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Thai malls bet $5bn on post-election tourism boom

Siam Piwat and The Mall Group bet they can convert new visitors into big spenders

The Iconsiam shopping mall in Bangkok. (Photo by Akira Kodaka)

BANGKOK -- Two of Thailand's biggest retailers, Siam Piwat and The Mall Group, have unveiled multiyear plans totaling around 150 billion baht ($4.7 billion) in investments ahead of general elections on Sunday.

Both groups have earmarked funds to build new malls, seeking in part to capture demand from inbound tourists, a bright spot in the economy.

The aggressive expansion plans come as Thai growth has yet to pick itself up from a slump, with consumer spending likely to remain depressed by one of the biggest household debt burdens in Asia.

Siam Piwat, the operator of new Bangkok megamall Iconsiam, budgets 70 billion baht for the next five years to 2023 in an investment plan announced earlier this month. The figure is around 40% above the previous five-year plan issued in 2014, just days before a military coup toppled the government of Prime Minister Yingluck Shinawatra.

The new plan involves big projects including Siam Premium Outlet near Suvarnabhumi Airport, the international hub of the country, and another two new malls in the vicinity. The luxury outlet is slated to be built with U.S. developer Simon Property Group.

The previous plan included Iconsiam, a 54 billion baht mall located on the west bank of the Chao Phraya River, which opened in November 2018.

The Mall Group, known for luxury shopping malls located in central Bangkok including Emporium and Siam Paragon, announced its new five-year plan in February. The group has earmarked 80 billion baht for the next five years, which is 60% above the previous investment budget announced in early 2014.

According to CEO Matthew Kichodhan, around 50% of the new investment budget will be allocated to Blue Pearl, a megamall project in the southern beach resort of Phuket. Blue Pearl will cover 10,000 sq. meters, including the shopping mall, a department store, a convention center and an exhibition center.

The Mall Group's previous five-year plan saw the company launch the Emquartier and Emsphere shopping centers in Bangkok's bustling Sukhumvit Road commercial district.

Central Group, Thailand's largest retail conglomerate, announced its plan late last year without disclosing the investment amount. The plan involves increasing its hotel occupancy by 1,294 rooms in Thailand and abroad, from the current 13,477 rooms worldwide, by building new hotels in Krabi, a destination for foreign tourists on southern Thailand's west coast, and also in the Middle East.

There are also other projects due to be developed over the next five years, such as MontAzure Phuket, a 1.5 billion baht luxury condominium to be jointly operated by ARCH Capital Management, The Narai Group and Philean Capital. The condo complex is worth around 1.5 billion baht, and a 3.5-billion-baht water park.

Retail is crucial to the Thai economy, accounting for around 15% of gross domestic product in 2018. Rising household debt that has pressured consumers' purchasing power for years is expected to keep weighing on the economy.

Bloated household debt was a factor limiting revenue growth in Thailand's retail industry to 3.5% in 2018, well below the 8% to 10% levels seen over the past decade, according to the Kasikorn Research Center.

Retail giants are bucking the trend by investing massive amounts, although at a time when local purchasing power remains weak. On Wednesday, The Bank of Thailand cut its 2019 growth forecast for the second time in three months to 3.8% from 4% in December.

The growing presence of e-commerce also threatens Thai mall operators. The country's e-commerce market grew 8% to around 3.2 trillion baht in 2018, enlarged by the arrivals of big Asian players such as Singapore-based Lazada and China's Alibaba Group Holding.

Thai retailers are counting on a boost from tourism, one of the few silver linings in the country which accounts for around 20% of GDP. Tourism Authority of Thailand data showed there were 38 million foreign tourists visiting Thailand in 2018, up 8.5% from the previous year. The solid outlook of 40.4 million tourists for 2019 has prompted big Thai retailers to draw up aggressive business plans for the next few years.

To cater to inbound tourists, led by Chinese, shopping malls need to offer unique experiences, she said. "They have to be malls plus other attractive features otherwise they would not survive," said an analyst at Asia Plus Securities who asked not to be named.

Siam Piwat aims to grow revenue by 100% to 150% over the course of its five-year plan. Its starting point is the 25 billion baht in revenue that it posted for 2018. The Mall Group expects revenue growth of 72% to 100 billion baht over the next five years, from 58 billion baht currently .

However, inbound tourists could fall prey to unexpected events. The deadly ferry capsizing that killed 47 Chinese tourists in Phuket last July has done massive damage to the Thai tourism industry, causing the number of Chinese visitors to fall by 12% and 15% in August and September, respectively.

In the run-up to the elections, Thai political parties have called for boosting local consumption rather than focusing on foreign tourists, arguing that it is risky to rely too much on inbound tourism that can be swayed by global economics or the value of the baht. Most parties proposed measures to boost the poor's purchasing power to stimulate domestic consumption and solve chronic inequality issues.

The pro-junta Palang Pracharat Party floated a policy of increasing the minimum wage to 425 baht, or $13, a day, well above the current 300 baht.

Sudarat Keyuraphan, leader of the anti-junta Thaksin-linked Pheu Thai Party, told the Nikkei Asian Review that her party will help poor farmers generate higher incomes by shifting toward value-added products such as organic rice in the medium to long term, while supporting agricultural product prices in the short term.

The Democrat Party, led by Abhisit Vejjajiva, has also presented ideas to support the poor. They include guaranteeing the purchase prices of certain agricultural products for farmers, and instituting a minimum annual income for manual workers.

Supalak Umpujh, chairman of The Mall Group, has been warning the industry about its increasing dependence on tourists. "The revenue that comes to this country is very low," she told the audience at the Thailand Tourism Forum 2019 in Bangkok in January. "People buy cameras in Singapore, and take photos in our country."

Nikkei staff writer Masayuki Yuda in Bangkok contributed to this story.

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