Despite higher tourist spending and tax incentives to spur purchases, Thailand's retail industry remains fragile, with an influx of substandard goods from China piling pressure on local entrepreneurs.
Chatchai Tuongratanaphan, vice-president of the Thai Retailers Association, said the retail sector during the first half of this year is projected to grow only 1-2%, attributed to the delayed fiscal 2024 budget and the end of the Easy E-Receipt scheme, which offered tax rebates of up to 50,000 baht for spending from Jan 1 to Feb 15.
TAX PERK OF LITTLE HELP
According to Mr Chatchai, the tax incentive did little to stimulate retail sales as it only applied to about 4 million taxpayers who earned more than 25,000 baht per month and had sufficient spending power. Most of this group was in the Bangkok metropolitan area and tended to buy pricey, non-food items such as electrical appliances, he said.
Consumers are awaiting additional stimulus measures or government spending to lift their confidence in making purchases, he said.
Mr Chatchai said he expects the retail segment to accelerate in the third quarter as budget spending gears up, contributing to overall retail growth of 3% in 2024, aligning with the GDP growth forecast.
However, he said some issues continue to hamper the sector and its supply chain, such as a high non-performing loan outlook and rising living costs, which drag down consumer spending power, especially among the middle and low-income classes.
The non-food segment is expected to grow slower than the food segment, given higher prices and larger purchases, coupled with the former being non-essential purchases, according to the association.
Although there are 8-10 million consumers in the upper middle class with strong spending power, they might not spend as much as expected unless the government regains their confidence through investment and incentives, said Mr Chatchai.
"The government continues to push large-scale development projects like the Land Bridge and high-speed railway connecting three airports, but there has been no tangible outcome thus far that would revive consumer confidence in higher spending," he said.
Tourists shop at Siam Paragon mall in Bangkok. Kasikorn Research Center estimates Thai retail sales in 2024 to expand by 3% to 4.1 trillion baht. Wichan Charoenkiatpakul
SPENDING BOOST
Mr Chatchai suggested short-term initiatives to drive high-spending consumers, such as transforming Phuket into a tax-free shopping destination to attract high-value buyers. This segment would be more likely to buy local, especially if a domestic tourism incentive was offered, he said.
To enhance foreign tourist spending, the focus should be on prolonged stays and developing high-quality products, said Mr Chatchai. Leveraging soft power policies, such as promoting festivals and local culture, serve as positive examples to increase expenditure.
Regarding the influx of cheap Chinese goods, he said this phenomenon emerged many years ago with globalisation and should not affect the retail sector as significantly as the industrial and manufacturing sectors because retail is at the end of the supply chain.
Given fast-paced technology and shorter product life cycles, consumers naturally gravitate towards affordable products, be it electrical appliances or clothing, said Mr Chatchai.
To strengthen the nation's manufacturing supply chain and enhance competitiveness, he suggested the government consider regulating free trade zones and reassess value-added tax (VAT) exemptions for online purchases of less than 1,500 baht to deter the influx of illegal, low-cost foreign goods.
Tax and tariff waivers are major factors contributing to the wave of Chinese products entering the country, said Mr Chatchai.
Thailand waived the import duty and VAT on imported parcels with combined price and cost, insurance and freight fees of no more than 1,500 baht per piece. The price was set at 1,000 baht in 2018 before the recent hike.
Every year more than 30 million parcels are shipped into Thailand, of which half importers claim the item price is lower than 1,500 baht.
According to the Federation of Thai Industries, up to 20 industrial sectors, including steel, aluminium, plastics, ceramics, petrochemicals and medicine, are struggling to deal with tougher competition, with small and medium-sized enterprises (SMEs) the most affected.
Sanan Angubolkul, chairman of the Thai Chamber of Commerce, said China is a major global manufacturing hub with ample raw materials and developed supply chains, leading to low production costs and cheaper products. Coupled with the boom in e-commerce, an influx of cheap Chinese products is flooding the Thai market, he said.
