Having posted sales increases of up to 15%, Thailand’s retailers are looking to build on the strong performance of the past year as they look ahead into 2011. Concerns over lingering political tensions and instability in the global economy, however, could tone down the ringing of cash registers in 2010.
Despite slowing in the middle months of the year, when it technically slipped into recession, Thailand’s economy grew by 7.8% in 2010, a rate it is not expected to match in 2011, with most official forecasts putting GDP growth in the 3.5 to 4.5% range. Even then, with the country’s export trade crucial to the economy, this increase will depend to some degree on the continued recovery of Thailand’s major trading partners. In its latest report, issued on February 21, the National Economic and Social Development Board said growth would be driven by a continued rise in private consumption, along with a 12.5% increase in exports.
Though the overall economy’s prospects for this year are somewhat muted, at least when compared to 2010, Thailand’s retail sector is generally positive, foreseeing strong growth in sales this year. The Development of Thai Capital Retailers Association (DTRA) has predicted a double-digit increase in profits for 2010, along with an increase in the number of retail outlets opening their doors. Small-scale businesses such as mini-marts have a particular focus on expansion, adding more branches to be more accessible to buyers in different regions of the country.
The increase in sales and earnings will be driven by a number of factors, according to a statement issued by the association in mid-January. Higher returns for agricultural produce, a rise in the minimum wage and the salaries of civil servants are all expected to boost the public’s purchasing power, resulting in more consumer spending.
According to Kobchai Chirathivat, the CEO of Central Group, Thailand’s largest retailer, there has been a shift in the local industry’s focus. With consumer spending on the rise, the sector is increasingly looking to support shoppers’ desire for convenience.
Speaking to OBG, Kobchai said that part of his group’s strategy was building the one-stop-shopping concept. “If a mall doesn’t have everything under one roof, then it tends to lose out over the long term,” he said. “We have seen a few cases where a mall is developed that provides some services and products, but then loses out when another mall with a more complete offering opens.”
Central’s strategy seems to be paying off, as the group saw rise 15% in 2010 and forecasts of a 12% increase this year. This success has spurred plans to invest BT20bn ($655m) to expand its retail business, with more than half of this to be dedicated to new shopping developments.
Another major project set to open its doors early next year will be the Mega Bang Na retail complex that will cover an area of 180,000 sq metres. A joint venture between Siam Future Development and Ikano, the Singapore subsidiary of Swedish furniture firm Ikea, the BT10bn ($328m) centre will have some 400 outlets when completed in March 2012. The partners are expecting an annual footfall of up to 40m customers a year, and it is hoped that the Thai Ikea will be as successful as the Malaysian branch, which is now the third-most visited Ikea store in the world.
The DTRA’s optimism seems to be mirrored by the general public. Driven by expanding GDP and increased disposable incomes, consumer confidence is on the rise, with data issued by the University of the Thai Chamber of Commerce in mid-February showing the January index hitting a four-month high of 72.6 points.
Consumer confidence can be a fragile thing, and any forecasts for the Thai economy, especially predictions for the retail sector, are dependent in part on continued social and political stability.
In mid-2010 consumer confidence levels crashed, with record falls seen in April and May at the height of the political unrest, a time of demonstrations and the occupation of part of Bangkok’s main business and retail district.
Retailers and analysts alike are warily eying the lead-up to this year’s general election, which many expect will be called before June. Though an election campaign can generally be expected to pump money into the economy, with the retail sector being among the chief beneficiaries, there are concerns that this year’s elections could spark a new wave of protests. A return to political unrest could further harm retail sales by keeping the public off the streets.
That said, Thailand’s retailers actually managed to increase sales in spite of the political turbulence during 2010 and given the country’s strong economic fundamentals, they look well placed to turn in a repeat performance this year.