Too much, too fast in retail development?
14 December 2018
Lights and sounds at the opening of Iconsiam last month
The opening of the 54-billion-baht Iconsiam along the Chao Phraya River in southeastern Bangkok was quite the spectacle. In November, the mall spent a whopping 1 billion baht on its grand opening, with a thousand-drone choreographed light show along with world-class ballerinas and copious fireworks.
Iconsiam dubs itself Bangkok’s largest mall, but soon it will have competition from Bangkok Mall in Bang Na, if the latter ever finishes construction. The sprawling project on almost 100 rai by The Mall Group promises to be a “city within a city”.
The upcoming One Bangkok, a new mega-complex near Lumpini Park, carries a price tag of 100 billion baht, promising another multi-use mini-city inside the bustle of Bangkok.
Needless to say, Bangkokians won’t be lacking for shopping experiences for years to come.
While these kinds of multi-use retail megastructures certainly add to the city’s skyline, are they really the most prudent investment in the future of the city? With the rapid growth of online shopping and negative global trends plaguing department stores and brick-and-mortar shopping in the US and Europe, is Thailand building too much, too fast in retail?
Many Bangkokians, especially expats unaccustomed to Thai “mall culture”, bristle at the idea of more malls and — at least at a gut level — think these mega-malls may turn into bad investments. And an enthusiastic, yet late, foray into online shopping is expected to grow to become 10% of all retail sales in the next five years, up from 3% today, cutting into the revenue of brick-and-mortar retail.
China’s Alibaba recently shattered records with over 1 trillion baht in sales during its “Singles Day” sale, making e-commerce impossible to ignore.
Many experts and retail leaders disagree. According to James Pitchon, executive director at commercial real estate services and investment firm CBRE Thailand, Bangkok actually has less modern retail space than other cities.
CBRE Research found the Bangkok metropolitan region to have about 7.5 million square metres of modern trade real estate (retail space other than shophouses and wet markets), serving a population of 12 million. This 0.625 sq m of real estate per capita is actually far less than Singapore (1.0), Hong Kong (1.0) and the US (2.0).
Bangkok retail space also has a strong occupancy rating of 95%.
“Retail landlords are well aware of the threat and disruption coming from e-commerce,” Mr Pitchon said. “Retail is not dead, it’s changing, and while some malls may become obsolete, others will evolve to new models that can accommodate online shopping.”
He said CBRE expects online retail in Thailand to eventually grow to about 18% of total shopping, about the same level as in Britain.
Possible innovations, he said, include some stores becoming “omnichannel” complements to online platforms, whereby customers could come in and try on clothes, then buy online later. Attractions like Siam Paragon’s Ocean World aquarium also offer experiences that cannot be enjoyed online.
Voralak Tulaphorn, chief marketing officer of The Mall Group, said the company doesn’t think online shopping will have a big impact on the company, as 70% of online shoppers come from upcountry and the remaining 30% are Bangkokians.
“Retail in Thailand will be disrupted in a slower manner than what happened in the US, because US department stores are located far from customers’ homes, while in Bangkok we can find up to four retail outlets on the same road,” Ms Voralak said.
Thais view malls more as a social and interaction hub than in Western countries, where malls are seen as dilapidated and obsolete.
“On-the-ground shopping is still important,” Ms Voralak said. “Major online companies like Amazon or Alibaba have even extended their business to physical retail stores.”
Thai mall conglomerates are tackling the trend by partnering with existing online platforms or creating their own.
Central Group partnered with Chinese e-commerce store JD.com to sell products from its malls online. All business units under Central Group already provide online services. Online makes up 5% of Central Group’s sales, and the figure is expected to reach 15% over the next five years.
The Mall Group plans to launch its online business by the end of next year.
“We believe that Thais still come to retail complexes with the primary purpose of eating food,” Ms Voralak said. “We have positioned ourselves as a food destination for the next several years. About 30-40% of tenants are food businesses, up from 10-20% in the past five years.”
She said many types of businesses, such as furniture shops, have faded out of the complexes.
An industry source said retailers in Thailand continuously develop their stores and the number of new developments is expected to gradually decline or shift to mixed-use complexes as customer traffic for previous retail formats diminishes.
“Retailers are increasing central spaces for co-working to encourage people to spend their lives around retail locations,” the source said.
Even online shopping gurus are not convinced that retail is dead.
Phensiri Sathianvongnusar, chief executive of aCommerce, an e-commerce service provider and one of the most well-funded startups in Thailand, said there’s still a place for malls in an e-commerce future.
“There is still room for mega-malls to grow in Bangkok, as the majority of retail still takes place in brick-and-mortar locations despite the growing trend online,” Ms Phensiri said. “Thai consumers think that going to a mall is part of their lifestyle and the place where they enjoy the social and experiential aspects of shopping.”
She said Thailand, like other Southeast Asian countries, has been slower to adopt e-commerce than developed countries, mainly due to fear of fraud and lack of payment security.
Ms Phensiri said Thailand’s high smartphone penetration and large internet economy will help drive the e-commerce trend.
“We’re seeing a blurring of lines between digital and offline retail,” she said.