Foreign brands influx into Phl retail market

Three months ago, I wrote about the hazy prospect of resolving the huge backlog in providing housing for the underprivileged and homeless citizens: 5.5 million units today, projected to rise to 12.5 million in 2030. Private housing developers gripe that the government is passing the burden to them.

Now let’s look at the other face of the coin: the private land development/construction sector, where the major players are raking in billions in profits and aggressively expanding.

Their focus isn’t on mass housing for the homeless. It’s on high-end villages, residential and office-space towers, malls, and hotels. Now they are muscling into the retail business outside the malls.

“Exciting things” are happening in this sector, observes Manny Villar, the former Senate president who has refocused on growing his property-development enterprise and enjoying the adrenalin rush. “The big players, the tycoons,” he exults, “are continuously expanding their operations and reach through acquisitions (buy-ins/buy-outs)or organic expansion, and are taking their capital to many provinces outside the metropolis (Metro Manila).”

In the last five weeks Villar has surveyed these developments in his weekly column in the daily Business Mirror. It’s interesting and instructive to review what he has written, which he describes as “a kind of hands-on take on the economy… based largely on personal observations and experience.”

Let’s look at the retailing business. Villar says it “reflects the explosive excitement of tycoons, including other investors, domestic and foreign.” He mentions, among the big players in retail, SM, Robinsons, Puregold, Ayala, and Rustan’s Group.

Although the traditional sari-sari stores still account for about 70% of the national retail market, he quotes A.T. Kearney (a global management consulting firm) as saying that “modern retailers are making headway” in the Philippines. Specifically, numerous international brands are being introduced in the local retail market, either via domestic retailers or the parent firms abroad.

Retail sales will grow more than 10% yearly until 2018, Kearney projects, mainly because rising disposable incomes push up sales in nonessential items, such as apparel and luxury goods. It expects that the sales drive will extend to Southern Tagalog, Central Luzon, Central Visayas, and Southern Mindanao.

Seconding Kearney’s projection, Lamudi Philippines (a global property portal) predicts that “retail could be the next big thing in the local real-estate industry.” It cites World Bank data showing Filipino per-capita GDP rising from $2,480 in 2009 to $3,270 in 2013.

Here’s how the big players have thus far ventured into the retailing business:

Drug retailing: Ayala Corp. has acquired 50% of Generika, one of the country’s largest drugstore chains (360 stores nationwide), which specializes in generic medicines. Ayala made this acquisition after partnering with the Daniel Mercado Hospital Group, which will build a chain of hospitals and satellite clinics in Ayala’s various property-development projects.

• Rustan’s Group, through partner Jardine Matheson in Hong Kong, has acquired 49% of Rose Pharmacy, a Cebu-based chain of 238 drugstores.

• Ahead of Ayala and Rustan’s, Henry Sy’s SM was already operating the Watsons Personal Care Stores chain, and John Gokongwei’s Robinsons, its stand-alone South Drug chain of outlets.

Convenience stores: Ayala Land Inc., in a joint venture with Rustan’s Group and the conglomerate Itochu, will “roll out” 100 outlets of FamilyMart, a Japanese convenience-store chain. 

• Robinsons Retail Holdings Inc. has allotted P6 billion this year to build 300 of its own Mini-Stop convenience stores and mini-supermarkets, focusing on areas outside Metro Manila.

• Convenience store pacesetter 7-Eleven (1,341 stores) has budgeted P3 billion this year for expansion to maintain its leadership amid growing competition. Besides FamilyMart and Mini-Stop, four other brands are reportedly coming in: All-Day, Circle K, Alfamart, and Lawson (a Japanese outfit).

Besides the foreign brands already mentioned, Villar names many others as either already having entered or are planning to go into the Philippine retail market. In 2013, these brands came in: American Eagle Outfitters (clothing), Claire’s (international jeweller), Tous Les Jours (Korean bakery), and Welcome (HK supermarket).

A study by property consultant CBRE includes Metro Manila among the 15 cities most preferred as destinations for the expansion of global brands, with 24 retail brands coming into the country this year. (The rest of the 15 cities are Tokyo, Singapore, Abu Dhabi, Taipei, Dubai, Istanbul, Doha, Beijing, HK, Toronto, Berlin, Stuttgart, Moscow, and Paris.)

Villar mentions the following: international food brands Burgoo and Coffee Bean have opened new outlets at his Starmall Prima in Taguig; Gap (clothing) set up added stores at Shangri-la Mall and Fairview Terraces; at the UP Town Center, these global food brands are now in business: Sbarro, Pepper Lunch, Ramen Nagi, Penguin, Sperry, Onitsuka, and Stansbury.

At the City of Dreams casino in Manila, Melco Crown has brought in Porsche Design, Rolex, Stuart Weitzman, and Linda Farrow.

Local retailers, reports Lamudi Philippines, have brought in several foreign fashion brands, including Uniqlo, Bershka, Cotton On, Old Navy, Aeropostale, and H&M. Uniqlo, (a Japanese brand), plans to increase its 11 stores in Metro Manila, Cavite, Batangas and Pampanga by 50 more this year, and will expand into the Visayas.

Villar acknowledges that the global brands are competing with locally produced consumer items. Rationalizing their influx, he writes that “luxury items have become affordable to more Filipinos as the middle class expands.”

However, there’s much more to the downside of this trend that requires serious examination.

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