Interview: Ashok Pathirage
What strategies are in place to advance Sri Lanka’s retail market against regional competitors?
ASHOK PATHIRAGE: The global retail industry is dynamic and the Asia region plays a strong role in retail leadership initiatives. Organised retail trade and regional branded goods are an important part of the global retail transition. Sri Lankan retailers are more strategic in balancing out their long- and short-term goals associated with product, brand and market development, and market penetration. They are mindful of global challenges – economic and political – and their impact on Sri Lankan retail trade. With a population of around 21m, the country is tilted more towards a consumption economy. This is reflected in its relatively low domestic savings ratio of 22.6% compared to its regional counterparts. Accordingly, the country’s private consumption expenditure increased by 8% during 2015, led by expansion in several categories, including clothing and footwear, with 6% growth, communications (18%) and health (23%).
Sri Lanka’s retail trade is poised to grow alongside its transition to a middle-income country. The expansion in per capita income and a growing middle class has resulted in increasing customer sophistication and a preference towards lifestyle products and aspirational luxury goods. Growth potential in the retail sector continues to be high. Its ranking rose to 12th in the 2016 AT Kearney Global Retail Development Index, up from 20th five years earlier. AT Kearney also projects retail sales per capita to grow by 6% over the next two years, driven by economic growth, increasing disposable incomes and the surge in tourist arrivals to the country.
The industry is primarily led by local retailers, who have witnessed a rapid transition to organised modern trade, which has also been supported by digital trade. However, this consumption-led economy only counts for around 4% of retail trade coming from organised players. Sri Lanka’s spending patterns resemble those within Western countries, where populations demand more lifestyle products and aspirational luxury goods.
There is a lack of retail space in Colombo to cater to the growing demands from locals as well as tourists, who spend roughly 50% on shopping and food. The rest of the country also holds greater growth potential, as the private sector now focuses on geographical expansion. Although the mall stock in Sri Lanka is limited to eight, there are more than five new projects in pipeline. Indeed, the rise of mixed-use developments – an integration of commercial, residential, recreational and institutional space – is on an upwards trend in the regional markets. Shopping malls are increasingly becoming a pastime in developed Asian countries, and we are learning to make good progress here.
What are the most important global retail trends, and how do they apply to the Sri Lankan market?
PATHIRAGE: Global retail trends are mirrored in Sri Lanka, with the country positioned as a top manufacturing base for leading apparel giants alongside a wide range of international retailers. Smart malls, luxury retailing, store makeovers, industry consolidation, the home improvement market, e-commerce and social media are all trending globally.
These trends will become integral to a growing economy like ours. In the apparel segment, our seasonal ventures are in line with international trends, while our electronics division ensures the latest model of the brands is available. The expansion of our mall stock, far below regional benchmarks, is well under way, with more than five such projects in progress.
How far can logistical improvements boost existing retail opportunities and create new ones?
PATHIRAGE: The retail industry in Sri Lanka is in its infancy. Retail space and logistical improvements are presently our strategic platform for growth. The present regime has taken steps to encourage private sector-led growth by minimising barriers for foreign direct investment and improving the ease of doing business.
Read More from OBG
