The entry of foreign brands in the Philippine retail market has only led to reinforce the already strong mall culture as shoppers are offered an unprecedented selection of brands. It is now uncommon to see mall goers carrying around multiple gift bags from a variety of foreign brands such as Uniqlo, H&M, and Marks & Spencer, to name a few.
In our recently-published report, we estimated that around 113 new foreign brands have entered the market in the past two years alone. Since the release of this report, we’ve seen even more interest from foreign brands. Abu Dhabi-based giant LuLu hypermarket has expressed desire to venture into the Philippines.
Japanese retail chain Muji is in the talks for expansion since signing a Joint Venture Agreement with their then-distributor, Store Specialists, Inc. (SSI). Singaporean clothing brand In Good Company opened its first shop in Makati City.
Entering the Philippine Market
As more foreign retailers are interested in penetrating the Philippine market, it is worth noting that they can only do so through two possible modes of entry:
1. Partnerships with local distributors
Forging partnerships with local distributors is the most common route, as with the case of Forever 21 and Uniqlo who were introduced to the market by SM Group, and high-end brands Prada and Burberry who entered alongside SSI Group. Other big distributors include Robinsons Retail who brought in Topshop and Benefit Cosmetics, and Bench (Suyen) Corporation who took on Cath Kidston.
2. Establishment of wholly-owned entity
The Retail Trade Liberalization Act of 2000 allows foreign companies to own 100 percent of their enterprise in the Philippines, as long as they meet certain conditions. In a nutshell, the Act allows the following to be wholly-owned by foreigners:
a. Enterprises with a minimum paid-up capital of 2.5 million US dollars, whose investments for establishing a store shall not fall under 830,000 US dollars, provided that the parent corporation has a minimum net worth of 200 million US dollars; and
b. Enterprises specializing in high-end or luxury products with a paid-up capital of at least 250,000 US dollars for each store, whose parent corporation has a net worth of at least 50 million US dollars.
Apart from meeting minimum paid-up capital, the Act has also laid out qualifications to be met prior to engaging locally:
i. Foreign brands must have at least five operational retailing branches or franchises anywhere in the world, unless such brand has a store capitalized at a minimum of 25 million US dollars.
ii. The brand must have a five-year track record in retailing, and must have been formed or incorporated in a country which likewise permits the entry of Filipino retailers.
While these requirements are steep, the recent years saw Swedish fast-fashion retailer H&M employ this method. A campaign to ease capital requirements under the Act was introduced two years ago, but did not gain traction. The current administration, however, is contemplating on lifting and easing restrictions on foreign participation and ownership. Among the activities eyed for this movement is retail trade.
It’s not hard to see why the level of interest from foreign brands has been on the upswing. The country has one of the youngest population in the APAC region, a substantial chunk of which are employed under the IT-BPM industry where compensation packages are above average. In addition, the stable stream of Overseas Filipinos’ personal remittances increases local households’ disposable incomes. With a promising market and a policy geared towards welcoming more foreign players, the Philippine retailer scene can expect to see more interesting and a diversified portfolio of global retailers.
For more insights on how the Philippine retailer market fared in the previous years, read our 2015 report.