• Rising inflation and a weakening peso will not deter Filipinos from spending in malls.
• Higher take-home pay, plus growth in remittances and the outsourcing sector, will increase consumer optimism.
• Government plans to liberalise the retail industry could limit the ability of big shopping malls to attract low-income customers.

In the Philippines, shopping malls are more than just places to shop, eat, and watch films. Filipinos also flock to them to pay utility bills and deal with government bureaucracy. Despite high inflation, we expect malls to remain a lucrative business due to greater take-home pay and growth in both the call centre industry and money sent home from abroad.

FTCR’s fourth-quarter 2017 survey of 1,000 urban Filipinos confirmed their attachment to malls. The survey showed that 11 per cent of respondents visit malls every day, the most across the Asean-5 economies.

Almost a quarter of our respondents will visit malls more often in the next 12 months, with 68 per cent saying that the frequency of their visits will remain the same. Slightly more than a quarter also said that they would spend more in malls, while almost half said their spending would remain the same.

Consumers unconcerned

This suggests that Filipino shoppers are not worried by a weakening peso, currently at an 11-year low against the dollar, or higher inflation, which in February breached the central bank’s 2-4 per cent annual target. Inflation is rising because the weak peso makes imported goods such as fuel more expensive, but also because of the rise in the price of domestically produced foods such as rice, of which there is a low supply.

The strong performance of two pillars of the Philippine economy, remittances and business process outsourcing, justify consumer optimism. Although the weak peso has increased the cost of imported products, it has also boosted the purchasing power of money sent home from abroad. Overseas Filipino workers sent home $31.3bn in 2017, 5.3 per cent more than the previous year, beating the central bank’s projection of 4 per cent growth. The sector has started 2018 strongly, with 10.4 per cent year-on-year growth in January.

Outsourcing earnings, meanwhile, grew 9.6 per cent year on year in 2017, slower than the previous year’s 12.8 per cent growth but still in line with industry expectations. The growth rate was achieved despite a sharp decline in new investment in 2017, which we expect to pick up this year.

A tax-reform law that took effect in January increased the take-home pay of middle-income workers. Come December, the law will also raise the threshold on non-taxable Christmas bonuses, giving consumers more money to spend during the holidays.

Mall operators expand

Big domestic corporations dominate mall ownership in the Philippines. As of 2017, family-owned conglomerates such as SM Investments Corp and Ayala Corp operated 185 malls, employing nearly 700,000 people. They are opening 22 new malls this year, mostly outside Metro Manila.

The two biggest mall owners have enjoyed healthy growth in the past several years and new shopping centres will boost revenues this year.

Mall operators are also finding new ways to attract visitors. For example, SM is building call centre offices beside its malls to make it easy for their employees to pop in and spend.

The opening of more shopping complexes this year shows that big companies think Filipinos would rather shop in malls than online. The Philippine Retailers Association estimates that only about 1 per cent of total retail sales came from ecommerce in 2017. We think the lack of a reliable and secure cashless payment system and an inefficient delivery system will limit the appeal of online shopping in the near term.

Government threat

Despite the healthy outlook, mall owners face a threat from President Rodrigo Duterte’s retail-sector liberalisation plan, which is widely expected to take effect this year. The government hopes to boost competition by lowering from $2.5m to $200,000 the amount that foreign retailers must invest to establish a local business.

Local retailers are concerned that a more liberalised industry would trigger an influx of cheap, lower quality Chinese retail products, commonly now found in smaller malls owned by smaller corporations. Malls owned by large corporations that typically cater for middle or upper-income consumers are unlikely to face an immediate threat. Over time, however, such corporations could find it more difficult to create a new revenue base by attracting low-income customers from smaller malls.

— Prinz Magtulis, Philippines Researcher, FT Confidential Research

Source: https://www.royalnews24.com/shopping-malls-boom-as-filipinos-shrug-off-inflation