HOW GLOBAL BRANDS ARE SHAPING THE METRO MANILA RETAILER LANDSCAPE A Cushman & Wakefield Research Publication

MARCH 2015

GLOBAL RETAILERS IN METRO MANILA

1.0 MILLION HOW GLOBAL BRANDS ARE SHAPING THE METRO MANILA RETAILER LANDSCAPE

BPO industry on track to employ more than 1.0 MILLION EMPLOYEES S&P (BBB) and MOODY’S (BAA2) updgrade the country’s investment grade credit ratings

This report offers a snapshot of the current international retailer landscape within Metro Manila. Additionally, the report identifies emerging retailer trends and provides an outlook for the market moving forward. The report tracked 190 mid-range and luxury foreign brands that entered the Philippines between 2008 and 2014. The international retailers identified in the report include new foreign brands in the market and existing brands that have set up their first dedicated stores in the country.

FITCH, MOODY’S and S&P award Philippines with investment grade credit rating

START of three year 6-7% GDP growth rate

9.0 MAGNITUDE EARTHQUAKE & TSUNAMI in Japan and flooding in Thailand, Philippine economy slowed to 3.6% OF REMITTANCES reach USD 20 billion PHILIPPINE ECONOMY rebounded, posted 7.6% growth

2009 GLOBAL FINANCIAL CRISIS, Philippines managed to post 1.1% GDP growth in 2009

2014

2011

2012

2013

THIRD WAVE OF NEW FOREIGN RETAILERS Baskin Robbins, Casadei, Carven, Crate & Barrel, H&M, H&M Home, Hamleys, Pottery Barn

SM MEGA FASHION HALL opens in Mandaluyong City, brings total shopping mall space in SM Megamall to more than 450,000 sqm

GLORIETTA 1 & 2 completes redevelopment in Makati City (54,000 sqm)

SECOND WAVE OF NEW FOREIGN RETAILERS A mix of luxury and mid-range retailers such as BCBG Max Azria, Clinique, Cotton On, Repetto, TWG Tea Salon and Boutique, Tory Burch, UNIQLO, J.Co Donuts,Vince Camuto open their respective stores in Metro Manila

JAMBA JUICE enters the market while new retailer entrants expand their footprint

2010 FIRST WAVE OF NEW FOREIGN RETAILERS Mid range brands such as BonChon, Forever 21, Happy Lemon, Muji, Papa John’s, and Payless Shoe Source enter the market

HIGH-END AND LUXURY BRANDS such as Agatha, Royce, Tumi, Hermes, Jimmy Choo and Massimo Dutti open their first boutique stores in the country

2008 Cushman & Wakefield advises and represents clients on all aspects of property occupancy and investment. Founded in 1917, it has 248 offices in 58 countries, employing more than 16,000 professionals. It offers a complete range of services to its occupier and investor clients for all property types, including leasing, sales and acquisitions, equity, debt and structured finance, corporate finance and investment banking, appraisal, consulting, corporate services, and property, facilities, project and risk management. CUSHMAN & WAKEFIELD

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GLOBAL RETAILERS IN METRO MANILA

WHY THE PHILIPPINES? The number of global brands in the Philippines has been rising, with more than 190 new international brands entering the country since 2008. The last three years saw a significant number of new foreign retailers in the market and 2014 served as the banner year with at least 45 new brands having entered the country. The young and growing demographics accompanied by rising income levels and a healthy stock of retail space offering competitive rents, altogether underpin this strong retailer interest in the country.

STRONG ECONOMIC GROWTH The Philippines has become one of the bright spots in the Asia Pacific region, posting an average gross domestic product (GDP) growth rate of 6.7% in the last three years. The services sector continue to post solid grow alongside a recovering manufacturing sector while share of household consumption from the country’s GDP continue to hover from 69-72% in the last six years. This robust economic growth has caught the attention of international retailers as they seek new markets outside the recovering economies of the west.

900,000 people are employed in the BPO sector

1.8 million

Despite the lower-than-expected 2014 GDP growth, the Philippines remain in a strong economic position moving forward. An expanding middle class, supported by the sustained growth of the business process outsourcing (BPO) industry and overseas Filipino (OF) remittances is driving healthy consumption, which should maintain the country’s attractiveness towards foreign retailers.

