Thailand Retail Market

Source: Thai Retailers Association

TRA says government policy caused retail sector to grow as expected

Thai economy is recovering with continued growth in 2017

Bangkok, February 14, 2017: The Thai Retailers Association (TRA) has disclosed that the Thai Retail Index in 2016 grew by 2.97 percent, similar to the 3.0 percent projected at the beginning of the year and higher than 2015’s figure of 2.8 percent. This reflects the effectiveness of government’s spending policies and measures to accelerate budget disbursement stimulating the grass roots’ consumption.

TRA president Jariya Chirathivat noted that the Association’s index separated products into three categories: durable goods, semi-durable goods and non-durable goods. The TRA index in 2016 showed a significantly reduced rate of growth in durable goods, while semi-durable goods grew compared to 2015, and non-durable goods had a slightly increased rate of growth.

TRA Retail Indexes 2016

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TRA’s analysis of growth trends in each category of product is as follows

1. Durable Goods: The growth rate was not high compared to previous years due to the construction and housing sector not growing satisfactorily between 2015 and 2016 as the main factor, along with financial institutions tightening consumer loans. Although home appliances showed some growth, the whole mobile and IT sector grew less than 5 percent with no new products to stimulate the market, all of which made the durable goods segment grow by only 1.95 percent in 2016.

2. Semi-durable Goods: This segment saw stable growth compared to previous years, despite tourist arrivals increasing from 29.5 million in 2015 to 32 million in 2016, which did not result in increased spending on semi-durable goods. One important barrier to spending was domestic import taxes on luxury goods remaining high compared to Thailand’s neighbours. Fashion, cosmetics and leather goods also showed slower growth than previous years. Only sports and health goods grew at high rates from the current health-conscious trend, which supported the semi-durable goods index to maintain growth of 3.5 percent, the same as 2015.

3. Non-durable Goods showed only little growth because of impacts from farmers’ incomes continuing to shrink from 2015, serious droughts and depressed global commodity prices. Sales growth in the first quarter was not as expected. However, after the drought was over and normal rainfall resumed, farm production started to improve, which alongside government measures to inject cash into the system and promote growers’ groups, caused the economy to pick up. Farmers’ weak buying power gradually improved to give a trend of increasing sales in the second and third quarter, although there was a slight shrinkage in the fourth quarter. The government’s “Shop for the Country” campaign in December lifted the sales growth of non-durable goods to increase on 2015 at 3.03 percent.

Expectations of positive factors on the retail situation in 2017

1. Increased efficiency of the budget-drawing process: Budgets drawn for investment and the investment budgets of state enterprises were not less than 80 percent, and those overlapping years, not less than 75 percent. Infrastructure investment projects have been implemented in transportation, the development of the Eastern Economic Corridor and the Special Border Economic Zones.

2. Increasing mid-year budgets by 190 billion baht is expected to show results by the second and third quarter.

3. Maintaining the growth of income from tourism: Implementation of the 2017 strategic plan for the tourism market on predictions of 35 million tourist arrivals and income generated of over 2.8 million baht

4. Improvement of farmers’ incomes: Expectations should improve from the recovering drought situation and farm prices returning to a positive direction, especially of staples for the sector such as rubber, palm, sugarcane and pineapple.

Projected risk factors for retail in 2017

1. Household debt: This appears to be stable at a level of 80.2 percent with a modest effect on household purchasing power, which may cause the consumption of durable and semi-durable goods to slow down.

2. SMEs’ non-performing loans with financial institutions have an increasing trend with the result of shrinking the system’s loan base, reduced investment and increased unemployment.

3. Increased oil prices would result in increasing inflation, which may put pressure on Thai household spending to decrease, while increasing transportation costs

4. Exports and private sector investment need to be monitored and may change in line with increased volatility in the global economy. At this point it is necessary to rely mainly on government investment.

Directions for Retail in 2017

1. Non-durable goods: These should improve better than other segments as a result of the efficient direction of state budgets to the grass roots and over 2 trillion baht coming into the system.

2. Durable goods: Despite the government’s acceleration of investment in infrastructure to boost the growth of property, clear growth may not be seen within this year. The rate of growth in this sector should remain flat going into 2017.

3. Semi-durable goods: Fashion, cosmetics and leather goods are still hoping for the effects of government policies to relax import taxes to stimulate tourist spending to grow by over 12 percent, as well as relaxing border trade restrictions, especially tourists that come from neighbouring countries. Domestic consumption should remain flat as the people are still in mourning for His Majesty King Bhumibol Adulyadej.

4. Overall, the Retail Index in 2017 should show slight improvement over 2016, with the rate of growth expected to be around 3.0 to 3.2 percent.

Retail stimulus proposals for the government

1. The government should urgently institute confidence-building measures to promote an atmosphere of spending and investment such as activities to promote tourism in the Low Season in cooperation with the tourism sector, hotels and the retail sector, which can stimulate spending by both Thais and tourists.

2. Creating confidence among both Thai consumers and foreign tourist consumers by getting the Ministry of Tourism and Sport to announce the Thailand Brand Sale event for a period of three months. This will create an atmosphere to attract tourists and stimulate spending by consumers who still have purchasing power to return to previous levels.

3. Thailand has the potential to attract tourists with both natural and cultural attractions, as well as global standards of hotels and tourism services. Therefore, to develop Thailand into a comprehensive tourist destination, the government should seriously study and consider the matter of reducing import duties on luxury brand goods, and in particular fashion, cosmetics, leather goods and watches, to stimulate increased spending by foreign tourists.

4. The government must launch clear measures to promote border trade and consider relaxing the opening of border posts, increasing the number of border posts and providing greater convenience, including considering “VAT Refund for Tourist” for tourists from neighboring countries arriving by land.

5. Measures of urgent assistance for SMEs, particularly the problem of poor cash flow or liquidity from increased labor and energy costs. For instance, an SME producer who is a supplier of a TRA member might be able to use an invoice received from a retailer as collateral in borrowing from either government or private banks to improve their cash flow.

6. Online trading: Business currently outside the system should be brought into the system.