Spending on shopping in the second half of this year appears to be less promising than initially anticipated, mainly due to numerous challenges faced in both the domestic and international markets.
Factors that contribute to the decline in consumer purchasing power during the remaining six months of this year include global economic uncertainty, rising interest rates, delays in the formation of a new government, increasing household debt, the impending drought from El Niño, and the current low season for tourism.
Additionally, the Tourism Authority of Thailand (TAT) recently expressed concern over the lower-than-expected number of tourist arrivals.
As a result of these combined factors, the shopping industry may experience a slowdown during the latter part of the year.
According to Kasikorn Research Center, the weak state of China's economy also poses a higher risk to the economies of Asean countries, especially Thailand, as it heavily relies on Chinese tourists. Additionally, the Thai export outlook is forecast to decline by 1.2% this year.
Sentiment's rapid shift
Somchai Pornratanacharoen, former president of the Thai Wholesale and Retail Trade Association, has observed a significant shift in trading sentiment before and after the general election in May.
During the first quarter of this year, spending on shopping was highly active, but the situation deteriorated after May and continues to pose a challenge.
"People's buying sentiment was not very good because they had no idea when the political uncertainties would be clarified, and the absence of government economic stimulus packages further hampered consumption growth. As a result, traditional trade channels across the country have become very quiet," said Mr Somchai.
Mr Somchai, referring to spending per bill or per basket size, and the shopping frequency at 100 mom-and-pop shops in Bangkok's suburban areas which purchase consumer goods from his wholesale stores, said these stores have reduced their purchase orders by 30-50% from 4,000 baht per purchase to only 2,000 baht or from 6,000 baht to 4,000 baht depending on the locations.
These indicators clearly demonstrate the real decline in purchasing power among lower-income consumers.
Mr Somchai said this phenomenon persisted for three consecutive months from May through July, and he does not expect a bright future for wholesale and retail in the second half of the year.
Nevertheless, as part of his best efforts to sustain his business, Mr Somchai has adapted his business strategy by promoting his house brands across various product categories such as fish sauce, canned fish, energy drinks and orange juice.
"Business for our own brands went very well because prices are affordable and suitable for low-income consumers. We will add more own brand products to our portfolio this year,'' Mr Somchai said.
Mr Somchai also suggested that if the government could be formed and stimulus economic measures were launched again, the new government should consider allocating a budget for purchasing daily goods. This approach could more directly boost the economy.
Outlook flat in the short-term
Chatrchai Toungratanaphan, vice-president of the Thai Retailers Association (TRA), said the association expects retail sentiment from July to September to remain flat because of rising uncertainty about the formation of the government and the new administration's economic policies, which may require significant adjustments from the business sector.
According to Mr Chatrchai, the decline was evident in various components of the index, including same-store sales growth, spending per bill or per basket size, and shopping frequency. These indicators reflect the weakened purchasing power of lower-income consumers.
He attributed the decline to several negative factors including the delayed formation of a new government, the high cost of living and high level of household debt, a sluggish economy, the expiration of government stimulus measures, the government's delay in disbursing funds as the country awaits a new administration, and the low season for tourism.
"Consumer confidence declined across most retail categories, except for supermarkets and convenience stores, as consumers are still willing to spend on necessary or promotional items to reduce their cost of living," he said.
"The prospects for Thailand's retail industry are not as optimistic as expected in the first half of the year because of high costs such as energy and public utilities, combined with weak consumer demand."
In an effort to stimulate retail sentiment, the TRA proposed a new government be quickly established, allocating budgetary expenditure by implementing targeted and streamlined economic stimulus measures.
These measures include increasing purchasing power for lower-income consumers and promoting spending among high-potential consumer groups, while simplifying procedures for easier accessibility.
The new government is also advised to promote tourism to attract foreign and domestic travellers, said the association.
Travel could be promoted by extending the duration for visas on arrival for foreign visitors, increasing flight frequencies to Thailand, and focusing on building confidence in terms of tourist safety and security, said the TRA.
above Shoppers at Future Park Rangsit mall in Pathum Thani. Spending was very active in the first quarter of this year, before the situation worsened following the election in May. Apichit Jinakul
Outlook for H2 Unclear
Tareetip Wongsaengpaiboon, senior vice-president of Kasikorn Securities Plc, said the mood and tone of weaker spending in the second half of this year are not entirely clear at present.