8,000,000

9.0%

7,000,000

8.0%

160,000,000

6,000,000

7.0%

140,000,000

6.0%

5,000,000

5.0%

4,000,000

4.0%

3,000,000

3.0%

2,000,000

FIGURE 2. PROJECTED POPULATION GROWTH BY MAJOR AGE GROUP

Growth rate

new foreign brands entering the country since 2008.

FIGURE 1. REAL GDP, CONSUMPTION AND GDP GROWTH

Php millions

190+

2.0%

1,000,000

1.0% 0.0%

2008 2009 2010 2011 2012 2013 2014 Real GDP

Household Consumption

GDP Growth

Source: Philippine Statistics Authority (PSA)

HEALTHY DOMESTIC CONSUMPTION LED BY THE YOUNG AND GROWING DEMOGRAPHICS The Philippine population grew annually by 1.9% from 2000 to 2010 and breached the 100 million mark last July 2014. An estimated 47 million of the country’s population belongs to the 20-64 year old age group, of which 71% is between 20 and 44 years old, suggesting a young and growing population. Assuming a decline in unemployment rate, the Philippines should enjoy economic gains from the growing working age population1, which is projected to account for 68% of the total population by 2045 according to the Philippine Statistics Authority (PSA).

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the number of Filipinos deployed overseas as of 2013

120,000,000 100,000,000 80,000,000 60,000,000 40,000,000 20,000,000 2010 2015 2020 2025 2030 2035 2040 2045 0-14

15-64

65 and above

Source: PSA, Cushman & Wakefield Research

The BPO industry and overseas remittances have been pivotal in expanding the country’s middle class2 as both sectors are key drivers of employment, rising income levels and in fuelling domestic consumption. As of end-2013, the number of deployed overseas Filipinos and BPO employees are at 1.8 million and 900,000 individuals, respectively. Modest job requirements3 and attractive compensation packages have attracted a large number of the young and skilled workforce to enter the BPO industry. Similarly, higher wages4 and strong demand for the Filipino workforce globally have encouraged the diaspora of a significant number of Filipinos abroad.

“

Modest job requirements and attractive compensation package have attracted a large number of the young and skilled workforce to enter the BPO industry. Similarly, higher wages and strong demand for the Filipino workforce globally have encouraged the diaspora of a significant number of Filipinos abroad.

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CUSHMAN & WAKEFIELD

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GLOBAL RETAILERS IN METRO MANILA

METRO MANILA HISTORICAL SHOPPING MALL STOCK

Shopping Mall Stock (in sqm)

8,000,000

Metro Manila shopping mall stock currently stands at 6.5 million sqm

7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Existing Supply

New Supply

Source: Cushman & Wakefield Research

MOST EXPENSIVE RETAIL LOCATION IN EACH COUNTRY RANK 2014

HISTORICAL PERFORMANCE OF BPO AND REMITTANCE

280

Index (2008 = 100)

260 240 220 200 180 160 140 120 100 2008

2009

2010

2011

2012

OF Remittances

OF Workforce

BPO Revenue

BPO Workforce

2013

Sources: IT & Business Process Association Philippines (IBPAP), Philippine Overseas Employment Administration (POEA), Cushman & Wakefield Research

This increased wealth and rapid pace of urbanization have generated demand for a wider set of products and services, consequently, fuelling consumption. This robust consumption has encouraged the construction of shopping malls by major and boutique mall developers throughout the country.

HEALTHY RETAIL STOCK AND COMPETITIVE RENTS Metro Manila shopping mall stock5 currently stands at 6.5 million square meters and could expand to 7.0 million square meters by 2017 as new shopping malls complete within upcoming mixed-use districts in the metropolis. Aside from the healthy pipeline, the Philippines also has one of the most competitive retail rents across the globe. Our 2014 Main Streets Across the World publication ranked the Philippines in 62nd place6 in terms of most expensive retail locations in the world. This competitive rent provides additional incentive for prospective retailers to enter the market.

