The vital role of malls in the Philippines’ retail renaissance

The Philippines is a consumer-driven economy, with statistics showing that 70% of the country’s gross domestic product is attributed to consumption. Even during the challenges and changes brought by the COVID-19 pandemic, this Filipino urge to consume reinforced the retail sector’s resilience, making it one of the more stable segments of the economy.

Reflecting this is a study from SM Supermalls indicating an average of over four million daily shoppers in the first quarter of this year, an increase of 21%, compared to only 3.3 million in the same period last year.

Malls in the Philippines are more than just a place to shop. They have become hubs for social interactions, entertainment districts, and sometimes even sanctuaries and evacuation centers during natural disasters. However, their most important value lies in their role as economic engines that drive local businesses and generate employment.

According to data from SM, food tenants now account for 30% of leased mall spaces, a significant increase from just 10% a decade ago. Meanwhile, non-food tenants, including entertainment providers, occupy 50% of the available space, with the remaining areas filled by various service-related tenants, creating a well-rounded mix that offers a wide range of options for shoppers.

These shifts in tenant composition and rising visitor numbers directly respond to evolving consumer preferences shaped by the COVID-19 pandemic. As the pandemic altered what Filipinos considered normal including their shopping habits, they sought more than just retail opportunities in the mall — they looked for spaces that provided safety, convenience, and a sense of normalcy.

A 2021 survey by global research firm PricewaterhouseCoopers (PwC) International Limited shows that many consumer behavior trends have changed considerably during the pandemic. The study found that although in-store shopping remains the preferred choice for daily or weekly purchases, the preference for e-commerce and digital platforms is rapidly increasing.

PwC identified four fault lines to explain a rapidly evolving consumer behaviors and the preference for online shopping: namely the “Zoom effect” or work-from-home setups, the generation gap, the “conscientious consumer,” and East-West differences.

The Zoom effect refers to a new type of worker that emerged during the pandemic who worked from home and continues to do so today. The study found that they are significantly less likely to shop in-store. PwC also mentioned that the generation gap can also be a factor as younger consumers are more likely to shop online.

COVID-19 also changed consumer habits not only in shopping preferences but also in spending habits. Some “conscientious shoppers” are planning to stay at home more and more willing to pay a premium for healthier, more local, and more environmentally friendly products.

The difference in culture also plays a hand in choosing between shopping online and in-store. PwC’s survey found that 45% of Asia-Pacific consumers reported shopping daily/weekly in-store, and 40% through online platforms compared to the Americas where only 38% of consumers shopped frequently in-store, and only 31% via mobile.

Regardless, the study found that most Filipinos preferred shopping physically in-store. Almost half of the respondents in the Philippines said that they bought clothes, books, and electronics in physical stores in the past 12 months.

Additionally, “the ability to quickly and conveniently navigate the store to find products” as well as the preference “to see and touch the products” were among the factors that drew Filipinos back to malls. Respondents also highlighted the value they place on the “enjoyment of the social aspects of going to a store.”

In light of these trends, the importance of brick-and-mortar stores becomes clearer. Leechiu Property Consultants mentioned that stores are expected to remain relevant to the consumers’ shopping experience despite the ongoing digital shift.

Leechiu Property Consultants President and Chief Executive Officer David T. Leechiu shared in a BusinessWorld report that “the total online retail is less than 20% or 30% of total shopping in the world and that’s despite all the advances that we’ve made in the online experience.”

Though the trend still is shifting towards online, Filipino consumer behavior continues to highlight the role of malls in boosting the retail industry. Malls help preserve the relevance of physical stores and create a compelling alternative to online shopping.

Indian market research firm Mordor Intelligence estimates the Philippines’ retail market size at $66.70 billion in 2024 and expects the industry to reach $96.02 billion by 2029, growing at a compound annual growth rate of 7.56% during the forecast period. This growth in the industry is closely linked and can be attributed to the growth of store-based retail sales.

Results from the online data platform Statista show that store-based retail sales in the Philippines are expected to recover and grow by 2026 after experiencing a slight decline in 2021 and 2022. Pre-pandemic numbers of retail sales in malls reached more than $52 billion in revenue in 2017 before contracting to just $46 billion in 2021. Statista forecasts that by 2026, store-based retail sales will surge to $57 billion, reflecting a strong recovery driven by increased consumer demand and renewed confidence in physical shopping.

This increased revenue in store-based retail sales and the retail sector in general is also reflected in the growth of the country’s biggest mall operators. In 2023, SM Supermalls reported P71.9 billion in revenue, a 30.0% increase from the previous year. Ayala Land’s shopping centers saw their revenue rise by 31.0% to P21.1 billion. Robinsons Mall experienced a 24.0% growth, reaching P16.2 billion. Similarly, Megaworld’s mall revenue surged by 54.0%, totaling P5.3 billion while Rockwell Land’s consolidated revenue also jumped 12%, growing to P18.5 billion in 2023.

The increase in revenue of mall operators and the retail industry, which are expected to expand further this year, amidst shifting consumer habits, underscores the resilience and adaptability of physical retail spaces. Brick-and-mortar stores in malls are far from being outdone and outdated. However, experts advise mall operators that changes have to be made to ensure continued consumer engagement.

“Retail spaces must reinvent themselves as a destination for new product launches and interactions, focusing on the enhancement of customer experience onsite and providing an online shop alternative for the perusal and easy access of familiar products for return customers,” Joenes Jemola said in an article published in Colliers Insights.

Moreover, BusinessWorld columnist and Colliers Philippines Research Head Joey Roi Bondoc expressed that mall operators and retailers should work to improve the shopping experience of their consumers both online and in-person. He explained that while Filipinos have returned to brick-and-mortar shopping, retailers should also consider the segment of Filipino shoppers who prefer to buy items online.

“In our view, redesigning of physical mall spaces should be complemented by the improvement of retailers’ online shopping platforms. We forecast a continued reconfiguration of physical mall spaces and we see this trend even after holiday-induced spending,” Mr. Bondoc said.

The resurgence of physical retail spaces in the Philippines despite the rise of online forms shows the adaptability of malls and the value of the shopping experience to Filipinos. The role of malls and shopping centers in supporting businesses, generating employment, and providing space for brick-and-mortar stores, will continue to drive the retail sector forward, proving the importance of malls in the industry and to Filipinos. — Jomarc Angelo M. Corpuz