The favourable combination of strong sustained growth, a young and increasingly affluent middle class, and high consumer confidence are combining in the Philippines to create one of the most robust retail sectors in South-east Asia. With the Philippines’ growing population now exceeding the 100m mark, 6.6% GDP growth in 2016, lower inflation rates and a healthy consumer-driven market, the country presents significant opportunities for retail products and services for both well-established domestic players and international brand names.

This economic growth is underpinned in part by overseas workers’ remittances, which totalled $26.9bn in 2016, up from $25.77bn the previous year, along with a strong services sector driven by a business process outsourcing (BPO) industry that should continue to fuel increasing levels of disposable income and consumer spending. At the same time, headline inflation has remained in check, with 2016 levels holding steady at 1.8%; however, Bangko Sentral expects that number to increase to 3.4% in 2017.

In addition to these positive economic and demographic factors, the market has the added bonus of being a largely westernised culture with an English-speaking population. This background is particularly attractive for foreign and international brands due to the greater ease of marketing and doing business in the country, as well as the openness of consumers to adopt international brands and practices compared to other markets in the region.

Moving Up

The tangible effects of these positive growth factors have resulted in Philippine retail sales spiking 10.6% year-on-year in the first half of 2016, a significant jump from the 6.9% growth experienced during the first half of 2015, according to data from the Philippine Statistics Authority (PSA). Wholesale trade also edged upward over the same period, up 8.6% compared with the 7.7% growth registered the previous year. Retail and wholesale sales for the first six months of 2016 totalled P928.6bn ($19.6bn) and P229.6bn ($4.9bn), respectively.

This trend is expected to continue in the near future, with the Philippine Retailers Association (PRA) predicting the retail sector will account for nearly one-quarter of the country’s GDP by the end of 2016. “Data from the PSA reported that retail trade contributed 18% to the national output in 2015, a significant increase of 5% from the year 2014,” Lorenzo Formoso, president of the PRA, told local press in June 2016. “With the 6.9% GDP growth in the first quarter of the year, we can expect a brighter future ahead with rising retail sales growth to be buoyed by the strong private consumption and election spending. So from 18% [contribution to GDP in 2015] hopefully we get to the levels of 23% to 24% this year,” he added. Meanwhile, according to other estimates by AT Kearney, total retail sales for 2016 were projected to reach $134bn with the sector expected to make up 20% of the country’s GDP by 2025.

Modernising Marketplace

Although this growth extends across all subsectors of the retail segment as a whole, grocery retailers continue to have the most impact on the economy due to the category’s more diverse offerings of day-to-day essentials, which the satisfy the bulk of consumption needs for the vast majority of Filipino consumers. As such, retailers remain heavily committed to providing increased access and product diversification for items such as food and beverages, beauty and personal care, home care products and so on.

These offerings have in the past been amalgamated and sold at traditional sari sari stores – often family-run, neighbourhood convenience stores offering a diverse array of goods ranging from food and beverages to household goods and clothes. More recently, these operations are being supplanted by a modernisation and consolidation trend sweeping the sector with a handful of stakeholders playing increasingly key roles. The Philippine retail sector is currently dominated by four major players – SM Group, Ayala Corporation, Robinsons and Rustans. Already secure in their roles at the top of the food chain within the industry, these companies continue to consolidate their positions by acquiring smaller players both in major metropolitan strongholds as well as in less saturated areas of the country. Smaller businesses operating in the grocery, electronics, appliances, and home and garden segments have been particularly popular targets for the big four as of late, with a host of buyouts taking place in recent years in a bid to reduce competition, particularly in regions where they have yet to make significant inroads. These retailers are at the same time investing billions in new malls and other outlets to bolster their nationwide presence. Robinsons, for example, is set to invest nearly $100m in 10 new community malls by 2020. At the same time, local hypermarket, supermarket and department store operator Metro Retail Stores Group is planning on more than doubling its number of outlets over the next five years, while hypermarket chain, Prince Philippines has likewise announced plans to open four new stores by the end of 2017.

Global Attention

The ongoing attractiveness of the Philippine market, combined with the slowdown in other comparable regional economies, has not gone unnoticed by international brands and retailers. The country was ranked as the 16th most attractive retail market in the world among developing countries in AT Kearney’s 2016 Global Retail Development Index, which ranks the top-30 developing countries for retail development based on relevant macroeconomic and retail-specific variables including market size, country risk, market saturation and time pressure. The index score for the Philippines was 47.7; by comparison, the index leader, China, scored 72.5. The Philippines was positioned between Columbia at 15th and the Dominican Republic at 17th but was ranked below regional competitors China (1st), India (2nd), Malaysia (3rd), Indonesia (5th) and Vietnam (11th).

