Lower capital requirement has no impact yet on PH retail industry
Published Jun 26, 2023 09:05 am
The lower capital requirement under the amended Retail Trade Liberalization Act (RTLA), which intends to invite the world’s big foreign retailers, has made no impact yet on the domestic retail industry, only firming up the Philippine Retailers Association (PRA) position that liberalization is not a guarantee that businesses would invest in the local retail market.
PRA Chairman Paul Santos was quoted by Retail Asia saying that the current minimum investment for foreign retailers in the local retail market “will invite not the big foreign retailers that the law presumably wanted to invite into the country.” The amended RTLA of 2000 was passed into law in 2021 to ease the requirements for foreign retailers to enter the domestic market. Under the amendment, foreign retailers now only need around $446,000 (P25m) of investments, down from the previous $2.5m requirement. If the foreign retailer has more than one physical store, each store must have a minimum investment of $178,000 (P10m). They are also required to maintain a paid-up capital of $446,000 (P25m). But Santos explained that foreign retailers are not too concerned about capitalization requirements as they are with incentives and the economic environment that would allow their business to grow. More than a year since the law’s passage allowing smaller investment hurdle for foreign retailers, Santos said the domestic retail sector has experienced minimal transformation. Rather than witnessing an influx of new big foreign players, Santos said, it is the established foreign retailers already present in the country that continue to pursue expansion, albeit after facing delays caused by the pandemic. But the law is expected to attract small and medium-sale foreign retailers not the big foreign retailers. “It would make the Philippines now attractive to small and medium-scale foreign retailers who may want to do business in the Philippines competing with Philippine small and medium-scale enterprises,” Santos said. Retail Asia further quoted a testimony by a government office, when they inquired about the potential of foreign businesses doing retail business in the Philippines, that a lot of respondents said the original limit set by the retail trade liberalization law was no barrier to them doing business in the Philippines. What they were more concerned about were other issues that other foreign investors raised with this office like infrastructure, energy costs, the rule of law, the ability to repatriate profits at will and so on. For example, the article noted that in Thailand, they have the equivalent retail trade restrictions on foreigners, but still a lot of foreign retailers doing business in Thailand because of its higher GDP compared to the Philippines. Foreigners still decide to do business in Thailand, simply because they think they can make money because the market can obviously afford what they’re selling. Domestic retailers have also advantage over their foreign competitors because they are the first movers locally and more familiar with Philippine tastes and quirks. On one hand, foreign businesses also have the advantage of confidence to operate beyond their comfort zones. “They’re prepared to do so. They have their own skill sets that they think will allow them to compete in a foreign environment because of the brands they represent or the brands that they own. They have brand values and brand attributes that the target market wants. If the domestic retailer or brand is not attuned to the tastes, wants, likes and dislikes of their market, they will succumb to competitive pressure,” he added. Although retail sales in 2022 was definitely a lot better than the 2021 and 2020, the level of increase was still lower than the pre-pandemic 2019 figures. The domestic industry, however, was hoping of growing sales by 5 to 5.5 percent in 2023. This is because consumers are far more relaxed and far more accepting of e-commerce. The pandemic has forced everyone to stay home and at the same time encouraged Filipinos to transact online. As restrictions eased up and the full reopening of businesses, the landscape has allowed e-commerce to thrive along with in-store shopping. Retailers also immediately adopted their operations making their products available in the online platforms with the adoption of cloud solutions, facilitating an increasing pace in automation. “Of course, there are some processes that can’t be moved to the cloud like warehousing logistics, stocking the stores, displaying stores, displaying in the stores themselves dealing with customers. But whatever could be moved to the cloud, our retailers did so,” said Santos in the interview. He, however, said that when the Philippine economy started to improve, beginning in 2010, more foreign retailers entered the market simply because looking at the Philippines as a track record, it made sense to do so. Despite the absence of big retailers, Santos is confident that “retail growth is assured, I think in the near to medium term because of this population growth.” Others in the industry also believe that 2023 will be the year where their annual retail sales will be equal to or more than in 2019. “The only clouds that we see on the horizon are basically inflation and political and economic uncertainties brought about by the war in Ukraine. We’ve seen supply chain disruptions during the pandemic and even after, so retailers are being more flexible and more resilient in the way that they source their goods from overseas or from domestic manufacturers,” he concluded.
