The Philippines: Prospects bright for retailers

The Philippines’ retail sector is expected to have a strong year, with forecasts pointing to rising consumer spending as the economy continues to expand and inflation remains contained. Low interest rates, meanwhile, will serve to encourage consumer spending.

According to Theresa Marcial-Javier, the senior vice-president and head of the asset management and trust group at Bank of the Philippine Island (BPI), despite the deepening debt crisis in Europe and rising concerns over Middle East oil supplies due to a spike in regional tensions, the local economy should remain steady this year, with growth supported by swelling domestic demand.

“Private consumption is seen to lead economic growth, as it has always been the main driver, and so we are seeing the country’s GDP grow to within the 4.2-4.7% range, assuming that the government is be able to continue fiscal accommodation to about 2.6% spending of GDP,” Marcial-Javier told a media briefing on March 6.

Along with solid domestic growth pumping money into the economy, higher consumer spending will be given further impetus by the continued inflow of remittances from Filipino workers employed overseas, with fund transfers set to increase by around 5% to $21bn, she said. With remittances accounting for up to 9% of GDP, the forecast increase could make a significant contribution to retail spending.

Also positive over consumer spending and the retail sector is the Bangko Sentral ng Pilipinas (BSP), the country’s central bank, which predicted in late February that household consumption would rise again this year, after a 6.1% increase in 2010 that was almost double that of the preceding year.

Diwa Guinigundo, the deputy governor of the BSP, said that a number of factors would boost consumer spending and the overall retail sector.

“Business sentiment remains optimistic, and this can bring about strong consumption expenditure for 2012,” Guinigundo told a press briefing in late February. “Inflation has been maintained within benign levels and so the purchasing power of consumers has been preserved. We see this helping to increase the propensity of households to consume.”

Consumer optimism is also improving on the back of favourable macroeconomic indicators and a belief that the global economy will perform better in 2012, while the upbeat business sentiment was also expected to translate into expansion, with many firms planning to add to their workforce, resulting in higher aggregate household incomes, Guinigundo said. On top of this, inflation is expected to remain sluggish in 2012, with price rises within a 3-5% range, boosting the purchasing power of Filipino consumers, he said.

Another cause for optimism is the BSP’s interest regime. The central bank has eased its key rates by 25 basis points at each of its past two monetary policy meetings, with the latest taking place in early March. The most recent cut took the bank’s overnight borrowing rate to 4%, its lowest level in 12 months. While the bank has flagged a pause in reductions, with BSP governor Amando Tetangco saying the monetary policy position was appropriate for the present time, the availability of relatively cheap loans should encourage consumer spending.

The positive outlook has prompted some retailers to step up their expansion programmes. SM Investments Corporation (SMIC) has announced plans to open dozens of new outlets across the country. Last year, SM Retail, the retailing arm of SMIC, rolled out 34 new stores, taking the total number of outlets to just under 170, consisting of 41 department stores, 33 supermarkets, 65 budget SaveMore branches and 30 hypermarkets. According to a statement issued on March 6, this year’s launches will top the 2011 performance as demand increases.

Last year, SM Retail saw its profits rise by 3% to $136m on the back of sales of $3.48bn, a 9% jump on 2010’s performance.

Another of the Philippines’ retail chains to record strong results in 2011 was Puregold Price Club, which saw net sales climb by 33% and income rise from $12m in 2010 to $36m, according to a statement it lodged with the Philippine Stock Exchange at the end of February. Having opened 38 new outlets in 2011, taking the chain total to 100, Puregold has announced it intends to double its store numbers by 2015.

Though a slowing of the global economy – particularly in some of the Philippines’ main export markets in Europe, the US and Asia – could take some of the steam out of domestic growth, sustained state investments planned for this year, higher employment and user-friendly interest rates should see the retail sector ringing up sales across 2012.

Source: http://www.oxfordbusinessgroup.com/economic_updates/philippines-prospects-bright-retailers

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