She believes that some purchasing power would be lost from the market as the government sector's previous stimulation of local consumption had now ended. Additionally, the low season for various products during the third quarter, coupled with a lower-than-expected number of tourist arrivals, may impact spending.
However, Ms Tareetip also expressed her confidence in the continuous expansion of new retail stores throughout the second half of this year, as it contributes to long-term growth.
Milin Veraratanaroj, chairman of Tang Ngee Soon Superstore Co, one of the largest traditional wholesale and retail chains, said the retail situation is even worse than during the financial crisis in 1997. The absence of a long-term government and the cessation of economic stimulus packages have led to a loss of purchasing power.
"How bad is the situation? We've observed that demand has significantly slowed down, even for popular items such as instant noodles," Mr Milin said. "A new government should be quickly established, allocating budgetary expenditure by implementing targeted and streamlined economic stimulus measures. I am open to accepting whoever becomes the new prime minister, but the first priority the new premier must focus on is to expedite reviving the country's economy and address challenges faced by the people right now," Mr Milin added.
Under the guidance of the TRA, Tang Ngee Soon Superstore and over 30 retail operators across the country plan to launch an extensive promotional campaign similar to the government's "Pracharat" campaign during Sept 1-10 this year, aimed at offering consumers low-priced goods.
"We can no longer wait for the new government to give us support. The current political situation right now is a phenomenon that has never occurred before," Mr Milin said.
Thais expect hike in inflation
According to the latest study by market research company Ipsos, inflation remains a constant worry among Thais who have a pessimistic outlook in terms of the country's economic conditions, anticipating a surge in inflation and interest rates.
The survey of 6,000 people revealed that 56% of Thais believe the rate of inflation will rise over the next year, while 54% expect a surge in interest rates.
The majority of Thai respondents (57%) rated the current economic situation in the country as "bad" while 72% believe the country is currently in a recession, which is 23% higher than the global average (49%).
Thais also expect price hikes in utilities, fuel and food, reflecting the economic uncertainty. The items Thais believe are most likely to encounter price rises over the next six months are utilities, fuel, and food items, while other household shopping items, spending on socialising, subscriptions, and mortgage and rental payments may not be affected as much, according to Usana Chatarklum, managing director of Ipsos in Thailand.
"When individuals perceive a decrease in their disposable income, they tend to become cautious about excessive spending and limit their shopping to essential items, especially from brands they're already familiar with. The opportunity for them to try new brands would be less. Considering the financial instability of consumers, marketers and manufacturers should adjust their product pricing to align with the purchasing power of consumers and prioritise retaining loyal patrons," she said.
below A sales campaign is promoted at CentralWorld in Bangkok.
Mall Group exercises caution
Voralak Tulaphorn, chief marketing officer of The Mall Group Co, said amid such challenging factors, the company will exercise caution in terms of its marketing spend. The budget will be reallocated to boost spending on shopping in the fourth quarter -- the peak sales season for the retail sector.
Nevertheless, Ms Voralak said the company has not witnessed a significant drop in shopping spending so far, and some categories continue to perform well.
"Although the purchasing power of certain consumer products may slightly decline during the remaining five months of the year if interest rates increase, the impact on our customers is unlikely to be substantial. The company plans to enhance its stores with food anchors to draw more traffic and conduct activities aimed at customers with high purchasing power. Despite ongoing renovations at our two main stores, our sales are still on a par with the levels recorded before the pandemic," she said.
Suthavadee Sirithanachai, managing director of The Em District, remains optimistic about the retail business in the second half of the year. The company has been collaborating with strategic partners to stimulate spending at over 100 leading shops in the Emporium and EmQuartier, with the aim of boosting customer traffic by 20% in the third quarter.
To enhance their stores, provide a better customer experience and capitalise on the upcoming influx of tourists during the third quarter, the company plans to introduce more shop-in-shop and pop-up stores. Furthermore, The Em District is working on a new tenant mix and will be launching innovative concept stores for jewellery and fashion luxury brands, including Boss, Bulgari, Fred, Fendi, Ferragamo, Gucci, Jimmy Choo, Loewe, Max Mara, Palm Angels and Pucci.