South East Asia: A Burgeoning Opportunity

By Prithi Manian

Across South East Asia and its key markets (Singapore, Malaysia, Indonesia, the Philippines, Thailand and Vietnam), the retail industry has seen tremendous changes over the past few years. Spurred by spending from middle class consumers, most markets have seen increasing demand for a range of goods, including grocery, home improvement and fashion—all of which indicate a vibrant, economically active region.

Improved economic conditions lead to accelerated growth

Despite the global economic downturn, South East Asia has been growing at a steady pace. As a result, department stores, discount store chains and other retailers are increasingly turning their attention to these burgeoning nations.

As the growth of the middle class has surged in South East Asian countries, so have levels of disposable income. Complementing this growth, stronger local currencies in the region have meant an influx of foreign capital into each market. Consequently, governments are taking measures to improve infrastructure, encouraging trade and providing tax breaks to boost domestic and foreign spending.

Adapting store formats

Retailers, of course, have had to adapt to changing demographics and the shifts in preferences and expectations that come along with rising income levels. Some have been more successful than others. One of the most recent and high profile exits from the region, for instance, has been the French brand, Carrefour. Unable to meet emerging consumer needs through hypermarkets alone—and with no plans to offer new formats Carrefour closed its outlets in Singapore, Malaysia and Thailand. Retail chains that adapted their store formats and experiences to align with changing consumer needs, however, have seen better results.

In Thailand, Tesco has expanded with express versions of its stores, which have given consumers a desirable alternative to the big box format stores that exist only in a few locations in the country and are hard for many people to access. Also, SM Supermarket, the Philippines’ largest supermarket chain, has created the Savemore Market as a new brand of standalone independent neighborhood stores to serve smaller cities and provinces. Offering groceries and general merchandise at low prices, SM can now bring fresh, affordable goods to budget– constrained customers in underserved areas.

As these examples illustrate, being relevant and accessible to every kind of consumer on every kind of budget has proven to be a successful strategy in markets that are expanding, presenting customers with more choices—and introducing new challenges and competition for established retail brands.

Internet retailing

Another option for consumers in South East Asia that is growing increasingly popular is online shopping. While internet penetration rates are still relatively low compared to other regions, the number of users is growing rapidly. Brands in Thailand and the Philippines are also capitalizing on the growing number of consumers looking to shop online by offering innovative services such as online gift registries (still relatively new to the region). Online shopping combined with in–store pickup or delivery services aim to provide a better shopping experience for urban dwellers, and are proving to be an operationally efficient way to sell goods for many brands.

Responsive brands come out ahead

Many of the best retail brands in South East Asia are a part of the fabric of daily lives, and this is reiterated during times of natural disasters and crises where these same brands work together with communities to provide shelter, emergency supplies and medical supplies. During the 2011 floods in Thailand, leading hypermarket chain, Big C, collaborated with the Red Cross to use its facilities to store and distribute donations, as well as provide relief and shelter to residents and emergency response officials.

With tens of millions of consumers, rising incomes and huge potential for economic growth in 2013, South East Asia presents enormous opportunity for brands that want to establish operations in the region—and a growing threat to existing retailers that are unable to keep up with the pace of change. However, more digitally savvy brands that focus on accessibility, customer experience, responsiveness and innovation will be able to share in South East Asia’s blossoming prosperity.