Many foreign brands – mainly from modern grocery retailers, food vendors, and apparel and footwear specialists – are choosing to partner with well-entrenched local distributors in order to take advantage of local knowledge of the retail scene and business networks, rather than go toe-to-toe with domestic competitors. Swedish apparel brand H&M, for instance, opened its largest store to date in the country in Cebu in late 2015 as part of its expansion strategy outside of Metro Manila.

A handful of other international brands also made their initial foray into the Philippines in the second half of 2016, including Singaporean food and beverage company Pezzo Pizza, Canadian clothing apparel brand Joe Fresh, Japan-based lifestyle goods company Miniso, and two US-based food and beverage companies; Texas Roadhouse and Pink’s Hot Dogs. Numerous other international chains continued their expansion in 2016 as well, with new food and beverage retail locations opening up in the second quarter for Zac’s Burgers, Baskin-Robbins, Ippudo, Sweet Ecstasy, The Original Pancake House, Sizzlin’ Steak and Sarsa Kitchen & Bar, as well as non-food brands including Fitflop, Samsung Experience Stores, Promod, Bobbi Brown and Estée Lauder.

Expansions are not limited to just brick-and-mortar outlets, as the country’s increasingly wired and tech-savvy population continues to turn to the internet for its purchasing needs in increasing numbers. Looking to serve this growing demand, a number of large e-commerce operators are stepping in, such as Thailand’s leading online retailer Ascend Group, which launched the shopping platform and German-owned, e-commerce company Lazada also making inroads in the online retail industry.

Prime Location

Shopping in the Philippines is evolving away from a purely utilitarian endeavour to an activity unto itself. With the rise of entertainment and socialisation opportunities in retail settings, shopping centres and developers are rapidly expanding their offerings in a bid to attract in an ever more inclusive cross section of consumers. This growing interest in commercialism has resulted in the Philippines now being the location of three of the world’s largest shopping centres based on floor area: SM City North Edsa, SM City Mall of Asia and SM City Megamall.


In 2016 the country’s appetite for malls and mega-malls showed no signs of abating, with no less than eight major new malls or mall expansions slated for completion in the greater Metro Manila region in the second half of the year: an expansion of the Festival Mall in Alabang, Vertis North Mall in Quezon City, Southpark Alabang in Alabang, an expansion of SM City Mall of Asia in Pasay City, SM City East Ortigas in Pasig City, Ayala Malls the 30th in Pasig, and Bonifacio High Street Central and Big Apple Mall located in Bonifacio Global City.

Taken cumulatively, the greater Metro Manila area was estimated to have added an additional 395,300 sq metres of retail stock in the second half of the year, following the 33,000 sq metres added in the second quarter of 2016 as a result of the completion of the second phase of development of Up Town Centre located in Quezon City. This expansion trend is primed to continue in the near future, with an additional 570,000 sq metres of new retail space projected to hit the market from 2017 to 2019. In spite of this ongoing proliferation of new retail areas, demand is strong and occupancy rates remain high in the Metro Manila area and other secondary cities.

Outside large-scale shopping centres, the growth of smaller retail outlets such as convenience stores and food and beverage outlets is also expanding quickly. These are taking place not only in the form of standalone outlets, but also piggybacking on the expansion of office space. This ongoing proliferation of commercial areas has spurred demand for convenience stores, as evidenced by the numerous branches found within the vicinity of office developments, particularly in labour-intensive BPO centres. These new sites have proven to be fertile ground for growth of retailers such as 7-Eleven, Family Mart and Ministop. Japanese convenient store Lawson, a recent entrant to the market, has partnered with local retailer Puregold Price Club to tap into the Philippine market, having opened its first store in Makati in 2016. Together they are planning on opening 50 more in 2017 and expect to have over 500 stores by 2020.

Another Player

Outside of the greater Metro Manila area, Cebu has received significant attention from developers in recent years as a provincial capital. In the second half of 2015 this culminated in the addition of approximately 600,000 sq meters of new retail space to the market in order to tap into the growing spending power and increased tourism in the so-called Queen City of the South.

The two most prominent additions were SM City Seaside and Robinsons Galleria Cebu, which accounted for a combined 432,000 sq metres of new stock, along with smaller retail strips such as Axis Entertainment Avenue and Vibo Place. These new upscale retail spaces have in turn fostered the arrival of numerous international brands into the market including, H&M, Forever 21, Cath Kidston, Uniqlo, Mango, Lacoste, Clinique, L’Occitane en Provence, Baskin-Robbins, Cotton On, Sfera and BreadTalk.

