The Shopping Mall Boom

"Shopping malls are here to stay; live with it"
Excerpts from a feature article by Doris Dumlao

 

Shopping MallFILIPINOS are self-confessed "mall rats," making retailing and shopping center development in the country a lucrative business mix. However, even a first mover like the SM group of companies will have to constantly reinvent itself to survive cutthroat competition.

Demographics and economics are continuing to provide even more pockets of opportunities for mall-oriented businesses, encouraging more players to come in. Over the long term, economic growth will strengthen the purchasing power of the populace, which is growing by at least 2 percent a year. There is also the overseas Filipino workers factor, which has been a major financial muscle behind the consumption behavior of Filipino families. "The current peso depreciation is not necessarily bad. It increases the purchasing power of six to seven million OFWs who pump in $6 billion to $7 billion to the economy each year," House Speaker Manuel Villar, whose family owns the Manuela shopping mall in Mandaluyong, said. Growth in the countryside will also expand the market base for shopping malls. This is the reason why big groups have started building malls in cities outside Metro Manila, invading the turf of provincial commercial developers like Cebu’s Gaisano family.

Mall competition

To the benefit of consumers, competition will drive malls to become better, if not bigger. Quality of goods sold will improve and prices will go down as trade barriers are removed. Local mall operators and retailers will be forced to constantly innovate and introduce new concepts. Visitor traffic in malls will no longer be dependent on the merchandise lineup but on the integration of shopping activity with significant entertainment, attractions and recreation.

James Go, president of JG Summit Holdings Inc., which owns and operates the Robinson’s chain of shopping malls, says movie houses are becoming less important as far as revenues are concerned. Cinema houses in malls now face stiff competition from the proliferation of cheap pirated video compact discs. SM Prime Holdings Inc. executive vice president Hans Sy says movie theaters are no longer the cash cows they once were, but they are still important to an integrated shopping experience. "We’re losing money on cinemas, but that doesn’t mean we’re closing them," he says. Ayala Land Inc. has innovated by building smaller but more pricey theaters. Its Glorietta complex sells movie tickets at nearly twice the regular rates, but the moviegoer, in turn, gets a more comfortable seat and a better sound system. "You have to give something more to the moviegoers, something they cannot get in their own homes," Ayala Land president Francisco Licuanan III says. "Adopt, that’s the way we compete."

Competition will come not only from the consumer’s increasing sophistication but also from new players. While the expectation is that foreign retailers will simply rent spaces in existing malls rather than build their own complex, this trend isn’t likely to last long, especially as globalization forces retailers to optimize their resources.

This means foreign retailers may see a merit in pursuing mall development on top of retailing, and they may find their match in local retailers that want to build their own malls but do not have the financial muscle or in local retailers that have expanded into huge mall development but have fallen short on cash.

Liberalization of Retail Trade

Local retailers have always been afraid of liberalization. They are aware that foreign companies will force them to either be more competitive or close shop. Profit margins are likely to shrink as more players flood the market with their products and services. Industry sources inform the INQUIRER that the SM and Robinson’s groups enjoy a 40- to 80-percent mark-up on their items. Fortunately for these chains, revenues from rentals can easily offset declining margins from retailing.

With the liberalization of retail trade, foreigners now have more options on how to enter the Philippine market. Franchising will likely be among the first casualties as foreigners can now directly own and operate their stores instead of simply entering into long-term franchise deals with local partners. Expiring franchise deals may not be renewed while some notorious groups may even find ways to pre-terminate existing contracts.

On the other hand, retailers that are doing well can use liberalization as an exit route. For those who are ready to cash in, they can opt to sell to foreign groups at a premium.

Apart from equity investment, foreigners can also find other avenues to forge a win-win relationship with local firms. [A] multinational company can add value to the partnership by bringing in well-known international brands and offering marketing and branding skills. "On the other hand, the local company may offer a strong domestic brand, an extensive distribution network and the ability to influence government policy," the McKinsey analysts said.

Threats from e-commerce

Shopping malls and their retailers do not face an immediate threat from e-commerce, considering very few people here use the Internet. Even in the United States, "virtual malls" have not really succeeded in grabbing market share from Wal-Mart or JC Penney. Over the long term, however, Internet retailing will gain prominence. Among local players, only the Ayala group has a clear online retailing program. The SM and Robinson’s groups are working on some Internet initiatives, but these haven’t been very specific.

A new report on online buying behavior in Asia shows that while the Internet community in the region is still small, continued rapid growth is expected. The leading Asian online retail categories are computer hardware and software, and financial services, accounting for more than half of the market. Next in line are travel, books and tickets.

Looking ahead

The local market for retailing and shopping center development is tremendous. But while the pie is still growing, more players are coming to grab a bigger share, and it will now be a question of who gets the biggest share of the pie.

Optimizing resources without sacrificing quality is the key to obtaining a foothold despite the difficult environment. Then there are also snowballing concerns on the country’s political situation, which can delay deals with foreign groups. Foreign investors will always see opportunities for bottom-picking during an economic crisis, where asset prices fall to dirt-cheap levels, but they will always be averse to any country where there is perceived political instability.

At the end of the day, malls are here to stay as the enclosed, one-stop national parks that will keep oiling the wheels of business.

- From the Philippine Daily Inquirer, October 26, 2000
- Photo by Virtual-Asia.Com
Copyright 1998 ~ 2002 MCA Limited

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