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 44 46 47 48 49 50 51 52 53 54 55 55 57 58 59 60 61 62 63 64 65

COUNTRY

USA Hong Kong (China) France UK Australia Italy Japan South Korea Switzerland Russia Austria Germany China Spain Colombia Singapore Norway The Netherlands Brazil Turkey Malaysia Ireland Canada New Zealand Denmark Taiwan Czech Republic United Arab Emirates Greece Israel India Finland Ukraine Vietnam Belgium Sweden Lebanon Luxembourg Kazakhstan Hungary Portugal Argentina Thailand Poland Serbia South Africa Qatar Peru Channel Islands Mexico Lithuania Indonesia Bahrain Ecuador Slovakia Slovenia Romania Oman Latvia Bulgaria Republic of Macedonia Philippines Estonia Jordan Cyprus

CITIES

New York Hong Kong Paris London Sydney Milan Tokyo Seoul Zurich Moscow Vienna Munich Beijing Barcelona Bogota Singapore Oslo Amsterdam São Paulo Istanbul Kuala Lumpur Dublin Toronto Auckland Copenhagen Taipei Prague Dubai Athens Tel Aviv New Delhi Helsinki Kiev Hanoi Brussels Stockholm Beirut Luxembourg Almaty Budapest Lisbon Buenos Aires Bangkok Warsaw Belgrade Cape Town Doha Lima St Helier Mexico City Vilnius Jakarta Manama Quito Bratislava Ljubljana Bucharest Muscat Riga Sofia Skopje Manila Tallinn Amman Nicosia

LOCATION

Upper 5th Avenue Causeway Bay Avenue des Champs Elysées New Bond Street Pitt Street Mall Via Montenapoleone Ginza Myeongdong Bahnhofstrasse Stoleshnikov Kohlmarkt Kaufingerstraße Wangfujing Portal de l'Angel Shopping Centre Orchard Road Karl Johans Gate Kalverstraat Iguatemi Shopping Bagdat Caddesi (Asian side) and Istiklal Street Pavilion KL Grafton Street Bloor Street CBD Strøget ZhongXiao E. Road Na Prikope/Wenceslas Square Prime Shopping Centre Ermou Ramat Aviv Khan Market City Centre Kreschatik Street Shopping Centre Rue Neuve Biblioteksgatan ABC Centre Achrafieh Grand Rue Prime Shopping Centre Váci utca Chiado Florida Central Retail District ul. Nowy Swiat Kneza Mihaila V&A Waterfront Prime Shopping Centre Shopping Centre King Street Masaryk Avenue Prime Shopping Centre Prime Shopping Centre Prime City Centre Shopping Centre Av Naciones Unidas (Shopping Centre) Prime Shopping Centre Čopova Bulevardul Magheru Prime Shopping Centre Prime Shopping Centre Vitosha Blvd Prime Shopping Centre Makati CBD Prime Shopping Centre City Centre (BCD) Makarios Avenue

EUROS/SQ.M/YEAR

29,822 23,307 13,255 10,361 8,658 8,500 8,120 7,942 7,456 4,749 4,440 4,380 4,100 3,240 3,135 3,087 3,081 2,900 2,714 2,660 2,649 2,529 2,478 2,443 2,384 2,361 2,220 2,204 2,160 2,105 2,070 1,968 1,900 1,805 1,750 1,636 1,583 1,500 1,330 1,140 1,110 1,064 1,025 1,020 1,020 1,009 965 950 879 874 864 791 756 665 660 660 600 543 540 528 480 402 360 317 216

US$/SQFT/YEAR

3,500 2,735 1,556 1,216 1,016 998 953 932 875 557 521 514 481 380 368 362 362 340 319 312 311 297 291 287 280 277.13 261 259 253 247 243 230.96 223 212 205 192 186 176 156 134 130 125 120 120 120 118 113 111 103 103 101 93 89 78 77 77 70 64 63 62 56 47 42 37 25

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Our 2014 Main Streets Across the World publication ranked the Philippines in 62nd place in terms of most expensive retail locations in the world. This competitive rent provides additional incentive for prospective retailers to enter the market.

