172.3bn) in the first eight months of 2011, up 60% year-on-year – 10% of this came from sales at existing shops. Higher spending per customer has been the main growth driver. Though the number of customers shopping at CRC Power Retail’s two chains has dropped by 3%, average spending has grown 10% annually to BT1900 ($61). The company aims to double the number of stores to 18 by 2013, bringing sales to an expected BT7bn ($223m). Whilst the network of both brands still trails far behind the two market leaders, Central Retail has no plans to catch up with its competitors over the longer term.
FURNITURE: Ikea’s launch in November 2011 will have a marked impact on Bangkok’s furniture segment. Sweden’s Ikano holds 49% of the joint venture, SF Development, with Siam Future. The store welcomed 1m customers in its first month alone, and the group intends to open an additional two stores in the capital within the next five years. But in contrast to other markets, Ikea has particularly appealed to bigger spenders thus far. “Upon opening in November 2011, we were surprised to see that higher-end goods were more popular than the lower segments, which are typically the highest-selling in other countries,” Christian Olofsson, the president and shopping centre manager of SF Development, told OBG.
HomePro, however, emphasises that furniture accounts for only about a quarter of sales. It has in fact adopted a collaborative approach to the Swedish group’s entry onto the market, by signing on as one of five anchor tenants of Siam Future’s Mega Bangna development alongside Ikea.
Index Living Mall and SB Furniture have already carved out a strong niche in home decoration and furniture for themselves and are hoping to eat into HomePro’s share moving forward. Crystal Design Centre opened its flagship mall in the Bangna Trad area alongside all of the major chains’ outlets and has popularised home improvement and decoration for the higher end of the market.
POST-FLOOD REPAIR: Home improvement specialists were affected in the same ways as other retailers by the severe floods in late 2011, mainly through shop closures and interruptions to supply chains. Rather than experiencing a usual rise in sales in the final quarter of the year, retailers saw a marked contraction, according to KRC. The slowdown was particularly sharp as the floods affected the country’s central plains, the logistics and production centre for Thailand’s furniture industry and retailers.
Yet analysts are predicting a sharp jump in sales in 2012 that will more than compensate for the drop in 2011: an estimated 700,000 houses have been damaged, which all require repair. In addition to disbursing BT5000 ($158) per affected family, the government has earmarked BT5bn ($159.5m) of the total BT20bn ($638m) lent by the Government Housing Bank to finance home repairs in 2012. This will be split up into loans of up to BT100,000 ($3190) without collateral and BT300,000 ($9570), with no interest for the first three years. The bank has partnered with HomePro for home repair loans that will be used to buy furniture at the chain.
Even before post-flood reconstruction further stimulated the sector, home improvement had emerged as one of the drivers of growth in retail overall. The expansion in modern trade across Thailand, coupled with a shift in lifestyles towards independent living in the provincial centres, has captured the attention of home improvement retailers. This growth phase for home improvement is likely to sustain strong returns for investors for years to come.
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