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THAILAND’S STAR RISES AMONG ASIA’S HOT RETAIL MARKETS

By Curt Hazlett

Thailand’s passion for retail is big, and it’s getting bigger. The latest evidence was this summer’s opening of CentralWorld, a massive, mixed-use development in Bangkok’s central shopping district that includes nearly 6 million square feet of retail space. That’s just a shade bigger than Siam Paragon, a sparkling luxury mall that opened eight months earlier and a half mile away.

Malls are not the only red-hot retail sector in Thailand. Hypermarkets and convenience stores, most of them owned by the world’s premier discount retailers, are fighting for dominance in the country’s urban areas, and spreading to non-urban markets. New and remodeled stores are seemingly everywhere. Modern retail chains account for 60 percent of sales, up from about 35 percent a decade ago, analysts say.

Bangkok “is a very vibrant retail community,” according to Brian Castle, senior vice president for China at mall developer Ivanhoe Cambridge. Ivanhoe has teamed up with a unit of Thailand’s Charoen Pokphand Group in a venture called C2 Group, which will provide retail development and services in China. “There are some very nice shopping centers in Bangkok, very well designed and modern,” said Castle, who is based in Shanghai. “My wife enjoys shopping in them more than the shopping centers in Shanghai, which are not as fully developed from a mix perspective. Siam Paragon is very well done. We’d be happy to own that one.”

In a part of the world that has become synonymous with retail growth, Thailand has emerged as a standout — a nation with a population of 65 million and where local shopping center developers and foreign chains are expanding and competing hard. What a contrast to the late 1990s, when Thailand’s economy crashed during the Asian currency crisis and growth was nowhere to be found.

The Thai economy has since recovered, helped by a resurgence in exports and tourism, its two biggest components. Still, the current expansion is taking place at a time when many Thais are feeling jittery about their future. Consumer confidence is falling and retail sales growth slowing. Gross domestic product, which had been recovering from a setback caused by the deadly tsunami of December 2004, has slumped too, hurt by soaring oil prices and the export-dampening effects of the rising Thai currency, the baht. Sporadic cases of avian flu, which could devastate Thailand’s tourist industry if it were to become epidemic, occur regularly. And a Muslim insurgency in three southern provinces has killed some 1,400 people in the past two years.

As if that were not enough, Thailand has spent much of the year in a political crisis, one in which foreign retail chains find themselves, reluctantly, in the front lines. Trying to quell opposition, Prime Minister Thaksin Shinawatra called snap elections in April. He won, but the opposition parties boycotted the vote, and it was eventually thrown out by the country’s constitutional court. A higher court is expected to settle the matter this month, but until then a caretaker government holds power. In an attempt to win over small independent shop owners ahead of parliarmentary elections, the ruling Thai Rak Thai (Thais Love Thais) party ordered foreign hypermarkets and other large retailers to put a hold on their expansion plans, including projects already under construction.

Already in place were zoning restrictions that make it more difficult for big-box stores to enter urban areas.

“The development of new hypermarkets has stalled due to regulations in the Bangkok metropolitan area aimed at protecting traditional retailers,” said Dan Tantisunthorn, senior manager for research and consultancy at Jones Lang LaSalle Thailand.

Yet none of these worries is on display in Bangkok’s vibrant central shopping area, regarded as the Times Square of Thailand. The newest mall there, CentralWorld, is actually a remodeling and expansion of an earlier one called the World Trade Center. CentralWorld is owned by Central Pattana, Thailand’s largest developer, and will eventually have some 500 stores, a convention center and a 500-room hotel. The project cost $2.6 billion, and Central Pattana says it expects to break even on the investment within seven years.

About 60 percent of the center’s retail space was occupied when it opened July 21, but Central Pattana says that will have risen to about 90 percent by October. By then the anchors — Iselin, a Japanese department store; and Zen, a department store owned by Central Pattana’s parent, Central Group — will be open as well, the company says.

Central Group, controlled by the founding Chirathivat family, is the powerhouse of Thai retail development. It owns 10 shopping centers in Thailand, including two in Bangkok, and controls 32 percent of the leasable area in the capital area’s malls. It also owns franchises in Thailand for Elizabeth Arden, Jockey, KFC and Pizza Hut, among other businesses.

CentralWorld is getting a strong challenge from Siam Paragon, the glittering new mall just up Rama 1 Road. Siam Paragon is a joint venture between The Mall Group Co., which owns 14 percent of the Bangkok area’s mall space, and Siam Piwat, a small developer.

Where CentralWorld is targeting a mix of shoppers, Siam Paragon is aiming for the luxury set, through the likes of Dolce & Gabbana, Emilio Pucci, Gucci and Hermès. The opening of the centers has sparked competition for shoppers in central Bangkok that has in turn spurred existing retailers to renovate their properties and spend more on marketing and promotion, says LaSalle’s Tantisunthorn. The flipside of that is rising vacancy rates, he says.

Though the hypermarkets dotting Thailand’s urban areas are certainly less glitzy than the downtown malls, they are no less successful. Britain’s Tesco opened its first Tesco Lotus store in 1998 and had 219 in operation as of May. The chain says it plans to open or acquire an additional 207 by the end of next year. Carrefour has 22 stores, all but four of them in Bangkok, while the Big C Supercenter chain, controlled by France’s Groupe Casino, runs 47 stores. The Netherlands’ Makro has 29.

U.S. giant Wal-Mart has not entered Thailand, though the Arkansas Democrat-Gazette reported in June 2005 that the Thai ambassador visited Wal-Mart’s Bentonville, Ark., headquarters to discuss the possibilities of opening stores in Thailand.

Given the frenetic state of the market, change is a constant, despite the moratorium. “As the government clamps down on the growth of large-format stores, some operators will enter, such as the Berjaya Group Berhad and the Central Group, while others exit, including Delhaize and Ahold,” said a report published with A.T. Kearney’s 2005 global retail development index, which ranked Thailand 12th on its list of the world’s 30 best emerging-market opportunities. Ahold sold its CRC chain to Central Group in 2004, the same year that Belgium’s Delhaize sold its 21 stores in Thailand.

The big question, of course, is whether Thailand’s economy has enough steam to support continued expansion. But while signs of softening are there, so is a feeling among developers that expansion is warranted. More shopping centers, they say, will help cement Thailand’s reputation as a shopping destination like Hong Kong or Singapore.

Jones Lang LaSalle says in a research report that “most retailers are confident in the long-term growth of the Bangkok retail market.” Pointing to the growing competition among developers, the report says Bangkok’s retail landscape “will change dramatically due largely to the opening of Siam Paragon, forcing most players to rethink their approaches. Shopping complexes may become more than places to buy goods.” CentralWorld stands as a good example: In addition to its eventual 500 stores, the center will contain 50 restaurants, a learning center for children, 18 cinemas and three bowling alleys.

That confidence can be seen in Central Pattana’s plans to open eight new shopping centers by 2010. “I think to build a large shopping and lifestyle center is to take advantage of long-term [prospects],” said Kobchai Chirathivat, Central Pattana’s president, at a news conference when CentralWorld opened. “We don’t just look to make a profit in a few years.”