”

CUSHMAN & WAKEFIELD

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GLOBAL RETAILERS IN METRO MANILA

SALIENT SECTIONS OF THE RETAIL TRADE LIBERALIZATION ACT OF 2000 (1) “Retail trade” shall mean any act, occupation or calling of habitually selling direct to the general public merchandise, commodities or good for consumption, but the restriction of this law shall not apply to the following: (a) Sales by manufacturer, processor, laborer, or worker, to the general public the products manufactured, processed or products by him if his capital does not exceed one hundred thousand pesos (Php100,000.00); (b) Sales by a farmer or agriculturist selling the products of his farm; DEFINITION

(c) Sales in restaurant operations by a hotel owner or inn-keeper irrespective of the amount capital: provided, that the restaurant is incidental to the hotel business; and (d) Sales which are limited only to products manufactured, processed or assembled by a manufactured, processed or assembled by a manufacturer though a single outlet, irrespective of capitalization. (2) “High-end or luxury goods” shall refer to goods which are not necessary for life maintenance and whose demand is generated in large part by the higher income groups. Luxury goods shall include, but are not limited to products such as; jewelry, branded or designer clothing and footwear, wearing apparel, leisure and sporting goods, electronics and other personal effects. Foreign-owned partnerships, associations and corporation formed and organized under the laws of the Philippines may, upon registration with the Securities and Exchange Commission (SEC) and the Department of Trade and Industry (DTI), or in case of foreign owned single proprietorships, with the DTI, Engage or invest in the retail trade business, subject to the following categories. CATEGORY A – Enterprises with paid-up capital of the equivalent in Philippine Peso of less than two million five hundred thousand US dollars (US$2,500,000.00) shall be reserved exclusively for Filipino citizens and corporations wholly owned by Filipino citizens.

FOREIGN EQUITY PARTICIPATION

MODE OF ENTRY

CATEGORY C – Enterprises with a paid-up capital of the equivalent in Philippine Pesos of seven million five hundred thousand US dollars (US$7,500,000.00), or more may be wholly owned by foreigners: Provided, however, That in no case shall the investments for establishing a store in vestments for establishing a store in Categories B and C be less than the equivalent in Philippine pesos of eight hundred thirty thousand US dollars (US$830,000.00).

Historically, foreign retailers partner with local distributors such as Stores Specialists, Inc., SM Group, Robinsons Retail, and Bench (Suyen) Corporation, among others, in their foray into the Philippine market. This allows these international retailers to leverage on the reputable track record, local expertise, and network, of these local distributors. Another mode of entry for prospective international retailers is through setting up a wholly owned entity in the country. The Retail Trade Liberalization Act of 2000 allows foreign retailers to own 100% of their enterprise in the country under certain conditions. The bill seeks to open the local retail market to the global market. Among those that entered the country wholly owned include, Giordano, Nike, and more recently, H&M. There has been movement to amend the existing law, particularly the restrictions on foreign participation, to enhance the appeal of the local market towards prospective retailers. If successful, we may see further growth in new international retailers in the country.

DISTRIBUTOR BENCH (SUYEN) CORPORATION BRAND GATEWAY PRIMER GROUP OF COMPANIES

SELECT NEW BRANDS Casadei, St. Marc Café

LUXASIA

Philosophy, Makeup Forever, Shisheido

SM GROUP STORES SPECIALISTS, INC.

Miss Selfridge, River Island Crate & Barrel, Forever21, Sfera, Suiteblanco, UNIQLO Aeropostale, Brooks Brothers, F&F, Muji, Old Navy

Source: Cushman & Wakefield Research

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FOREIGN INVESTORS ACQUIRING SHARES OF STOCK OF LOCAL RETAILERS

Foreign investors acquiring shares from existing retail stores whether or not publicly listed whose net worth is in the excess of the peso equivalent of two million five hundred thousand US dollars (US$2,500,000.00) may purchase only up to a maximum of sixty percent (60%) of the equity thereof within the first two (2) years from the effectivity of this Act and thereafter, they may acquire the remaining percentage consistent with the allowable foreign participation as herein provided.

PUBLIC OFFERING OF SHARES OF STOCK

All retail trade enterprises under Categories B and C in which foreign ownership exceeds eighty percent (80%) of equity shall offer a minimum of thirty percent (30%) of their equity to the public through any stock exchange in the Philippine within eight (8) years from their start of operations. No foreign retailer shall be allowed to engage in retail trade in the Philippine unless all the following qualifications are met: (a) A minimum of two hundred million US dollar (US$200,000,000.00) net worth in its parent corporation for Categories B and C, and fifty million US dollar (US$50,000,000.00) net worth in its parent corporation for category D;

QUALIFICATION OF FOREIGN RETAILERS

(b) (5) retailing branches or franchises in operation anywhere around the word unless such retailer has at least one (1) store capitalized at a minimum of twentyfive million US dollars (US$25,000,000.00); (c) Five (5)-year track record in retailing; and

DC, Flight 001, Fox, Quiksilver, Roxy Patek Philippe, IWC, Panerai, Hublot, Rolex, Omega, Tudor

ROBINSONS RETAIL

CATEGORY D – Enterprises specializing in high-end or luxury products with a paid-up capital of the equivalent in Philippine Pesos of two hundred fifty thousand US dollars (US$250,000.00) per store may be wholly owned by foreigners.

