Time for more creativity

Despite higher oil prices and inflation, retail businesses in the first half performed better than in 2007. This was largely because of the election in December 2007, which lifted consumer confidence in the first quarter. Fashion, food, furniture and electrical appliance sellers reported better sales at major retail outlets as well.

Likit Fahpyochon, executive vice-president for business development at Central Retail Corporation (CRC) and a former president of the Thai Retailers Association, said retail sales increased month-by-month, leading to average growth of 7-10% for the retail sector in the first three months. Sales from department stores rose by 7% and discount stores 10%.

However, the picture changed when fuel prices skyrocketed in April and inflation peaked at 7.6% in May. People now have less money, and are more cautious about spending. The strong baht and political uncertainties have also dragged down confidence and some retailers saw consumer purchasing power fall. This led to slower business growth in April and May of only 3-7%.

"Retailers don't see any benefit from this government. We have to help ourselves," said an executive of one giant retail chain.

Since it took office in February, the Samak-led government has been busy tackling the rice and sugar problems as well as the stronger oil prices.

Retailers have slashed advertising and promotional budgets, shifting to marketing events and focusing on cost-management efficiency and energy saving. Some stores have offered discounts, contests, concerts and draws.

Other retailers see the downturn as an opportunity to speed up store expansion. The new government did not follow up on the proposed retail law after the draft was rejected by the previous cabinet.

Central Pattana Plc and foreign retail chains are spending heavily on expansion.

CPN, the SET-listed property arm of Central Group, is pouring about nine billion baht into expanding new retail complexes and renovating existing sites this year. It includes the new five-billion baht Central Plaza mall in Chiang Mai on the northern city's superhighway next to Doi Saket Road. Construction will start in the second half of this year on 70 rai of land. It would have gross space of 250,000 square metres and a net sales area of 100,000 sq m.

"We believe that the Thai economy will grow in the long term. Thai consumers will learn how to adjust to cope with [inflation]. The situation in the first five months of this year has been better than during the Tom Yum Kung crisis in 1997," said CPN president Kobchai Chirathivat.

Big C Supercenter Plc and its rival, Ek-Chai Distribution System Co Ltd, the operator of Tesco Lotus, plan to open about 12 outlets each this year.

Sakesan Trai-Ukos, the business development manager of CenCar Co, the operator of the Carrefour hypermarket chain, said his company would open five outlets this year. Two have been already opened including the new mini-hypermarket in Suan Luang. The mini-hypermarket has retail space of 2,000 sq m, aimed at serving customers within a 5-15 kilometre radius. The company will open two mini-hypermarket outlets in the second half of this year.

Tesco Lotus has diversified beyond its hypermarkets by introducing its first community mall at the Nichada Thani housing estate on Samakki Road in Nonthaburi. This is to respond to changing urban economic demographics, consumers' lifestyles and high petrol prices. The other two formats are The P@ark, designed for a middle-income customer group, and The G@rden for lower-income customers. Both The P@rk and The G@rden would have Tesco Express or Talad Lotus stores as retail anchors.

Costly oil prices have encouraged consumers to shop in their neighbourhoods rather than travel to central Bangkok. More retailers and property developers are also gearing up to develop community malls because large plots in prime locations are scarce. Companies are also unsure about possible new rules under the Retail and Wholesale Business Act.

"There is a plenty of room for community malls to grow because new urbanised areas will be built and mass transit routes will be expanded," Mr Likhit said.

Naris Cheyklin, chief financial officer of CPN, said sales for its tenants in the first six months of this year are expected to grow by 5-6% and up to 13-14% in some categories. Sales of CPN in the first half of this year are expected to grow about 22%.

The company reported higher earnings from rental fees while it cut advertising costs to about 1-3% of total sales.

New store expansions are expected to lift overall retail sales in the first six month of this year by 5-8%, up from 3-5% last year. Higher sales were coming primarily from the launch of new stores, said Mr Likhit.

He added that if inflation, political instability and oil prices eased in the second half, the business could sustain 5-8% growth for the year.

Strategic planning and greener shopping

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Retail operators devised more strategies in the first half to spur spending by offering new attractions. Central Pattana Plc, the SET-listed property developer, has been making major moves and spending heavily to renovate its existing stores to create a new shopping atmosphere.

A key goal is to increase the number of shoppers by focusing on teenagers. For example, Center Point will be reborn at CentralWorld, with an energetic and striking look after closing at Siam Square last year because of contract termination.

Center Point was very popular as a meeting place for teenagers, with trendy shops and products for young style-setters.

CPN is also undertaking a strategic plan to build store recognition. It encouraged the film production house Hub Ho Hin to shoot a teen movie titled Pid Term Yai Hua Jai Waa Woon at its flagship site. SF Cinema and Zen Department Store, the two magnets of CentralWorld, were appeared in the film.

Nattakit Tangpoonsinthana, CPN's executive vice-president for marketing, said CentralWorld now had retail space of 500,000 square metres, with 500 shops and 70 restaurants. Therefore, it is hard to showcase each zone through the mass media in a short period. Instead, the company is seeking a new marketing tool to help promote each zone to reach wider customer targets.

Under the initiative, the company has approached producers of soap operas such as Jum Loey Ruk, a romantic drama, to shoot at the mall. Advertising agencies were also encouraged to produce commercials at CentralWorld.

"With exposure of CentralWorld in movies, TV commercials and soap operas, it is even easier to reach a wider range of target groups," Mr Nattakit said. "In particular, the movie produced in the centre for screening in theatres will be reproduced in other formats such as DVD. That means that it will help attract other customer groups to come here."

He expects at least one million people will experience each zone in CentralWorld as a result of the new media exposure.

Green marketing is another relatively new feature in retail competition, with the benchmark being set by Ek-Chai Distribution System, the operator of the Tesco Lotus hypermarket chain.

Tesco took a bold green initiative aimed at halving energy use and carbon dioxide emissions at its stores to reduce costs in the long term. It has developed more than 70 energy-saving and environmental conservation initiatives. They include the world's largest solar cooling system, a biodiesel and biogas plant, which uses disposed fruits and vegetables and used cooking oil to produce fuel for the building's electricity generator; and wind turbines to generate power for parking areas and bus stops.

As well, the company has used non-toxic paint and recycled materials to build benches around the complex.