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Large shopping complexes are opening one after another in Bangkok, one of Southeast Asia's leading commercial hubs. (Photo by Akira Kodaka)
Business Spotlight

Bangkok 'mall war' heats up as coronavirus clouds Thai retail boom

Oversupply fears spike after developers push expansion despite no foreign tourists

MASAYUKI YUDA, Nikkei staff writer | Thailand

BANGKOK -- The eastern outskirts of Bangkok were once a marshland known locally as Nong Nguhao, or Cobra Swamp. The more exalted Sanskrit name of Suvarnabhumi -- Realm of Gold -- was given to the area by late King Rama IX for the capital's international airport, which opened in 2006. With its hint of riches, the name is also apt for the hopes of developers who are turning the area into a new retail battleground.

On June 19, throngs of shoppers eager for a new experience after weeks of coronavirus lockdown came to the grand opening of Siam Premium Outlets Bangkok, a brand-new mall located less than 10 km east of the air hub, the main gateway into Southeast Asia's second largest economy.

Confetti, flickering illumination and loud electronic dance music created a festive mood for the debut of the massive project, a tag team effort by Thai mall operator Siam Piwat and U.S. outlet champion Simon Property Group. A joint venture between the two companies invested 4 billion baht ($129 million) to accommodate an expected 10,000 visitors per day on average in the mall's 50,000 sq. meters of floor space.

"Premium outlet is a retail trend that still has potential to grow," Michael Tang, managing director of the joint venture Siam Piwat Simon, said referring to Siam Premium Outlets Bangkok. He further stressed that it will reinforce Thailand as one of the world's most popular tourism destinations.

Given the prevailing social and economic circumstances of a global pandemic, however, it is difficult to imagine a tougher time to open a mall. The foreign tourists whose spending would normally be expected to underpin the success of a new shopping emporium are being kept away as the Thai government still bans international flights from landing at Suvarnabhumi Airport to prevent the deadly virus from entering the country.

Nevertheless, several dozen locals and expatriates were seen lining up to get into shops of luxury brands such as Burberry and Balenciaga, or international life-style brands including Nike and Adidas, as staff diligently worked to ensure social distance among customers inside the shops was maintained.

When tourists do return, competition by major retailers around Suvarnabhumi will enter a new and more intense chapter. At the same time, rivalries between shopping complexes in central Bangkok, one of Southeast Asia's largest shopping hubs, and those emerging around the airport will also heat up.

The question hanging over all these investments is whether Bangkok faces a big oversupply of retail space at a time when the coronavirus pandemic is forcing people to adopt the so-called new normal lifestyle of avoiding contacts with others and ordering goods and services online. Some analysts predict that could eventually result in a significant shrinkage in physical store offerings. "Retailers' rental space requirement may be reduced by 20% to 40% from its original size from the pre-COVID-19 pandemic," said Jariya Thumtrongkitkul, head of retail advisory and transaction services at CBRE Thailand.

Nevertheless, nearly 1.3 million sq. meters of new retail space is expected in Bangkok by the end of 2023 -- or more than 25 times the size of Siam Premium Outlets Bangkok. So many commercial facilities opening in a span of just three and a half years is adding fuel to the fire of retail competition.

A skirmish symbolizing what was already an intense vying for customers drew public attention in August of last year when Central Pattana, another giant Thai retail developer, opened an outlet mall about as far from Suvarnabhumi's main entrance as Siam Premium Outlets Bangkok.

People enjoy shopping at Siam Premium Outlets Bangkok on its opening day. With a floor area of 50,000 sq. meters, the mall was designed to accommodate an expected 10,000 visitors per day on average. (Photo by Masayuki Yuda)

That establishment, Central Village, came only a few months after state-owned airport operator Airports of Thailand awarded duty-free store operator King Power International Group a 10-year extension to its duty-free monopoly at Suvarnabhumi despite harsh criticism from the retail industry. Since the airport started full operation in 2006, King Power has been the sole operator of its duty-free commercial space.

Central Village threatened King Power's position as the only place to shop for tourists just before leaving Thailand. Thus, did the first chapter of the retail war begin.

Eager to defend its vested interests at all costs, Airports of Thailand made an unprofessional move to harass Central Village when it opened. The state enterprise barricaded a way between the outlet mall's parking lot and the road adjacent to it, claiming ownership of the small connecting road. Further, it insisted that the opening of the new mall posed a threat to aviation.