Luminox, Orca, Paul & Shark, Piquadro, Rudy Project

LUCERNE

CATEGORY B – Enterprises with a minimum paid-up capital of the equivalent in Philippine Pesos of two million five hundred thousand US dollar (US$2,500,000.00) but less than Seven million five hundred thousand US dollars (US$7,500,000.00) may be wholly owned by foreigners except for the first two (2) years after the effectivity of this Act wherein foreign participation shall be limited to not more than sixty percent (60%) of total equity.

(d) Only nationals from, or juridical entities formed or incorporated in Countries which allow the entry of Filipino retailers shall be allowed to engage in retail trade in the Philippines. PROHIBITED ACTIVITIES OF QUALIFIED FOREIGN RETAILERS

“

There has been movement to amend the existing law, particularly the restrictions on foreign participation, to enhance the appeal of the local market towards prospective retailers.

”

Qualified foreign retailers shall not be allowed to engage in certain retailing activities outside their accredited stores through the use of mobile or rolling stores or carts, the use of sales representatives, door-to-door selling, restaurants and sari-sari stores and such other similar retailing activities: Provided, that a detailed list of prohibited activities shall hereafter be formulated by the DTI

Source: The LawPhil Project

CUSHMAN & WAKEFIELD

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GLOBAL RETAILERS IN METRO MANILA

NUMBER OF BRANDS BY RETAIL TYPE (2008-2014) BRAND COUNT DISTRIBUTION OF NEW FOREIGN BRANDS BY REGION

34.2% Food & Beverage

33.7% Clothing & Apparel

8.4%

8.4% Footwear

4.2% Jewelry, Watches & Accessories

Furniture & Fixture

NEW GLOBAL RETAILERS IN METRO MANILA MID-RANGE FOOD & BEVERAGE AND CLOTHING BRANDS LEAD NEW RETAILERS Solid consumption driven largely by the country’s expanding middle class has contributed to the growth of mid-range retailers. The segment currently captures around 79% of new foreign brands in the report. Mid-range food and clothing retailers have exhibited the largest growth in the last seven years. Fast fashion brands such as Forever 21, CottonOn, and UNIQLO continue to take up large retail spaces, while quick service F&B restaurants/stores such as BonChon, Happy Lemon, and J. Co. Donuts, albeit taking up smaller spaces, are active in store expansions. The entry and expansion of new and existing brands contributed to the uptick in retail activity within the luxury and high-end segment. New designer labels such as Hermes, Stuart Weitzman and Casadei have entered the Philippines while select existing brands opened their first dedicated stores in the country. High-end watches Hublot, Baume & Mercier, Breitling, Tudor, IWC, and Jaeger-LeCoultre simultaneously opened their first stand-alone stores in Central Square in Bonifacio Global City last 2013. In addition, cosmetics brands Benefit and Clinique opened their first dedicated stores in 2011 and 2012, respectively. Select existing brands also opened their new flagship stores in recently completed shopping malls within Metro Manila. However, these stores remain small and store expansions have been few and far in between compared to other countries.

