Retail in the Philippines set to soar and spread

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Strong economic growth is boosting consumer purchasing power in the Philippines, driving retail sales and creating opportunities for investment by both local and international chains.

In January the Philippine Retailers Association (PRA) announced it expected double-digit retail growth in 2013, following a 10% rise last year. According to Paul Santos, national vice-president of the PRA, the sector will be worth PHP1.61trn ($40bn) by 2016, up from PHP1.43trn ($30bn) in 2011.

While many Filipinos still patronise traditional outlets like sari-sari stores, the number of modern grocery stores is growing, and buying habits are changing. A report from market research firm Nielsen, released in June, found that shoppers now opt for smaller, more frequent outings to chain stores, rather than buying in bulk.

“We were supposed to have 200 stores across the country by the end of 2015, but now we’re predicting that for the end of this year,” Leonardo Dayao, president of supermarket chain Puregold, told OBG, estimating that modern retail penetration sits at 22-25% on average nationwide and 40-60% in urban Manila.

Dayao added that there can be a first-mover advantage in smaller, less-penetrated markets. “The presence or non-presence of a national brand is really something to consider. The major urban centres definitely have the national brands, but in second-tier cities which do not host yet any of these national brands, there is a very good opportunity for investment,” he said.

Officials from international retailers have also highlighted the benefits of operating in the Philippines. In July 2013 Ian Wade, executive advisor to Sainsbury’s, the UK’s second-largest supermarket chain, said the retail sector needs to market itself more to international brands, praising the Philippines as offering many advantages compared to its nearby markets. Speaking at the National Retail Conference and Stores Asia Expo, Wade said the Philippines offers better value for money than neighbours like Hong Kong, according to local media.

“It has a greater variety of stores than most countries; some of the biggest malls in the world are all in one city. From a retail point of view, the Philippines has a lot to offer,” Wade said.

This is good news for the host of international retailers hoping to make waves in the Philippine market. In March 2013 fashion chain H&M announced it was in the final stages of entering the country, joining other top brands including Forever 21 and Japan’s Uniqlo, which plans open at least 50 stores in the country by 2015.

Outside of brick-and-mortar stores, online shopping holds potential for retailers in the Philippines. Although less than 3% of Filipinos shop online, the PRA has been pushing e-commerce as a new avenue for retailers.

The e-commerce industry is worth around PHP3bn ($70m), according to PRA vice-president Santos, and strong growth is expected as internet users increasingly use tablets and smartphones to access web-based shopping services. Online retailers have taken note, and the e-commerce sector has been bolstered by the recent entry of new players, including auto retailer Sulit and Singapore-based penny-auction site Soldgers.

However, online sellers face challenges, including finding the right payment mechanism. Credit card usage is relatively low, with 2.5m card holders. According to Inanc Balci, co-founder and managing director of Lazada Philippines, an online shopping website, consumers are likely to use the internet to research purchases but hesitate to carry out transactions online. In response, Lazada has introduced cash-on-delivery to eliminate the need for a bank card, he told OBG.

Growth in online shopping is just one important change in a rapidly changing retail market, as consumers continue their shift their purchases from informal outlets to chain stores, both local and international. With strong economic growth and a rise in purchasing power expected to continue, the Philippines represents an important new market.

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