Retailers in the Philippines benefit from rising consumer confidence


Riding the wave of consumer confidence that has remained relatively steady since the presidential election in 2016, the Philippine retail sector scores well in global rankings for development potential. With a population of 106.5m in 2018 and a growing consumer middle class, per capita GDP reached around $7700 at purchasing power parity in 2017, moving ahead of India. Furthermore, the rising smartphone penetration rate and increasingly sophisticated consumer habits are adding to the nation’s e-commerce potential.

Driven by high-growth industries such as business process outsourcing and construction, as well as remittances from the 10m-strong Filipino diaspora, the Philippines is developing an aspirational, around-the-clock consumer culture. Relatively affluent consumers are increasingly shopping at department stores and supermarkets, which are gradually gaining market share from the still dominant sari-sari shops (local convenience stores) and informal outlets. Altogether, US-based consultancy firm AT Kearney calculates the retail sector could make up to 20% of the country’s GDP by 2025.


Retail sales have grown across most categories. Data from the Philippine Statistics Authority (PSA) show total household consumption expenditure rose by 8.7% in 2017 to hit P11.6trn ($229.2bn) at current prices, up from an 8.3% increase the previous year. The largest share went to food and non-alcoholic beverages at 42.1% of the total, far above the next-largest categories of utilities (11.8%), transport (11.5%), restaurants and hotels (4.1%), furnishings (3.6%), recreation and culture (1.8%), alcohol and tobacco (1.4%), and clothing and footwear (1.1%). These proportions were relatively similar to those of 2016.

Rising incomes have boosted some big-ticket purchases. Automobile sales – a common proxy for measuring the health of consumer spending – hit a record high in 2017, with nearly 474,000 vehicles sold, an increase of 17.4% on the previous year. This rate made it the fastest-growing auto market in ASEAN. Representing the seventh consecutive year of expansion, 2017 growth may have been driven in part by people moving planned purchases forward in order to be ahead of the excise taxes that took effect at the start of 2018 under the first Tax Reform for Acceleration and Inclusion package (TRAIN). Of the total vehicle sales, 35% were passenger cars. In a further positive sign for consumer sentiment and purchasing power, premium auto brands showed some of the highest sales growth rates for 2017, notably Lexus (87%), Mercedes-Benz (68%) and BMW (33%).

Market Contours

Official data paints a picture of a well-diversified retail sector. According to the PSA’s annual business survey published in 2018, but using 2015 data, the formal retail sector consisted of just under 98,700 establishments including automobile repair shops. The largest category was clothing stores, at 8.2% of the total, followed by drug stores (6.6%), motorcycle shops (5.6%), petrol stations (4%), hardware (3.8%), groceries (3.6%) and baked goods (2.9%), with the remaining two-thirds falling in the “other” category.

In terms of employment, department stores had the largest workforce at 6.6% of the 1m retail employees, followed by supermarkets at 4.6% and hardware stores at 4.5%. However, ranked by revenue, supermarkets top the pack, generating 7.6% of the P3.8trn ($75.1bn) total sector income, followed by automobile retailers (7.4%), petrol stations (7.4%) and department stores (4.6%).

Development Appeal

Despite the rapid growth of recent years, there is still strong potential for further development. In its 2017 Global Retail Development Index, AT Kearney ranked the country 18th out of 30 top markets for its promise of returns to investors, down two positions on 2016. For market attractiveness, the first of four equally weighted metrics used to calculate this rank, the Philippines scored 33 on a scale of 100, ahead of Vietnam and Sri Lanka, but behind Thailand. Its country risk grade came in at 41 – with 100 being no risk – indicating relative stability and reasonably developed systems for investor protection, above that of other high-potential markets such as Vietnam and Russia. In regards to market saturation, it earned a score of 40, where 100 represents the least saturated environment, showing ample space for new entrants and outstripping the score of fourth-place Turkey.

Lastly, the AT Kearney report devised a time pressure metric to gauge the urgency for new retailers to enter while the best opportunities still exist: on this, the sector scored 74, where 100 indicates the highest urgency, putting it ahead of Malaysia and Indonesia. On a separate tally of overall market potential, the firm gave it a score of 47 out of 100. The size of its retail sales in 2017, at $137bn, was the seventh largest among the top 30 countries in the study.


The bulk of Philippine retailers are sari-sari stores, small informal outlets that sell everything from food to clothing to household goods. They dominate the retail scene in most places, especially in rural and low-income areas, as they tend to have the lowest overheads and are the easiest to set up and register. Along with other chain convenience stores such as Ministop, many offer routine services such as mobile phone credit and bill payments. Foreign convenience store chains – such as 7-Eleven, FamilyMart, Alfamart and Lawson – have also established a substantial presence.

Shopping malls, however, are drawing a gradually increasing share of footfall as real estate developers build large, mixed-use complexes offering retail space alongside commercial and residential areas. Developers include Ayala Corporation, JG Summit Holdings, SM Investments and Robinsons, all of which have ambitious expansion plans. Robinsons alone plans to invest almost $100m to build 10 new community malls in the less-developed but growing regions of Visayas and Mindanao between 2016 and 2020.

“The last three decades saw the unprecedented growth of retail real estate in the Philippines,” Arlene Magtibay, senior vice-president of Robinsons Land, told local media. “From a handful of shopping malls concentrated in Metro Manila, the shopping centre industry has grown to encompass all major cities in the country and even second-tier and third-tier cities.”

