InfoQuest (December 24, 2019) -- Mr. Worawut Unjai, president of the Thai Retailers Association (TRA), predicted that Thailand's retail industry will maintain a lackluster growth rate of 2.8 percent in 2019, down from 3.2 percent last year. One main reason is that the purchasing power of low- and middle-income consumers who earn money from produce is still weak and government economic stimulus is necessary to fuel their spending. High household debt level is another main reason.
"On the whole, the retail industry is shrinking in virtually every product category in 2019. This is consistent with the feeble GDP growth this year. Our economic growth forecast for 2019 is as low as 2.6 percent (within the growth range of 2.8 percent -2.4 percent)."
It is unlikely that the retail industry will fare any better in 2020 than 2019. From now on, local retail stores will become the main driving force as large central retail chain stores may grow less faster or as fast as before at best.
According to TRA, four bright sides will come for Thailand's retail industry in 2020. First, the Thai government has introduced a package of additional fiscal incentives targeted at the population who still have purchasing power, that is, the middle class and the permanent employees who did not suffer reduced working hours like temporary ones. So far, the Chim-Shop-Chai (Taste-Shop-Spend) scheme and "Visit Thailand With 100 Baht" campaign have been put in place.
Second, the budget expenditure for fiscal year 2020 will accelerate. Budget allocation for fiscal year 2020 normally starts from October, but this year the budget bill was already submitted to the House of Representatives in November for approval soon after the establishment of the new government in September. As planned, the budget bill will be approved in January 2020, and the budget allocation will start at the turn of February and March 2020 and will end in September 2020. That means the budget funds for fiscal year 2020 will be injected into the Thai economy within only 6 months, which is anticipated to shore up the slowing economy in the short run.
Third, Thailand's monetary and fiscal policies still have room to stimulate the economy. That's because Thailand's public debt accounts for only 42 percent of GDP, which is relatively low compared with other countries. Therefore, it is possible to use funds to spur the economy. When the Thai economy stages a recovery, taxes can be levied in accordance with fiscal policy provisions to repay debts. Moreover, the Bank of Thailand (BOT) will lower the policy interest rate by 0.25 percent again in the first quarter of 2020 to help shore up the economy. At the moment, the rate stands at 1.25 percent. One more down-regulation, it will reach an all-time low.
Fourthly, tourism will gain momentum. China is the largest source of tourists of Thailand. According to a survey, the number of Chinese tourists saw a significant increase in the past two months, proving that Thailand is still the most popular destination for Chinese tourists. In addition, the Thai tourism may benefit from ongoing Hong Kong protests in the short term as foreign tourists may choose Thailand over China.
However, the retail industry will face some negative factors. First is the impact of contract termination and production reduction mainly from external factors, that is, the China-US trade war which has implications over export markets worldwide including Thailand's trading partners; the United States' canceling GSP treatment for Thai products is bound to hit Thailand's export manufacturing. Statistics from export manufacturing and allied industries show that the total number of employees in export manufacturing and allied industries is about 2.5 million, accounting for 40 percent of the total employees in Thailand. At present, shutdowns, production cuts, layoffs, and reductions in overtime are happening every day, which has left Thailand's domestic purchasing power declining at an alarming rate.
Second, compared with the same period in 2018, the drought in 2019 is expected to lead to a 16 percent fall in agricultural production and revenue. In 2020, agricultural revenue is expected to remain stable or decline slightly within the range of -0.5 percent to 0.0 percent.
Third, raising the minimum wage will have an impact. From January 1, 2021, the announcement of raising the minimum daily wage by 5-6 Thai baht will officially take effect, which will have a direct impact on employment in the service sector, especially for SMEs operating in catering, retail and wholesale, and construction industries. That's because these industries still need a large number of low-skilled labor who cannot be replaced through technology. According to data from the National Statistical Office of Thailand, the service sector, especially catering, retail and wholesale, and construction, employs more than 11 million people.
Fourthly, the latest round of economic slowdown will have implications in more fields and for a longer time. This economic slowdown is completely different from the 1997 Financial Crisis. The latter mainly affected entrepreneurs, businessmen, and the upper class who accounted for about 30 percent of the total population of Thailand, and caused business debts, so it took not a very long time to resume normal business operation. However, the former (2013-2022) has mainly affected the middle and lower classes, which account for about 70 percent of Thailand's total population and caused household debts, which have a significant impact on the purchasing power because of the widespread influence from which it takes Thailand a longer time to recover.
Mr. Worawut also mentioned the retail prospects from 2020 to 2022. First, infrastructure investment exceeding 2.4 trillion Thai baht may start to drive retail industry in the second half of 2021, so this industry will not see a pickup until 2022.
Second, at the moment and in the foreseeable future, the structure of the retail and wholesale industry can be divided into 3 types. The first type is the Modern Chain Store whose management center is located in Bangkok with sales accounting for 32 percent the total consumption volume in retail and wholesale industry. The second type is the local retailer community which is flourishing in nationwide provinces, most of which are local retailers and wholesalers in each province with sales accounting for about 20 percent of the total consumption volume in retail and wholesale industry. The third type is the small and medium-sized retailers and wholesalers totaling about 450,000, with sales accounting for about 53-55 percent of the total consumption volume in retail and wholesale industry.
Third, it is expected that Thailand's retail consumer market will reach 3.8 trillion Thai baht in 2019. From now on, the second type of local retail stores will become the main driving force of Thailand's retail industry, with a forecast growth rate two times that of GDP and increasing business presence in nationwide provinces. The first type of large central retail chain stores will venture into neighboring countries and other overseas countries, so their domestic business growth rate will slow down, decline and remain stable.
Fourthly, New Digital Business Model will be built in 2-3 years. Large retailers have begun to invest in Digital Technology to create a new business model that people call E Business (the well-known e-commerce model is O2O or Omni Channel, a business model that combines offline stores with online technology) and will achieve seamless connection offline and online no later than 2022.
Fifthly, retail will need to use "Data & Asset" to generate revenue in the near future. Research from Forrester Consulting shows that only 5 percent of retailers in Thailand use "Data" to generate revenue, while 15 percent do so worldwide. Modern shopping revolution will deal a blow to hundreds of thousands of traditional stores and small and medium-sized independent retailers in Thailand, and may even make them go bankrupt. At the same time, new operators who combine technology and sales behaviors to build a new retail business type will emerge as a new type of competitors of traditional retailers. Needing no brick and mortar stores and inventory, they can reach out to nationwide consumers regardless of distance and business scale.
Sixthly, Big Data in Thailand's retail industry still lacks knowledge and know how. 91 percent of Thai retailers lack the ability to generate new revenue through understanding and using "insights" into consumers and also lacks ability, technology, talents and processes to improve consumption experience.
Seventhly, Electronic Payments will gain ground, resulting in a sharp rise in the financial transaction volume through electronic channels. Through two years of promotion, more than 46.5 million Thais have used PromptPay, with more than 1.1 billion transactions worth 5.8 trillion Thai baht.
The limited number of merchants supporting mobile payment, the need to recharge regularly, and the convenience of using cash for small payments are obstacles facing mobile payment currently. Amid the popularization of 5G and Wi-Fi 6 technology, financial transactions will become faster and more extensive, and will provide opportunities for the take-off of micro business. That's because cheap, convenient and fast micro business can make everyone a merchant and all devices can be used for financial transactions.
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