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PB2020-10:: INCREASING COMPETITION IN THE RETAIL TRADE SECTOR

The paper provides a brief overview of the performance of the retailing sector in the Philippines and assesses the dimensions of retail competition in the Philippines. To determine if there is a need to further open up and increase competition in the sector, the paper uses profitability ratios, estimation of linkages to the rest of the economy, and an analysis of the legal framework that govern the retail sector vis-a-vis major ASEAN member states. Results show that sustaining the double digit growth in the number of establishments and revenues in the retail trade sector is crucial as it continuous to be the leading provider of jobs to Filipino workers and because of the significant spillover effects of an increase in retail trade activity to the rest of the economy as indicated by its high forward linkages. Increasing investment especially foreign direct investment is key to sustain the growth of the retail sector. However, data has shown that the Philippines has failed to capture the significant increases in investments into the retail sector in the ASEAN region. The dismal performance of FDI into the retail sector has been largely attributed to the destructiveness of the current law on foreign retail trade compared to its counterparts in the ASEAN region. While the current retail trade laws of other ASEAN member states contain similar requirements for foreign investors such as the required amount of paid-up capital, local content of stock inventory, and on putting up retailing branches, the Philippines has five more requirements such as a limit in buying the equity shares from existing retail stores, mandatory public offering of foreign retailerís equity, among others. To be at par with other ASEAN member states, policymakers therefore should relax or remover these additional restrictions. Although there are concerns in opening up the retail trade sector to foreign competitors, there is still room for more competition since profits remain high in many subsectors as indicated by gross profit margins (GMRs) exceeding 20% and gross sales of the top six retailers in the country have been growing annually by almost 10% or more. Moreover, with accessibility, convenience and a no-touch customer experience as the determining factors in the retail sector in a post-Covid-19 scenario, the demand for technology-based retail service (i.e. teleshopping, electronic retailing through the Internet) could substantially gain ground. With only less than 500 establishments in 2017, more players are therefore needed to promote innovation in this type of retailing.

Congressional Policy, Budget and Research Department
Authors Keywords
Gutierrez, Elsie, C,; retail trade;
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