High Operating Costs Prompt More Careful and Strategic Expansion
According to a new International retail report by CBRE, China was the top market in Asia Pacific and the fourth most popular destination globally, with 27% of retailers looking to expand there. The next highest ranked Asia Pacific markets were Hong Kong in sixth position (24%), Japan in seventh (22%) and Singapore in ninth (21%). European markets dominated the top destinations this year.
The findings come despite a slowdown in retailer expansion in China and Hong Kong amid weaker consumption growth. Retailers nevertheless continue to see these locations as their most important markets and are responding to the slowdown by adjusting their portfolio strategy.
Retailer interest in Japan increased significantly in this year's survey, with 22% of retailers surveyed indicating they plan to expand in this market in 2016, compared to 16% in 2015. This market is benefiting from solid domestic consumption and strong spending by inbound tourists. The weaker yen continues to support the entry and expansion of foreign retailers, particularly those from the United States and Europe.
Expansion in Southeast Asia is set to surge this year, with retailer interest in Malaysia (10.5%), Indonesia (9.2%), Thailand (8.5%), Vietnam (8.5%) and the Philippines (7.8%) more than doubling compared to 2015, when all markets registered between 1-3%.
While there are strong positive indicators, retailers generally remain cautiously optimistic towards the retail environment in 2016. When asked to identify the risk factors likely to affect them in the coming year, real estate cost escalation (56%) and unclear economic prospects (42%) were their top concerns, a finding similar to last year.
"High operating costs, particularly rents and labor in Asia, will see more caution among retailers in 2016. Retailers will shift their focus from expanding their store networks to rationalization; improving in-store profitability; and upgrading to better locations," said Dr. Henry Chin, Head of Research, Asia Pacific, for CBRE.
The survey also found that the growth of e-commerce is not deterring retailers' plans to add to their network of physical stores. 83% of brands said their physical store expansion plans in 2016 would not be affected by the growth of e-commerce, while just 22% said they felt online retail posed a threat to their business.
"Despite economic uncertainty and the growing popularity of online shopping, retailers still believe physical stores are critical for their brand image. Shoppers still like to go into stores to physically touch a product and enjoy the feel-good factor associated with a brand experience. The challenge now for retailers is to build an engaging offer that encourages consumers to stay longer in the store and spend more. As online shopping continues to grow, shopping malls need to embrace 'retail-tainment' and adjust their trade mix to include more experience-oriented retailers. Those that do will be best placed to attract and retain foot traffic," said Joel Stephen, Senior Director and Head of Retailer Representation, Asia at CBRE.