If
retail spending and new shops are a guide, the recovery
is well under way
More choices, lower prices
Sukanya Jitpleecheep
Customers reached deeper into their
pockets during 1999, more confident that better times lay ahead
and deterred from saving by low interest rates.
They were lured by Thai and an increasing number of foreign retailers
offering a bigger selection of products than before and at more
competitive prices.
Government forecasts put economic growth at 4% in 1999, and private
consumption alone accounts for 54% of gross domestic product.
Consumer spending, a strong barometer of confidence in the future,
is slowly but steadily recovering with the index growing by 10.4%
in July this year, compared with a year earlier, and by 13.3%
in August.
The
rise in consumer spending, said an analyst, was due to a sharp
decline in interest rates, the recovery of stock prices and value-added
tax reductions. With low interest rates in banks, there is less
reason for Thais to put their baht in the bank. Those lucky enough
to hold shares feel more wealthy. There is also a growing sense
in general that the worst is over, fuelled by rising foreign reserves,
robust government spending and new-found confidence by many that
they will still have jobs tomorrow.
'I think people's confidence is back. They believe the Thai economy
would not get worse, so they are ready to spend,'' said Suthichart
Chirathivat, president of the Thai Retailers' Association.
Positive Indicators
Thailand's retail business enjoyed 10% growth in 1999, with discount
stores reaping in the most gains, and is poised to maintain its
competitive edge in the long run.
The Big C Supercentre turned a profit of 30.2 million baht, after
incurring a 96.9-million-baht loss a year earlier. Siam Makro
Plc posted a net profit of 146.5 million baht in the third quarter,
a 37.5% increase on the same period of 1998.
Rising retail sales give Central something to celebrate
According to an analyst, sales at supercentres account for more
than 40% of total retail store sales, or 91 billion baht from
total sales of 212 billion baht. Sales at modern retail stores
account for less than a fifth of all retail sales in Thailand.
This spells opportunity, and major retailers, such as Watson's,
Tesco-Lotus and Boots, have been opening stores left, right and
centre, and occupancy rates in shopping complexes have increased.
Department stores reported better sales in the third quarter
of the year, particularly of cosmetics, apparel and electrical
appliances, which were as much as 10% higher than in the same
period last year.
The big boys
Discount stores in Thailand have made a much bigger presence
in Thailand. To date, there are 63 stores, including cash and
carry, compared with 50 in 1997. In March, Central Retail Corporation
(CRC) reached an agreement to sell 68% of its stake in Big C Supercentre
Plc, the discount store chain, to Casino, a French retail group.
As a result, the holding of CRC in Big C was reduced to 13% from
81%.
The sale of Big C was made after CRC shed its holding in CenCar
Ltd, the local joint venture operator of Carrefour hypermarket
stores, late last year. The French partner now has 100% equity
in the local hypermarket subsidiary. In the same segment, CP last
year sold its majority stake in Lotus Super Centre to UK-based
Tesco.
New heights
These foreign retailers have taken the industry to greater heights,
with their more sophisticated technological and service know-how.
Michael Raycraft, chief executive of Lotus Supercentre, sees
good potential for discount stores to grow. The entry of foreign
retailers is likely to influence trends in the overall retail
market because competition in discount stores and hypermarkets
will intensify.
'The greatest benefit from the entry of foreign retailers is
that consumers will be able to buy cheaper goods because they
have better management systems that can control all operating
costs and the finished output,'' Mr Suthichart said.
Keeping
up
Increased competition from the big boys is keeping small and
medium-sized retailers hard at work. Those who refuse to adapt
and change to suit the changing retail environment will die quickly.
But more competition is not deterring the smaller retailers.
Mahboonkrong Shopping Complex, Home Fresh Mart and Robinson have
invested in making outlets more attractive and promotional campaigns.
More than 25 billion baht was spent on outlet expansions and renovations,
marketing and promotions.
There has also been a growth in the number of convenience stores
as a result of franchise fees being halved by operators such as
7-Eleven and Family Mart.
Starbucks coffee chain made a successful entry despite
the recesson
In addition, retailers are competing on the basis of price, followed
by variety of merchandise and services. Thai retailers have to
tap niche markets while avoiding direct competition with bigger
foreign operators.
While foreign stores such as Watson's, Boots, Carrefour, Tesco-Lotus
and Big C choose to obtain products locally, Villa Supermarket,
the only Thai-owned supermarket, differentiates itself by offering
imported products, and focuses on foreign and middle- and upper-income
Thais. Villa Supermarket has also formed an alliance with western
partners for the first time after three decades of going solo.
Villa joined with US-based International Grocery Alliance (IGA).
Teaming up with IGA allows Villa to tap information on groceries
worldwide and to develop its management system or adopt the best
practices from overseas.
To keep up, small and medium-sized retailers have to step up
market research and develop sophisticated information technology
systems to get to understand their customers better, or enhance
their positions by improving service, particularly with product
and price guarantees.
Talk of the town
Several retail operators are already setting their eyes on expansion.
Two well-established chains, The Mall Group and Central Pattana
Plc, have sent strong signals with plans to establish shopping
complexes in provinces at a cost of several billion baht.
The Mall will build its store in Nakhon Ratchasima. The Kingdom
of Pleasure complex will occupy 52 rai. Central Pattana Plc, not
to be beaten, will have a project in Chon Buri, east of Bangkok,
and on Rama II Road in the city. These three projects combined
are the biggest commercial property development announced since
the crash of mid-1997.
The
rise in consumer spending, said an analyst, was due to a sharp
decline in interest rates, the recovery of stock prices and value-added
tax reductions. With low interest rates in banks, there is less
reason for Thais to put their baht in the bank. Those lucky enough
to hold shares feel more wealthy. There is also a growing sense
in general that the worst is over, fuelled by rising foreign reserves,
robust government spending and new-found confidence by many that
they will still have jobs tomorrow.
Keeping
up