The barricades hindered tenants' preparations for opening day, forcing them to unload their wares on a road and haul them manually to shops via an entrance for pedestrians instead of the parking lot. Central Pattana had to wait for a decision by a local court to have them removed.

Since Bangkok's Suvarnabhumi Airport started full operations in 2006, King Power has been the sole operator of its duty-free commercial space.   © Reuters

Airports of Thailand reported 1.5% growth year-on-year in concession revenue for three months ending December 2019, slower than the 10.3% growth it recorded during the same period the year before. Competition with Central Village may have been a reason for the slower growth.

Siam Piwat Simon, the joint venture, said it was not subject to any harassment from Airports of Thailand. But its entrance turns the struggle for turf into a three-way battle, intensifying the competition.

"Premium outlets are business in [an] upward trend, while duty-free shops are the opposite," said Chartchai Tuongratanaphan, adviser to the Thai Retailers' Association. "In the future, there will be no tax because of free trade agreements."

But it goes beyond just that. "Tourist behavior is changing," Chartchai said. A tide of fashion trends turns rapidly among people, as they become flooded with online information. "They do not want to pay a lot of money for short life-cycle goods," he added. "They would buy more goods from premium outlets rather than duty-free shops, where goods are sold more expensive"

Behind the ruthless retail wars has been the growing influx of foreign tourists -- led by Chinese -- who have strong purchasing power.

Thailand has clearly benefited from growing overseas tourism, which was booming up until the pandemic struck the world. According to a report by the World Tourism Organization, a United Nations agency, the kingdom was the ninth most visited country by tourists in the world, and the second after China in Asia, in 2018.

More importantly, revenue Thailand earned in 2018 from international tourism was $63 billion, the fourth largest globally only after the U.S., Spain, and France. It earned 53% more than Japan, which came in second by international tourism receipts in Asia. Thailand's international tourist income grew 17.8% in 2017 and 9.6% in 2018, respectively.

The turf war near Suvarnabhumi is, in a sense, an extension of another fierce retail competition in central Bangkok, where retailers are also highly dependent on visitors from overseas as well.

Siam Piwat introduced mega mall Iconsiam on the east bank of Chao Phraya river as a joint project with Thailand's largest conglomerate Charoen Pokphand Group and its property arm Magnolia Quality Development in November 2018. Siam Piwat co-owns Siam Paragon with another retailer The Mall Group, which also developed Emporium and EmQuartier department stores.

Central Group, including Central Pattana, runs Central World and Central Chidlom.

Retail space in Bangkok is still rapidly expanding. According to a CBRE report, the capital's total retail space in terms of supply reached 7.7 million sq. meters by the end of March, expanding by about 40% since the end of 2011.

More projects are in the pipeline. Magnolia Quality Development is working on one called The Forestias, scheduled to be completed by 2023. The $4 billion project is on track to be the largest property investment in the kingdom's history.

TCC Group, another conglomerate, is building One Bangkok, a $3.9 billion property development consisting of commercial complexes, accommodation and offices located right in the middle of the city. CBRE forecasts that it will have close to 9 million sq. meters of space by the end of 2023.

Some store operators are already struggling due to growing competition. Japanese retailer Isetan Mitsukoshi Holdings decided in March to close the 28-year-old Isetan Bangkok department store at the end of August when the current rental contract between the property owner Central Pattana and the store expires.

Central Pattana is shrugging that off as just a part of normal tenant reshuffling. "Central Pattana will not only use this opportunity to enhance its ability to generate revenue, but it will also make the new mall more vibrant than ever to meet the changing lifestyles of customers," said Central Pattana deputy chief executive officer Wallaya Chirathivat.

Whether in Bangkok or near Suvarnabhumi Airport, all major retail complexes have one thing in common: They are counting the days until the foreign tourist inflow restarts. The Tourism Authority of Thailand came up with a plan to promote domestic tourism packages to mitigate the impact from the lack of overseas travelers, but Thais' spending power is limited compared to visitors from abroad.

The government is still considering when and how to reopen the country, Prime Minister Prayuth Chan-ocha said at a news conference after Tuesday's cabinet meeting.

Although the coronavirus situation inside the kingdom is well contained, risks of a so-called second wave of outbreaks have the world on edge, even as some countries such as the U.S. and Brazil still struggle to rein in the first one. Thus, the outlook for Thailand's big bet on the return of inbound demand is fraught with uncertainty. The Realm of Gold that welcomes travelers may not be quite so precious for some time to come.

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