The retail sector has been among the hardest hit by the pandemic and strict lockdowns since March 2020. It continues to face a challenging environment due to the renewed lockdown restrictions in Metro Manila and nearby provinces brought by the COVID-19 Delta variant threat. According to the Philippine Retailers Association (PRA), the pre-pandemic recovery will likely occur in 2022, with growth expected by 2023 as the NCR was again placed under Enhanced Community Quarantine (ECQ).
The pandemic has caused a reduction in overall consumer spending, except for necessities, as well as the transformed spending habits of consumers. Footfall in retail establishments and spaces such as department stores and shopping malls has decreased, resulting in a drop in sales for both mall operators and retailers. Data from the Google Mobility Report as of August 14, 2021, showed that visits to retail and recreational facilities such as restaurants, malls, museums, and cafes were down by 35%, while grocery stores & pharmacies increased by 13%.
A number of footwear, clothing brands and jewelry stores closed their physical mall space, due to the lack of formal events and a prohibition on large gatherings and social events. As a result, the vacancy rate in shopping malls reached 12.5% last 2020 and jumped to 14% in the first quarter of 2021. It is expected to rise to 16% this year due to the continuing threat of COVID-19 variants.
Closed shops inside the SM Mall of Asia
Photo by Eloisa Lopez
The other retail sectors, such as grocery chains, retailers of fast-moving consumer goods, furniture and home-goods retailers, cars, and sellers of outdoor recreational goods, actually benefited from the pandemic. One of those is Puregold, which became one of the most profitable companies in the first half of 2020, with a 20% increase in earnings as consumers stocked up on food and other necessities.
Puregold’s unaudited consolidated net sales increased by 9.2% in 2020, reaching Php 168.63 billion. The Puregold Stores network accounts for 73% of revenues, with the remaining 27% coming from S&R Membership warehouse clubs and S&R New York Style Pizza locations.
In addition, the USDA’s Foreign Agricultural Service (FAS) latest report stated that the Philippine F&B retail sector is expected to remain strong and is seen to grow by 10% this year. “However, major market share shifts within the sector have and continue to develop and solidify as a result of the country’s longstanding COVID-19 countermeasures,” the USDA-FAS stated. The USDA also cited data from Euromonitor International which showed that sales of F&B retailers rose by 4% in 2020 to $26 billion.
Retailers embracing the technology
Given the pandemic’s impacts, significant market share shifts are continuing to expand and strengthen the country’s food and beverage retail sector. The rise of e-commerce is one of the most significant changes in the domestic industry, as companies are increasingly harnessing sales through online services offered from websites and mobile applications.
According to a report by Global Agricultural Information Network (GAIN), Filipinos’ growing preference to use e-commerce for their food supply needs will drive online food and drink sales to a record-high of $280 million this year, a 30% surge from last year’s $216 million.
Meanwhile, an increasing number of retailers, brands, and store owners have fully embraced digitalization and ventured on online and digital marketing strategies to explore new technologies and retail e-commerce solutions in order to keep up with consumers who have primarily shifted to online and digital shopping. Most consumers prefer stores that offer contactless and cashless transactions via their websites or mobile applications to ensure their safety.
Personal shopper services, expedited deliveries, and curbside pick-ups are now available at some shopping malls as part of their innovation. Last year, SM Supermalls launched its mobile app for SM Megamall, North EDSA, and Mall of Asia, allowing customers to buy and pay for products online, with the option of picking them up in-store or having them delivered.
Mall of the future
The pandemic accelerates shopping centers and retailers to explore and innovate. When retail stores inside malls were forced to close, it became abundantly clear who had a strong foundation before the pandemic and who did not. Some retailers and mall owners are now accelerating their business plans and considering digital transformation investments and evolving trends.
It also became an opportunity for real estate developers and mall owners to consider the importance of green architecture. A greater mix of indoor and outdoor settings became essential when designing a retail complex – including multi-purpose balconies and facades for natural ventilation also became an opportunity for real estate developers and mall owners to consider the importance of green architecture. Dining is still a major activity and it will draw customers back to retail spaces, so outdoor areas that can be used for weekend markets and al fresco dining are an advantage.
Al Fresco dining in Fort Bonifacio
Photo from Speedmagazine.ph
Green spaces such as parks create positive social environments, while operable facades can accommodate open shopfronts and integrate indoor and outdoor spaces. So once the footfall traffic of consumers returns to the pre-pandemic level, shopping centers, and retail spaces will be flexible enough to adapt to the changing demands driven by safety protocols and other COVID-19 related government mandates.
It is important that we apply what we have learned from the COVID-19 crisis to how spaces should function following any significant event. When designing or redesigning new retail centers, we must keep in mind the needs of the people who rely on them as vital social spaces for shopping and socializing, even in times of health and security threat.
As all sectors in the Philippines have to evolve to adapt to the new normal, it is clear that retail will still be about the customer experience. At the end of the day, the strengths and weaknesses of the retail industry should be considered by any business when planning for the future. The COVID-19 pandemic has just highlighted the importance and power of having digital and technological support for business and retailing.
Written by: Mary Grace Ladringan and Angelo Gandia
Aviso Valuation and Advisory Corp. is a real estate consultancy firm that offers valuation and business advisory services compliant to international standards such as the International Valuation Standards (IVS) and International Financial Reporting Standards (IFRS). To assure that we only produce high-quality deliverables, as needed, we do tasks beyond the usual appraisal process like verifying pertinent property documents (i.e. land titles, tax declarations, etc.) with the appropriate government agencies for due diligence purposes prior to the acquisition of the properties.
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References:
https://business.inquirer.net/319969/puregold-net-income-grew-18-9-top-8-05-billion-in-fy-2020
https://www.philstar.com/business/2021/07/03/2109757/food-beverage-retail-sales-grow-10
https://www.bworldonline.com/retail-industry-pushes-back-recovery-projections/
https://www.hassellstudio.com/conversation/creating-adaptable-retail-spaces-responding-to-covid-19
https://www.bworldonline.com/malls-go-online-as-shoppers-stay-home/
https://www.bworldonline.com/retail-industry-pushes-back-recovery-projections/
https://www.philstar.com/business/2021/07/03/2109757/food-beverage-retail-sales-grow-10
