Philippine retail industry gears up for the future
MANILA, Philippines – Get off a bus stop anywhere in the metro and you're likely to be near a mall.
Indeed so ubiquitous are malls in the country that the top 3 business groups here – SM, the Ayala Group, and JG Summit – have all built their empires on the back of their retail behemoths – SM Supermalls, Ayala Malls, and Robinsons Malls, respectively.
These malls have become such a fixture that they have transcended mere retail and have become part of the culture, even featuring Holy Mass services, as SM Investments Corporation (SMIC) vice chairperson Teresita Sy-Coson pointed out at an Association of Southeast Asian Nations (ASEAN) forum earlier this year.
One may think then that traditional brick-and-mortar retailers' position as a key node in the consumption-driven economy is unassailable. Like many other industries, however, they are in danger of being supplanted by internet companies in the form of e-commerce.
"In the developed world, the share of e-commerce is still quite small in terms of overall sales, slightly less than 10%," said Paul Santos, president of the Philippine Retailers Association (PRA), at the Stores Asia Expo 2017. The expo was held from August 10 to 11.
"In the Philippines, it's no more than 2%. But it's getting a lot of buzz because it's starting from a low base, it's growing, and there's lot of innovation from that sector," he added.
That the industry is widely conscious of this threat is evidenced by the theme for this year's Stores Asia Expo: future-proofing retail. "We want our members to obtain insights into how to conduct their business in the light of the growth of e-commerce," Santos explained.
It's just as well since it's a crucial time for traditional Philippine retailers, with e-commerce giants Alibaba and Amazon looming over the horizon.
Chinese giant Alibaba, now the world's largest retailer by market capitalization, has entered the Philippines by acquiring dominant local player Lazada. Amazon, meanwhile, announced its entry into Southeast Asia, starting with Singapore.
Traditional retailers in a good position
Despite this, Santos pointed out that traditional retailers are still in the best position to take advantage of the growth of e-commerce.
"Shopping has always been a sensory experience. This is what we've always been good at. What we want [local retailers] to realize is that if you meld this expertise with the kind of information that people get from e-commerce, where all the information on a product is readily available from price to reviews, then they can do very well," he explained.
"You see a lot of spending going to virtual reality because e-commerce is trying to recreate the sensory experience that so far has not yet been delivered," he added.
Local retailers are also fortunate in that the e-commerce space has not yet been dominated by major players, giving them time to carve a niche for themselves.
"We're lucky, we're not China, the US, or the UK yet. E-commerce has not taken that much of a foothold [here] yet but mark my words, the time will come when [e-commerce] growth will come and it will be exponential," Santos said.
Conglomerates buying in
This idea of blending traditional brick-and-mortar retail with e-commerce is an approach the dominant local players have already seemingly taken to heart.
All 3 of the dominant retailers – SM, Ayala, and JG Summit – have all made major investments in the e-commerce space this year.
Ayala acquired online fashion platform Zalora and subsequently detailed its strategy of creating online and offline retailing synergies. (READ: Ayala's stake in Zalora PH: Fusing online and offline retail)
The Gokongweis of JG Summit, meanwhile, acquired a significant stake in Singapore-based Sea Ltd, the firm behind the growing online platform Shopee.
SMIC, for its part, has gone a different route by investing in logistics, a crucial part of e-commerce. It took control of the country's top logistics player 2GO Group Incorporated.
Traditional retail still alive and kicking
It may seem like traditional retail shops would be in danger of extinction in the country, but that is still far from the case in an economy that is predicated on consumption. (READ: Change or die: American malls confront Amazon era)
Philippine retail sales grew by 10.6% year-on-year in the 1st half of 2016, with retail sales totaling P926 billion for the period, according to data from the Philippine Statistics Authority (PSA).
Research firm AT Kearney also projected that the retail sector is expected to make up 20% of the country's gross domestic product (GDP) by 2025.
"The industry is growing mainly because of the growing population and their consumption. Disposable incomes are growing, driven by OFW remittances and young people employed in the BPO sector," Santos explained.
That means a huge slice of the pie for traditional retailers, considering e-commerce's meager foothold, so far. But Santos expects that to change in the near future as infrastructure and technology get boosted as well.
"I'd say you'd see the market percentage of e-commerce double in maybe the next 3 to 5 years. All the telcos are also committed to improving their connectivity and you have new players coming in," Santos said.
"Once the smartphone user base all gets converted to 3G or LTE mobile technology then that will be the point that you'll start to see exponential growth of e-commerce," he added.
"The day will come when e-commerce in the Philippines will grow exponentially and we don't want our members to be caught unawares." – Rappler.com