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3.2%

3.2% Bag & Luggage

Gadgets & Appliance

2.6% General Retail

2.1% Healthcare & Beauty

40%

29%

25%

5%

1%

EUROPE

ASIA

NORTH AMERICA

AUSTRALIA

MIDDLE EAST

STORE COUNT DISTRIBUTION OF NEW FOREIGN BRANDS BY REGION

EUROPEAN BRANDS CONTINUE TO DOMINATE THE MARKET BUT ASIA PACIFIC RETAILERS GAINING MOMENTUM An estimated 123 new brands covered in the report are western retailers. European brands, particularly from France, Italy and UK, led retail activity from the region. Alexander McQueen, H&M, Burton Menswear London, Stefanel, and Uno de 50 are some of the new European brands that took up spaces in shopping malls in Metro Manila. Nevertheless, American retailers continue to have healthy presence in the country given the historical ties and cultural affinity between the United States and the Philippines. Select new American brands in the country are Aeropostale, American Eagle Outfitters, Jamba Juice, Joe’s Jeans, Old Navy, Papa John’s and Payless ShoeSource. The market is slowly changing as the number of Asian brands has significantly increased in the last three years. Asian retailers currently account for around 56 new brands in the country, translating to approximately 261 stores in Metro Manila alone, and outperforming North American (158 stores) and European (157 stores) brands. The high store count of Asian brands is due to the large number of F&B retailers from the region. Japan leads all Asian retailers with at least 22 new brands entering the market since 2008. Select Japanese brands in the country include Muji, Royce, Sony, St. Marc Café, and UNIQLO.

42%

25%

25%

6%

2%

EUROPE

ASIA

NORTH AMERICA

AUSTRALIA

MIDDLE EAST

Source: Cushman & Wakefield Research

Australian and Middle Eastern retailers also have a growing presence in the country. CottonOn, F&X, Patchi, Rubi and TYPO, albeit having small market presence, have had healthy store expansions.

CUSHMAN & WAKEFIELD

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GLOBAL RETAILERS IN METRO MANILA

NEW RETAILERS CONCENTRATED IN SELECT CITIES The cities of Makati, Mandaluyong and Quezon host around 60% of the total number of stores by new global retailers tracked in the report. This is mainly due to the volume of new shopping mall space in these cities, which provide opportunities for entry and expansion by international brands. At least 106 flagship stores have opened within Mandaluyong, Taguig and Makati, which suggest the strong preference by international retailers to locate within these areas. Examples of flagship stores in these cities include, in Makati, Bershka, Stradivarius, INGLOT, and Jimmy Choo; in Mandaluyong, Carven, Crate & Barrel, Forever 21, H&M, and Herve Leger; and in Taguig, Casadei, Ever New, Hamley’s, Jamba Juice, Joseph, and Pottery Barn. The low store count of international brands within the cities of San Juan, Las Piñas, Marikina, Parañaque and Pasig is attributable to the lack of new shopping mall space and close proximity of these areas to other cities with strong presence of foreign brands. Luxury brands have the highest store count in Mandaluyong and Makati where the Ortigas and Makati central business districts (CBDs), respectively, are located. BPO and corporate firms, as well as middle- and high-income subdivisions in the locality of these CBDs serve as strong catchments for luxury goods. As of this writing, new luxury and high-end brands tracked in the report have little presence in Quezon City and Muntinlupa.

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HISTORICAL GROWTH OF NEW FOREIGN BRANDS BY SEGMENT

NUMBER OF NEW FOREIGN BRANDS BY SEGMENT AND BY RETAIL TYPE

200 180 160 140 120 100

Number of New International Brands

Number of New International Brands

The low number of upscale brands in Quezon City is reflective of the predominance of middle-income households surrounding shopping malls within the city. This should enhance the appeal of the city towards mid-range retailers and suggest potential growth for prospective luxury and high-end brands.

The low number of upscale brands in Quezon City is reflective of the pre-dominance of middle-income households surrounding shopping malls within the city. This should enhance the appeal of the city towards mid-range retailers and suggest potential growth for prospective luxury and high-end brands. Meanwhile, the weak interest of new upscale retailers to locate within Muntinlupa may stem from the limited prospective market in the area compared to the more diverse and wider catchments of Makati, Mandaluyong and Taguig.

80 60 40 20 0 2008

2009

2010

Low-end and Mid-end Source: Cushman & Wakefield Research

2011

2012

2013

Luxury and High-end

70 60 50 40 30 20 10 0

2014 Luxury and High-end

Low-end and Mid-end

Source: Cushman & Wakefield Research

CUSHMAN & WAKEFIELD

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GLOBAL RETAILERS IN METRO MANILA

country. Meanwhile, ramen chains, which include Hanamaruken, Ikkoryu Fukuoka Ramen, Ramen Nagi, Ramen Santouka and Tampopo, have become very popular in the past two years.

