Filipinos cut spending in malls amid economic downturn

By Judith Balea,

Posted at May 03 2009 11:09 PM | Updated as of Jul 16 2009 10:34 PM

Filipinos still flocked to the country’s most popular malls last year, but they didn't shop, dine and watch movies as much as they did in 2007.

No thanks to soaring inflation, which hit a 17-year high of 12.5 percent in August 2008, and the much-felt economic downturn towards the end of the year, consumers cut spending especially on entertainment and recreation. This was evident in the financial performance of big mall operators.

SM Prime Holdings, for instance, booked a measly increase in cinema ticket sales to P1.85 billion last year from 2007’s P1.84 billion, which represented a far better sales growth of 15 percent over the 2006 level.

The Henry Sy-led company operates the largest network of movie theaters in 33 malls nationwide.

Its recent financial filing also showed consumers availed less of other amusements at its commercial centers, including bowling, ice-skating and tours in the SM Science Discovery Center. SM Prime saw income from these offerings decrease by 13 percent to P632 million in 2008 from P724 million in 2007.

In terms of mall rental fees, which are often based on tenants' sales, SM Prime managed to post a growth of 15 percent to P15.4 billion last year. But this was slower compared to the 18 percent growth recorded in the year before.

Hans Sy, president of SM Prime, explained during the company's recent stockholders' meeting that they observed "slower consumer spending" due largely to skyrocketing food and fuel prices in the first half of 2008.

Two other mall developers, Robinsons and Ayala Land, tell the same story.

In the fourth quarter of 2008, Robinsons' commercial center division posted a revenue growth of 8 percent to P1 billion, much lower than the 11 percent growth in the same period in 2007.

Ayala Land, on the other hand, reported that its revenues for full year 2008 rose by 3 percent to P4.3 billion, as against the 5-percent growth in the previous year.

The company, which operates the Glorietta malls, said it experienced flat rental rates.

Focus on basic necessities

Moving on to 2009, Filipino consumers continued to tighten their belts.

A recent survey by global market research firm Synovate revealed that in the last six months, 92 percent of residents in Metro Manila, where malls are concentrated, have cut their spending while 61 percent did less impulsive buying. Synovate polled 1,000 residents across all income brackets in the Metro.

What is more interesting is that 55 percent said they've started focusing on food and other necessities and spent less on recreation as well as luxury items like high-tech gadgets, appliances and even fancy dinners.

Analysts said this trend bodes well for SM and other malls catering to the low- to middle-income markets, rather than upscale shopping centers like, say, Rockwell Land's The Power Plant Mall.

"Consumers looking for more value for their money will not go to high-end malls but to the likes of SM. For example, P1,000 can buy you two to three shirts in SM, but only one branded shirt in high-end malls," said Macquarie Group Ltd. strategist Alex Pomento.

"Filipinos are still spending but they're spending for the cheaper and basic things," he added.

This explains why SM's retail sales, both in its supermarkets and department stores, jumped 17 percent to P114.8 billion last year whereas Rockwell Land's were flat or little changed at about P700 million.

Pomento therefore concluded that SM's fundamentals "are much better compared to other property developers."

Despite the apparent slowdown in domestic consumption, he believes mall developer SM Prime is well poised to achieve a net income of P6.7 billion in 2009, a 5 percent year-on-year growth, albeit slower than the 7 percent growth last year.

Consumption and remittances

For the past years, sales at the country's biggest malls have been a gauge of trends in consumer spending, which contributes 70 percent of the country's gross domestic product (GDP) and is therefore, the main engine of economic growth.

Pomento said that 30 percent of total consumer spending happens inside malls, and two-thirds of this slice of the pie is accounted for by SM alone.

The SM Group earlier expressed optimism that consumption will hold up in 2009, saying this will still be fueled by remittances from overseas Filipinos workers (OFWs) and the weakening of the peso, which increases the value of dollar remittances.

This despite the government's zero-growth forecast for remittances this year and the gloomier estimates made by multilateral lenders like the International Monetary Fund, which said that remittances will decline by 7 percent this year.

"Based on what we've seen, remittance inflows and net deployment of OFWs are still up so far this year. Even if remittances stay flat at $16 billion this year, that is still a huge amount of money that would support our operations," said SMIC executive director Gregory Domingo.

Apart from remittances, the Philippine economy is also generally seen to post a significant slowdown this year, something that keeps most companies sidelined in their investments.

But mall developers, specifically the SM Group, are decided to pursue expansion plans this year, saying they view the economy from a long-term perspective.

The government expects the country's GDP to grow by 3.1-4.1 percent this year, a lot better than the IMF's zero percent growth projection.

In 2008, the economy grew by 4.6 percent, much slower than the 31-year high of 7.2 percent in 2007, as consumer spending slowed to an average 4.4 percent from 5.9 percent.