Thailand as a shopping paradise?

September 24, 2013 / By  

As purchasing power slows in mature markets like the USA and the Eurozone, international luxury and high street brands are seeking expansion opportunities in dynamic, rapidly growing Asian markets. Thailand is fast becoming the destination of choice for a number of these brands and for international tourists from large, high-expenditure source markets alike. Locating in Bangkok offers retail brands the combination of low rents and high exposure to both domestic and foreign consumers. With 1.54 million sqm of prime grade specialty space, rents in Bangkok as of 2Q13 are roughly USD 72 per sqm per month, much lower than the USD 323 per sqm per month found in Singapore and the USD 424 per sqm per month in Hong Kong. At the same time, international tourist arrivals and per capita expenditures are reaching new heights. Despite these opportunities, challenges remain for the luxury retail segment, in terms of both the domestic economic situation and existing taxation regimes.

While many high-profile international brands, including Giorgio Armani, Valentino, Sephora and Victoria’s Secret, have entered the Thai market recently (or plan to do so by year-end), the current taxation structure makes for a tough sell to domestic consumers, let alone international visitors. For example, it is common for Thai consumers to seek out luxury goods locally from grey market retailers or to make purchases while abroad. In an effort to stimulate both lagging domestic consumption and burgeoning tourism expenditures in the retail sector, the Thai government is considering a proposal that would reduce taxes on luxury goods in order to better compete with regional luxury retail destinations like Hong Kong and Singapore.

The proposed tax reductions will initially cover imported luxury goods such as cosmetics, perfumes and watches, which are typically subject to tax rates in excess of 30%. While we do not yet know the specific extent of the tax reductions in scope or scale, news reports suggest that the scheme could be in place by year-end. That said, the efficacy of this initiative is in question, with some experts expressing doubts over whether or not such tax reductions will increase arrivals and expenditures to an extent that outweighs the possible negative impacts on domestic brand competitors.

Looking ahead, we expect new international brands to enter the Thai market along with existing brands expanding their market presence, attracted by low rents in prime centres and the growing purchasing power of both domestic and foreign consumers. Many brands are choosing to locate in one of two new high-profile projects expected to come online in the next 12 months from Thailand’s leading retail developers, Central Group and The Mall Group. Central Embassy, with a GFA of 71,000 sqm, has achieved a pre-commitment rate of 90% and will include stores by Chanel, Gucci, Prada, Hermes and Paul Smith, while Emquartier, with a GFA of 200,000 sqm, has achieved a pre-commitment rate of 100%. In line with this activity, we expect vacancy rates to remain stable across Bangkok with rents rising gradually, particularly in prime grade centres.

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