INCREASING SEGMENTATION IN THE MARKET New retailers are offering new price points, highlighting the increasing segmentation in the market and reflective of the growing purchasing power of the consumer base. Select new fast fashion brands such as Bershka, G-Star Raw, Miss Selfridge, River Island, Stradivarius and Vero Moda have higher price ranges than existing clothing and apparel brands. There is also an increasing presence of more affordable upscale brands such as Brooks Brothers, BCBG Max Azria, Paul & Shark, Karen Millen, and Vince Camuto, to name a few.

RETAILERS RECOGNIZING MARKETS OUTSIDE METRO MANILA

SUSTAINED DEMAND AND RENEWED INTEREST FROM NEW AND EXISTING RETAILERS There remains keen interest from international retailers to enter and expand their footprint in the country. This is evident in the sustained healthy partnerships between local distributors and foreign brands. Robinsons Retail announced last year that it is bringing in Costa Coffee, a UK coffee chain, to the Philippines. Moreover, majority of committed spaces within newly completed shopping malls are by foreign brands. In addition, international retailers are replacing older tenants in select existing shopping malls. There is also renewed interest from current and formerly existing brands in the country. Japanese restaurant Nanbantei of Tokyo and clothing brand Eddie Bauer have opened up their expansion stores after more than five years being in the country. Ice cream store Baskin Robbins re-entered the market in 2014, setting up shop within Central Square building in Bonifacio Global City (BGC).

EXPANDING RETAIL SELECTION, NEW PRODUCT LINES AND GROWING NICHE MARKETS Retail selection in the country is expanding with the entry of home furniture and fixture brands such as Crate & Barrel, H&M Home and Pottery Barn in 2014. West Elm is likewise opening its first store in Estancia Mall in Pasig City. Prior to the entry of these brands, foreign furniture and fixture products were distributed by select local stores such as Dimensione and Make Room & More. The growth of these retailer brands may be attributed to the unprecedented boom of the residential market. This is evident in the large number of new residential projects in both the mid-end and luxury segment throughout the country. New brands and product lines catering to the underserved market for men and children are likewise growing. Among such are Brooks Brothers, Paul & Shark, CottonOn Kids, Pottery Barn Kids, Petit Bateau, and Rubi shoes. Pottery Barn Teens is opening in Estancia Mall in Pasig City within the year.There are also an increasing number of niche retailers, particularly for F&B brands. International milk tea and yogurt brands continue to proliferate despite the large number of existing local and international players in the market. Japanese specialty restaurants such as Saboten, Katsu Sora and Tonkatsu by Terazawa, which focuses on katsu, and more recently, Osaka Ohsho, specializing in gyoza, have opened stores in the

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RISE OF E-COMMERCE There is a young e-commerce market in the country with major online stores such as Lazada and Zalora growing in popularity among Filipinos. Major distributors have also been quick to adapt. Bench and Stores Specialists, Inc. have launched their respective online stores to cater to their young and tech-savvy consumers. Nonetheless, majority of Filipinos still prefer the traditional brick and mortar stores. This is evident in the evolution of malls from purely shopping places into lifestyle destinations, combining entertainment and leisure components to increase footfall and enhance the shopping experience of its consumers. There also remains relatively low penetration of smart phones and internet in the country. A 2014 Nielsen study reported that smart phones and internet users had market penetration of 15% and 52%, respectively. Nielsen also noted in 2012 that only 34% of Filipinos made online purchases, far lower than in Asia Pacific (62%) and across the globe (49%). This may change as access to reliable internet connection improves combined with rising incomes and falling prices of smartphones.

“

Nonetheless, majority of Filipinos still prefer the traditional brick and mortar stores. This is evident in the evolution of malls from purely shopping places into lifestyle destinations, combining entertainment and leisure components.

”

HISTORICAL GROWTH OF NEW BRANDS BY RETAIL TYPE

Number of New International Brands

MARKET TRENDS

Property development and economic activity, albeit still concentrated in Metro Manila, have been gradually moving into provincial areas. Major developers are constructing new townships in various growth cities such as Cebu, Davao and Cagayan de Oro, among others, creating expansion opportunities for international retailers. Select brands such as Ellesse, F&F, Liu Jo, and Petit Bateau have opted to open their first stores in these areas instead of Metro Manila. The availability of affordable retail space and presence of underserved markets provide strong incentive for international retailers to enter these cities.