PRA Chairman Paul Santos
PRA Chairman Paul Santos was quoted by Retail Asia saying that the current minimum investment for foreign retailers in the local retail market “will invite not the big foreign retailers that the law presumably wanted to invite into the country.” The amended RTLA of 2000 was passed into law in 2021 to ease the requirements for foreign retailers to enter the domestic market. Under the amendment, foreign retailers now only need around $446,000 (P25m) of investments, down from the previous $2.5m requirement. If the foreign retailer has more than one physical store, each store must have a minimum investment of $178,000 (P10m). They are also required to maintain a paid-up capital of $446,000 (P25m). But Santos explained that foreign retailers are not too concerned about capitalization requirements as they are with incentives and the economic environment that would allow their business to grow. More than a year since the law’s passage allowing smaller investment hurdle for foreign retailers, Santos said the domestic retail sector has experienced minimal transformation. Rather than witnessing an influx of new big foreign players, Santos said, it is the established foreign retailers already present in the country that continue to pursue expansion, albeit after facing delays caused by the pandemic. But the law is expected to attract small and medium-sale foreign retailers not the big foreign retailers. “It would make the Philippines now attractive to small and medium-scale foreign retailers who may want to do business in the Philippines competing with Philippine small and medium-scale enterprises,” Santos said. Retail Asia further quoted a testimony by a government office, when they inquired about the potential of foreign businesses doing retail business in the Philippines, that a lot of respondents said the original limit set by the retail trade liberalization law was no barrier to them doing business in the Philippines. What they were more concerned about were other issues that other foreign investors raised with this office like infrastructure, energy costs, the rule of law, the ability to repatriate profits at will and so on. For example, the article noted that in Thailand, they have the equivalent retail trade restrictions on foreigners, but still a lot of foreign retailers doing business in Thailand because of its higher GDP compared to the Philippines. Foreigners still decide to do business in Thailand, simply because they think they can make money because the market can obviously afford what they’re selling. Domestic retailers have also advantage over their foreign competitors because they are the first movers locally and more familiar with Philippine tastes and quirks. On one hand, foreign businesses also have the advantage of confidence to operate beyond their comfort zones. “They’re prepared to do so. They have their own skill sets that they think will allow them to compete in a foreign environment because of the brands they represent or the brands that they own. They have brand values and brand attributes that the target market wants. If the domestic retailer or brand is not attuned to the tastes, wants, likes and dislikes of their market, they will succumb to competitive pressure,” he added. Although retail sales in 2022 was definitely a lot better than the 2021 and 2020, the level of increase was still lower than the pre-pandemic 2019 figures. The domestic industry, however, was hoping of growing sales by 5 to 5.5 percent in 2023. This is because consumers are far more relaxed and far more accepting of e-commerce. The pandemic has forced everyone to stay home and at the same time encouraged Filipinos to transact online. As restrictions eased up and the full reopening of businesses, the landscape has allowed e-commerce to thrive along with in-store shopping. Retailers also immediately adopted their operations making their products available in the online platforms with the adoption of cloud solutions, facilitating an increasing pace in automation. “Of course, there are some processes that can’t be moved to the cloud like warehousing logistics, stocking the stores, displaying stores, displaying in the stores themselves dealing with customers. But whatever could be moved to the cloud, our retailers did so,” said Santos in the interview. He, however, said that when the Philippine economy started to improve, beginning in 2010, more foreign retailers entered the market simply because looking at the Philippines as a track record, it made sense to do so. Despite the absence of big retailers, Santos is confident that “retail growth is assured, I think in the near to medium term because of this population growth.” Others in the industry also believe that 2023 will be the year where their annual retail sales will be equal to or more than in 2019. “The only clouds that we see on the horizon are basically inflation and political and economic uncertainties brought about by the war in Ukraine. We’ve seen supply chain disruptions during the pandemic and even after, so retailers are being more flexible and more resilient in the way that they source their goods from overseas or from domestic manufacturers,” he concluded.