_Post-COVID Recovery of Thai Retail Market: Hypermarkets Benefit from Tourism and Urban Expansion
The Thai retail market has shown signs of recovery post-COVID-19, with the tourism sector playing a crucial role in this development. Despite foreign visitor numbers remaining far below pre-pandemic levels, the Thai government is aiming to attract 28 million international visitors in 2023, with outbound tourism from China expected to play a crucial role. As tourists are big spenders, the growth in categories such as food and beverage, shopping, and entertainment is anticipated to continue post-pandemic, with hypermarkets expected to benefit from this trend.
The pandemic had a significant impact on Thailand's retail sector, leading to many businesses temporarily closing down. However, the sector has gradually recovered, with occupancy rates and average rents for hypermarket retail venues and shopping malls expected to reach pre-pandemic levels by 2024.
The retail industry in Thailand has seen substantial growth in recent years, driven by rising household incomes, a growing middle class with greater purchasing power, and robust foreign tourism. Bangkok has the largest population with a higher average income compared to upcountry areas that makes Bangkok an attractive location for retail developers to invest. However, most of the retail expansion has been recorded in upcountry as Bangkok retail space per capita surpasses that in other major cities in the region.
Thailand's hypermarket sector has focused on expanding in urban areas with a population of over 300,000 residents. The number of hypermarket stores in urban areas increased from 181 out of 266 in 2012 to 254 out of 377 in 2022. The growth in urban areas allows hypermarket operators to expand their customer base.
Before the pandemic, the retail space in hypermarkets that are leased out to other tenants, had high occupancy rates, ranging from 95-96% between 2015 and 2019. However, the COVID-19 pandemic led to a moderate decline in occupancy levels, resulting in a low of 88% during 2021 and 2022. Despite these challenges, the hypermarket sector has demonstrated resilience and endured a relatively low decline in occupancy rates compared to other industries. This may be attributed to the essential nature of hypermarkets, which enabled them to remain open during lockdowns, and their ability to adapt quickly to changing consumer needs by implementing measures such as contactless payments, home delivery, and curbside pick-up to ensure customer and staff safety.
The hypermarket segment is relatively concentrated among two dominant players CP Group, operating 'Lotus’s' brand, and Big C Retail (BRC), operating 'Big C' brand. Together, they contributed to more than 370 stores in Thailand in 2022. CP had a higher number of stores compared to BRC, with 223 stores and a retail space of 1,056,999 sq.m. NLA. Meanwhile, BRC operated 942,130 sq.m. NLA of retail space, or 47% of the total stock in Thailand, in 2022.
Between 2012 and 2022, the number of hypermarket retail venues for CP and BRC grew at a compound annual growth rate of 3.7% and 3.3%, respectively. Nevertheless, in the past five years, the average growth rate for both CP and BRC has decreased to 2.9% and 2.1%, respectively, due in part to the negative impact of the pandemic. The majority of this growth has occurred outside of the Bangkok Metropolitan area, with operators experiencing average annual growth rates of 4.3% and 5.1% for CP and BRC, respectively, since 2012. Between 2016-18, the growth rate peaked at 8%-10%, but dropped significantly during the pandemic, nearly reaching zero.
The Bangkok Metropolitan Region (BMR) had the highest number of hypermarket retail venues with a total of 111, followed by the northeastern region with 96, the northern region with 49, the eastern region with 45, the southern region with 42, the western region with 19, and the central region with 15.
The northeastern region of Thailand, despite being less developed than other areas, has experienced significant economic growth in recent years, attracting the attention of local and international retailers who have invested in expanding their operations. This growth is due to factors such as the growth of the middle class, increasing urbanization, and improved infrastructure. Additionally, the region's large population and strong agricultural sector provide opportunities for hypermarkets to source local produce and goods.
The average monthly rental rate of the retail venues in hypermarkets remained stable just under THB 1,100 per sq.m. per month from 2017 to 2019 but dropped to its lowest at THB 755 per sq.m. per month in 2021 during the pandemic. However, the industry showed signs of recovery, with a 15% YoY increase to THB 870 per sq.m. per month in 2022. It is expected a return to pre-pandemic levels in late 2023, followed by annual growth rates of 3% and 2% in 2024 and 2025, respectively.
Hypermarkets and shopping malls differ significantly in terms of rental rates for retail space. Typically, hypermarkets have a lower average rental rate, often more than 30% lower than shopping malls, due to their secondary location, target customer base, and reduced operational costs.
Both hypermarkets and shopping malls experienced a decline in occupancy and rent levels during the COVID-19 pandemic. However, since the country fully reopened in the second half of 2022, there has been a recovery in both sectors. Shopping malls, however, have seen a more significant rebound, with rents for retail space increasing by 41% YoY in 2022 compared to hypermarkets' 15% YoY increase. This discrepancy is largely due to the end of rent waivers provided by retail operators to tenants, which had a more pronounced effect on shopping malls than hypermarkets, as a measure to maintain high occupancy levels during the pandemic.
Nevertheless, both hypermarket and shopping mall sectors are expected to reach pre-pandemic levels in terms of occupancy rates and average rents for retail venues by 2024, as the sector gradually recovers.
Despite facing competition from e-commerce retailers and smaller, specialized stores, hypermarkets have proven to be resilient due to their competitive pricing and extensive product range, as well as their larger physical presence.
To remain competitive, hypermarkets have strategically repositioned their stores as destination venues by dedicating a larger portion of their floor space to amenities such as restaurants, cafes, and play areas, which has led to an enhanced shopping experience for customers. Additionally, hypermarket operators have made significant investments in their own e-commerce platforms, and have successfully utilized their established physical infrastructure to facilitate online operations. These innovative measures have allowed hypermarkets to successfully adapt to evolving consumer preferences and purchasing behaviors, and effectively maintain their competitiveness in the ever-changing retail landscape.