60 40 20 0

2008 2009 2010 2011 2012 2013 2014 Bag and Luggage

Clothing and Apparel

F&B

Footwear

Furniture and Fixture

Gadgets and Appliance

General Retail

Healthcare and Beauty

Source: Cushman & Wakefield Research

CUSHMAN & WAKEFIELD

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GLOBAL RETAILERS IN METRO MANILA

OUTLOOK There remain a significant number of underserved and untapped markets within and outside Metro Manila, which should provide prospective demand for international retailers. Within Metro Manila, there has been redevelopment as well as expansion of established areas and emergence of new districts, pushing development into fringe and pocket areas of the metropolis. Property developers are now moving into community/neighborhood malls model, positioning themselves closer to their consumers and enabling retailers to tap latent markets. Upcoming Public-Private-Partnership (PPP) projects, particularly infrastructure projects, should be able to complement these property developments, contributing to urbanization and driving economic gains. Enhanced mobility and accessibility should be able to expand catchments of retailers not just within and adjacent provinces of Metro Manila but outside the country, as well. The improvement of airport facilities can facilitate growth in tourist arrivals, and provide prospective demand for international retailers as well. This potential growth in tourists is supported by the increasing availability of affordable flights due to the presence of low cost carriers and budget hotels. The Entertainment City in the Bay City area, where a number of hotel and leisure projects are situated, should be able to attract a market for high-end and luxury products. The 2015 ASEAN integration augurs well for the market as the free flow of capital, goods, and services may increase retailer activity and spur consumer demand within the region. In addition, the Philippine REIT market, while currently unattractive due to stringent rules, should encourage investment inflows to the country if successfully amended. Majority of foreign brands will still likely partner with local distributors to enter the country for ease of doing business. However, the positive economic prospects of the country and successful amendments of laws affecting the retail market, may find prospective international retailers seeing the viability and economic value in setting up their wholly owned corporation in the Philippines. Indeed, the Philippines is a desirable market for international retailers. The strong economic fundamentals and demographics of the country should drive healthy appetite for retail goods moving forward. Retail competition may tighten as existing brands compete against new retailers for the increasingly sophisticated consumer market and limited available shopping space. However, a healthy shopping mall pipeline and presence of latent demand in other areas of the country should be able to accommodate new retailer entrants to the market.

1 Persons aged 15-64 years old 2 A 2013 study by Dr. Romulo Virola, Jessamyn Encarnacion, Bernadette Balamban, Mildred Addawe, and Mechelle Viernes entitled “Will the Recent Robust Economic Growth Create a Burgeoning Middle Class in the Philippines?” defined middle-income families as those with per capita income ranging between Php65,787 and Php805,582. 3 BPO firms, particularly voice services, generally require strong English communication skills and a high school diploma 4 A 2008 study by Geoffrey Ducanes and Manolo Abella from the International Labour Organization (ILO), entitled “Overseas Filipino Workers and their Impact on Household Poverty”, noted that OF

5 Mid- to high-end shopping mall space households had higher per capita income and expenditure than non-OF households.

6 Out of 65 countries tracked in the report.

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Indeed, the Philippines is a desirable market for international retailers. The strong economic fundamentals and demographics of the country should drive healthy appetite for retail goods moving forward.

For more information about C&W Research, contact:

Joe Curran General Manager Philippines +(63) 2 554 2927 [email protected]

Janlo de los Reyes Manager Research – Philippines +(63) 2 554 2927 [email protected]

Cushman & Wakefield advises and represents clients on all aspects of property occupancy and investment. Founded in 1917, it has 248 offices in 58 countries, employing more than 16,000 professionals. It offers a complete range of services to its occupier and investor clients for all property types, including leasing, sales and acquisitions, equity, debt and structured finance, corporate finance and investment banking, appraisal, consulting, corporate services, and property, facilities, project and risk management. This report has been prepared solely for information purposes. It does not purport to be a complete description of the markets or developments contained in this material. The information on which this report is based has been obtained from sources we believe to be reliable, but we have not independently verified such information and we do not guarantee that the information is accurate or complete. Published by Corporate Communications. ©2015 Cushman & Wakefield, Inc. All rights reserved.

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