Major foreign retail brands are responding to this, with Sweden’s H&M being one of the most notable recent entrants since 2012. Likewise, supermarkets are multiplying: Metro Retail Stores Group aims to double the number of its stores in the five years up to 2021, while hypermarket chain Prince Philippines is looking to open four new locations. Among the largest retail groups are SM Supermalls with 65 locations, Ayala Malls with 27, Robinsons with 54, and Citymall and Walter Mart, each with 17. There have been numerous recent expansions as retail groups vie for footfall, including Vertis North Mall in Quezon City, Bonifacio High Street Central and Big Apple Mall. A new mall called Acienda Designer Outlet in Tagaytay City, which has a population of 16.5m, is being built by local developer Cathay Land and UK-based Freeport Retail, and is set to open in August 2018 at the cost of P2.5bn ($49.4m).

Investment Framework

To facilitate an increase in foreign investment, in early 2018 Philippine lawmakers proposed further liberalisation of retail trade under a new bill floated in the Senate. This would remove equity and capitalisation requirements upheld in the Republic Act 7042 of 2000, which requires paid-up capital of $2.5m for a wholly foreign-owned retail business to invest in the country. In comparison, Singapore, Indonesia and Cambodia impose no minimum capital or limits on foreign equity participation for retail investments. “These requirements, along with other barriers, have made us lag far behind our Asian peers when it comes to foreign direct investment,” Sherwin Gatchalian, sponsor of the bill and the chair of the senate economic affairs committee, told OBG. “I believe it is high time we rethink the restrictive legal framework that is deterring the inflow of potential investments.”

If passed, the new law would stimulate fresh competition and growth, leading to job creation and lower prices for goods and services. However, the proposed reform has faced some resistance, with the Department of Trade and Industry saying in March 2018 that it would oppose measures that could make it more difficult for sari-sari stores to compete in the market.

Tax Reform

A major development affecting the retail sector is the government’s flagship TRAIN, which took effect at the start of 2018. Measures included under the first TRAIN package are wide ranging, from taxes on specific goods to general hikes in excise tax. New levies on sugary drinks, for example, have seen beverages flavoured with sugar and artificial sweeteners taxed at P6 ($0.12) per litre, and those using high-fructose corn syrup taxed at a rate of P12 ($0.34), which has pushed prices up 20-40% and could dampen sales. Additional taxes on fuel and tobacco products may impact other important segments, while big-ticket items could be similarly affected by the rise in excise tax.

However, TRAIN also reduced personal income taxes and exempted those with an income of P685 ($14) per day or P20,833 ($412) per month from withholding taxes, providing a boost to discretionary incomes. Those with yearly earnings up to P250,000 ($4940) are also exempt from income taxes. Enforcement is another focus of TRAIN, which could formalise much of the grey economy. “The informal economy is huge, as an example sari sari (convenience) stores are 40% of fast-moving consumer good sales, and has stayed roughly constant for the past 10 years,” Victor Paterno, president and CEO of retail chain Philippine Seven Corporation, told OBG. “The TRAIN reform will grow the formal economy and make it harder to stay underground, broadening the tax base and boosting state revenues.”


Shopping centres in the Philippines have increasingly included entertainment facilities, in line with a rise in consumer demand for experiential shopping. The result has been the development of some of the largest malls in the world by floor area, including SM City Mall of Asia at 195,000 sq metres and SM City North Edsa at 120,000 sq metres. The former is currently undergoing a redevelopment that will see its total area grow to 670,000 sq metres. “Shopping malls have become a one-stop shop for everything: food, entertainment, a wide variety of offerings, even government offices, medical clinics, services, and chapels,” Maria Tomeldan, head of Ayala Malls Group, told local press, adding that such extras are now viewed as basics.


Signs of market buoyancy are evident in the expansion plans of both established players and new entrants, as well as increased merger and acquisition activity. In March 2018 regional grocery chain Dairy Farm International (DFI) announced plans to purchase an 18.25% stake in Robinsons Retail Holdings (RRHI) for $520m, giving it two board seats. DFI, whose sales totalled $11.3bn from subsidiaries in 2017 and nearly double that when including associates and joint ventures, would fund the purchase partly by selling its 100% stake in Rustan Supercenters to RRHI for $346m. This would give RRHI control of Rustans’ 61 supermarkets and 12 hypermarkets, adding to its own 1700 retail stores. This would assist RRHI in its plans to open another 145 stores in 2018, using these as a springboard into the e-commerce space.

In other plans, Swedish furniture retailer IKEA announced in April 2018 it would open its first store in the Philippines by 2020, at the SM City Mall of Asia in Manila. Toys “R” Us Philippines, the Robinsons-run local operations of the US-based toy store chain, announced in March 2018 its stores were profitable and would continue to operate despite the parent company filing for bankruptcy in September 2017. In addition, Alliance Global Group, a local retail conglomerate, plans to open four new malls in 2018, boosting its total to 18.


Consumer spending looks likely to hold steady, with remittances strong and average incomes rising. Furthermore, with GDP growth rates forecast to remain between 6% and 7% in the near to medium term, there will be room for retail to expand, particularly into regions outside of the capital city. However, enabling this will depend heavily on how quickly the government implements its transportation infrastructure plans.


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The Report: The Philippines 2018

Industry & Retail chapter from The Report: The Philippines 2018

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