Of the new retail space that opened in the second half of 2016, specialist clothing stores were the most prolific category, accounting for 37% of the market, followed by mid-range fashion with 18%, coffee and restaurants (17%), value and denim (10%), and the remaining 18% accounted for by various other segments. A strong line-up of prominent international brands is also moving forward with plans to open outlets in Cebu, including Jelly Bunny, Dorothy Perkins, Burton Menswear London and Kyochon.

The next city on the brink of a retail development breakout is likely to be Davao City, the provincial capital of Mindanao and long-time residence of former Davao City mayor and current president, Rodrigo Duterte. Home to a large and growing affluent population, the area is now a prime target for investments from major retailers, including Philippine Seven Corporation, the local 7-Eleven operator.

Driving Aspirations

The expansion of fast-moving consumer goods is not the only segment experiencing high growth levels across the county. One aspirational product currently driving demand in the Philippines is the automobile market. Preferring to face hours of traffic jams in the comfort of their own vehicle rather than braving often crowded and unreliable public transportation, the Filipino appetite for the automobiles has fostered double-digit sales growth for years. Mirroring growth trends previously exhibited in other countries throughout the region, vehicle sales jumped once the GDP per capita of the Philippines crossed the $2500 threshold, which was first exceeded in 2012 and stood at $7318 per capita as of 2016. In the years since sales have surged to more than 288,000 units in 2015 with another 359,572 vehicles purchased in 2016. This places the Philippines at the forefront of auto sales in the region in terms of growth rates, with vehicle purchases surging by 24.6% in 2016, a rate bested only by Singapore’s 41% expansion and Vietnam’s 29%. With strong investment and financial indicators pointing towards further economic growth in the country, automotive sales are expected continue to grow to as much as 500,000 units per year by 2020 even as urban areas become increasingly congested with traffic.

A Taxing Proposal

There is one potential hiccup in this forecast growth, however, in the form of potential changes to the country’s tax code, which could levy more substantial fees on automobile owners. Some provisions proposed in the government’s tax overhaul include increasing the value-added tax base. While this would cause a minor impact on the price of cars in the country, more substantial provisions include an adjustment of excise tax levied on automobiles as well and an additional fuel tax. The tax proposal, sent to Congress by the Department of Justice, includes a provision to boost the excise tax on passenger vehicle imports, with some exemptions for commercial and mass transportation vehicles.

A significant impact would be felt on the lower-cost models valued at P600,000 ($12,700) or less, which are consequently also the most popular vehicles on the market. Under the new tax scheme, import taxes would more than double for low-end vehicles from the current rate of 2% to 5%. From this level, the tax would progressively increase, with vehicle value starting at a flat P12,000 ($254) plus a additional 20% for vehicles costing in excess of P600,000 ($12,700). Vehicles costing between P1.1m to 2.1m ($23,270-44,420) will pay P112,000 ($2370) plus 40%; while vehicles over P2,100,000 ($44,400) will pay P512,000 ($10,800) plus 60%. In addition to the excise tax changes, a proposed increase in fuel tax could further dampen demand for new vehicles as the cost of operation increases. This would be levied with a P10 ($0.21) excise tax on lubricating oils and greases, waxes and petroleum, regular petrol, leaded premium petrol and aviation turbo jet fuel; and P6 ($0.13) on processed gas, denatured alcohol, kerosene, diesel, liquefied petroleum gas, asphalts and bunker fuel.

Not surprisingly, the proposal has been poorly received by the country’s automobile industry. “It will always dampen demand. Any change in the structure of pricing affects the demand,” Dante Santos, vice-president of the Chamber of Automotive Manufacturers of the Philippines (CAMPI), told local press in October 2016. “Even market acceptance will need to be refocused. Acceptability of the pricing will have to be looked into. It takes time to adjust.” Should this come to pass, Rommel Gutierrez, president of CAMPI, told OBG, that automobile sales could be curtailed by as much as 30-35% per year. This would not only have a significant effect on automotive spending, but could also potentially derail efforts to bolster domestic automotive manufacturing (see analysis).


Retailing in the Philippines is expected to significantly grow alongside the continued expansion in the economy as strong macroeconomic fundamentals and favourable demographics provide a solid base for retailers to come into the country. The increasing levels of disposable income across a broad base of the population will provide the means for greater purchases of basic food and non-food items, while the growing and increasingly cosmopolitan middle class should foster further demand growth for automobiles, international brands, luxury goods and other specialty products. Baring any major downturn in the economy or shift in policy, the retail sector is projected to account for as much as one-quarter of the country’s GDP going forward.

The one significant factor that could have a substantial effect on the retail market in the near future is the final composition of the new government’s plans to reform taxes, which include proposals to lower personal income tax and alter other income tax exemptions, increase excises taxes on certain goods, increase fuel tax and alter the value-added tax rate.