"Companies have expressed concern regarding this influx into both Thai and Southeast Asian markets as it further compounds the challenges faced by local SMEs," said Mr Sanan.
He said certain imported products such as electrical appliances could cause problems because they may lack certification based on Thai industrial standards. Insufficient staff to carry out rigorous inspections also creates a challenge when handling a large volume of imports, said Mr Sanan.
Consumers walk past decorations for Chinese New Year at CentralWorld mall on Feb 7, 2024. Pattarapong Chatpattarasill
WARNING ISSUED
Kasikorn Research Center (K-Research) forecast retail sales to expand by 3% this year to 4.1 trillion baht.
According to the research unit, consumer product retail sales grew by 5% in 2023, 7% in 2022 and 1.3% in 2021, after contracting 0.6% in 2020. In 2019, the market grew 4.6%.
Growth this year is expected to be driven largely by foreign tourist spending and higher prices for certain items, particularly food and personal goods, noted the think tank.
However, K-Research warned local manufacturers will likely face intense competition from imported goods, especially from China.
Last year Thailand imported consumer goods worth 470 billion baht from China, up 2.8% year-on-year, accounting for 41% of total imported consumer goods.
Chinese imports include both daily necessities and electrical appliances, constituting 43.3% of the value of consumer goods imported from China, followed by fresh and processed fruit and vegetables (10%), clothing and footwear (9.3%) and household appliances and decorations at (9.1%).
According to K-Research, Chinese consumer goods pressure the competitiveness of Thai manufacturers, especially for fashion items (shoes and bags), and fresh and processed fruit and vegetables.
The influx of Chinese products has diminished the production capacity of non-food consumer goods, said the think tank, particularly for fashion (shoes, clothing and accessories) and furniture, where the production capacity utilisation rate is at 30-45%.
K-Research concluded the flood of imported Chinese goods presents a significant challenge for Thai manufacturers.
Consumers select canned food at a Big C hypermarket in Bangkok. Consumers are currently awaiting additional stimulus measures or government spending to boost their confidence in making purchases, Mr Chatchai said. Nutthawat Wicheanbut
FOOD HIT HARD
Thaniwan Kulmongkol, president of the Thai Restaurant Association, said the influx of cheap food ingredients from China also disrupted the domestic market, posing a threat to the competitiveness of local farmers.
Ms Thaniwan said the majority of Chinese imports consist of agricultural products, particularly vegetables and fruit such as grapes, red onions and garlic.
For instance, imported garlic costs around 40 baht per kilogramme, significantly lower than garlic from Si Sa Ket, a major Thai production area, which is priced 150-200 baht per kg.
This price difference has reduced the supply of locally grown produce, making Thai farmers less competitive, she said.
Small restaurants and street food vendors tend to rely on cheaper ingredients to manage costs, while larger restaurants and chain operators can afford to use authentic, higher-quality ingredients to maintain their service standards.
Ms Thaniwan emphasised the need for more coordinated efforts among responsible ministries to support the entire agricultural supply chain, from upstream production and sourcing to downstream selling and exports.
"As the government aims to elevate Thai cuisine as a soft power globally, it should focus on supporting the production of authentic ingredients," she said.
Ms Thaniwan cited the Tourism Authority of Thailand's World Kaphrao Thailand Grand Prix, where contestants are required to use local ingredients such as sweet basil and jasmine rice, as a good example. Such an event can promote this famous dish and increase exports of Thai ingredients worldwide, she said.
Key Thai products can still compete in terms of quality and pricing for both export and domestic consumption, such as jasmine rice, raw chicken, shrimp and canned fish, said Ms Thaniwan.
She said the restaurant industry expects steady revenue growth this year as foreign tourist arrivals increase, forecast to reach 35-40 million this year.
Ms Thaniwan said foreign tourists still perceive Thailand as an affordable destination with a diverse array of food, ranging from street food to Michelin-recognised establishments.
Conversely, as domestic purchasing power weakens, locals may choose more affordable meals or street food to manage expenses, she said.