Shopping malls boom as Filipinos shrug off inflation

  • FTCR’s 4Q17 survey of 1,000 urban Filipinos confirmed their attachment to malls. The survey showed that 11% of respondents visit malls every day, the most across the Asean-5 economies.
  • Almost 25% of FT’s respondents will visit malls more often in the next 12 months, with 68% saying that the frequency of their visits will remain the same. Slightly more than 25% also said that they would spend more in malls, while almost half said their spending would remain the same.
  • This suggests that Filipino shoppers are not worried by a weakening peso, currently at an 11-year low against the dollar, or higher inflation, which in Feb 18 breached the central bank’s 2-4% annual target.
  • Inflation is rising because the weak peso makes imported goods such as fuel more expensive, but also because of the rise in the price of domestically produced foods such as rice, of which there is a low supply.
  • The strong performance of two pillars of the Philippine economy, remittances and business process outsourcing, justify consumer optimism. Although the weak peso has increased the cost of imported products, it has also boosted the purchasing power of money sent home from abroad. Overseas Filipino workers sent home USD31.3bn in 2017, 5.3% more than 2017, beating the central bank’s projection of 4% growth.
  • The sector has started 2018 strongly, with 10.4% y/y growth in Jan 18. Outsourcing earnings, meanwhile, grew 9.6% y/y in 2017, slower than 2017’s 12.8% growth but still in line with industry expectations. The growth rate was achieved despite a sharp decline in new investment in 2017, which is expected to pick up in 2018.
  • Outsourcing earnings, meanwhile, grew 9.6% y/y in 2017, slower than 2016’s 12.8% y/y growth but still in line with industry expectations. The growth rate was achieved despite a sharp decline in new investment in 2017, which is expected to pick up in 2018.
  • A tax-reform law that took effect in Jan 18 increased the take-home pay of middle-income workers. Come Dec 18, the law will also raise the threshold on non-taxable Christmas bonuses, giving consumers more money to spend during the holidays.
  • Despite the healthy outlook, mall owners face a threat from President Rodrigo Duterte’s retail-sector liberalisation plan, which is widely expected to take effect from 2018. The government hopes to boost competition by lowering from USD2.5mn to USD200,000 the amount that foreign retailers must invest to establish a local business.
  • Local retailers are concerned that a more liberalised industry would trigger an influx of cheap, lower quality Chinese retail products, commonly now found in smaller malls owned by smaller corporations. Malls owned by large corporations that typically cater for middle or upper-income consumers are unlikely to face an immediate threat.
  • Over time, however, such corporations could find it more difficult to create a new revenue base by attracting low-income customers from smaller malls.

External Link : https://www.ft.com/content/f475333a-2c30-11e8-9b4b-bc4b9f08f381

21-Mar-2018


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