By Amanda Kaiser
with contributions from Kelly Wetherille
 on December 28, 2016
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SIEM REAP, Cambodia — Much of the retail scene here — a charming but touristy town known for its impressive centuries-old stone temples — consists of market stalls on dirt roads selling elephant-print harem pants for as little as $5.

But things are starting to change. In March, LVMH Moët Hennessy Louis Vuitton-controlled DFS Group opened its first T Galleria store in Cambodia, a poor but fast-growing country that has been clocking in average annual GDP growth of 7.6 percent since 1994, according to Trading Economics. The new store, which was seeing decent foot traffic from Chinese tourists on a recent Friday afternoon, houses shops-in-shops from brands like Gucci, Michael Kors and Burberry and sells a wide range of beauty, fashion and gift items.

The T Galleria outpost is just one of many new stores and retail concepts sprouting up across Southeast Asia, a region characterized by fast-growing middle classes of consumers, rapidly expanding real estate options and a bevy of destinations where Chinese tourists can spend their cash. Over the past sixteen years, Vietnam’s GDP has grown an average rate of 6.5  percent each year while Indonesia’s has grown 5.4 percent — making them two of the best-performing economies in the region over the past decade-and-a-half, according to Trading Economics. More recently, the Philippines’ GDP surged 7.1 percent in the third quarter.

“If you take the taxi or car from the airport in Ho Chi Minh down to the city center, you’d be amazed by the number of luxury car showrooms along the way,” noted Desmond Sim, head of research for Singapore and Southeast Asia at CBRE, citing rising income levels across the region.

Philippe Schaus, chairman and chief executive officer of Hong Kong-based DFS Group, noted that many luxury and fashion brands still don’t have a presence in Southeast Asia countries, which has created “pent-up demand” for stores. The duty-free executive said it’s important to look at the region as a long-term proposition.

“Of course you are very far away still from the consumption patterns of, say, the Chinese consumers, which is good,” he said. “Because it means that there is still a big opportunity over the very long term to grow that business in that part of the world.”

Japanese retailers have been especially active in this part of the world. Isetan, Takashimaya, Fast Retailing’s Uniqlo and Beams all have outposts in the region. But they are just a handful of the brands moving into the area. Hennes & Maurtiz and Zara are opening stores across the region. Dsquared recently opened its first store in Vietnam in Ho Chi Minh City. Manolo Blahnik just set up shop in Kuala Lumpur. Michael Kors recently visited Singapore to fete a newly opened store there.

And while e-commerce is definitely on the rise in Southeast Asia — much like everywhere else in the world — bricks-and-mortar stores are still very relevant in these fast-evolving economies and urban landscapes. Credit card usage in certain countries like Vietnam is still relatively low compared to more developed markets. Plus physical stores can cater to both locals and travelers passing through town.

“While the region will have to contend with the ‘disruptions’ that technology brings to traditional retailing, store-bases retailing will remain the key point of purchase among [Southeast Asian] consumers in the next five to 10 years and account for at least more than 90 percent of total sales value,” CBRE said in a recent research report.

Inquires for retail real estate in the Southeast region have picked up over the last 12 to 24 months, according to Sim. He noted that infrastructure is changing dramatically in certain cities. Shopping mall development in Asia is closely linked with public transportation, so subway line construction and expansion in metropolises like Singapore, Bangkok, Hanoi and Ho Chi Minh City will create a host of opportunities for new storefronts.

“The cities are getting more and more complex. People are getting more and more affluent,” said Sim. “What’s encouraging is that the whole retail scene in these [developing countries like Thailand and Vietnam] has fast caught up with countries like Singapore.”

Sim said Southeast Asian consumers, who tend to be well-traveled and sophisticated, are becoming increasingly accustomed to having a wide selection of brands and stores in their home countries.

“We get comments from people [from places like Thailand] that they do not need to travel to Hong Kong to buy the latest edition of a handbag,” he said.

Uniqlo has expanded significantly in Southeast Asia over the past several years and the region is one of the brand’s fast-growing revenue generators, according to Taku Morikawa, group executive vice president of Fast Retailing. As of Nov. 30, Uniqlo had 25 stores in Singapore, 35 in Malaysia, 35 in Thailand, 34 in the Philippines and 10 in Indonesia.

“We will keep expanding in [our] existing markets in Southeast Asia…and will continue to look for opportunities to launch in new markets,” Morikawa said.

For the year ended this past August, Uniqlo’s Southeast Asia operations saw rises in both revenue and profit, he said, although he declined to give specific figures.

“We expect this trend will continue in fiscal 2017,” he said.

In July, Takashimaya opened its first store in Vietnam at Saigon Centre in Ho Chi Minh City and it plans to move into Thailand next year. This fall, Isetan opened a concept store called “The Japan Store” in Kuala Lumpur that specializes in Japanese products. This is Isetan’s fourth store in Malaysia, joining its six stores in Singapore and one in Thailand. Isetan Mitsukoshi’s overseas merchandising division general manager Hajime Nakagawa said the company is looking at Indonesia along with the Middle East as it plots its international expansion to offset stagnating conditions in its home market of Japan.

“In the next 10 years the market in Japan will shrink, but…there are a lot of consumers in their 30s and 40s in Southeast Asia, so doing retail in this region could be one new way of creating business for us,” Nakagawa said. “I think there is great potential in Indonesia within the next ten years because of its population growth and economic growth rate…I think there is some potential in Vietnam. But if the middle class isn’t large enough, the department store business can’t succeed, so I think it’s still too early for Cambodia.”

Chiaki Hoshino, general manager of business and store development for Japanese retailer Beams, said the company has seen a significant increase in Thai shoppers at its stores in Japan in recent years. Last year it opened its first store in Bangkok in the EmQuartier mall through a franchising deal with The Mall Group.

“We saw market potential in the affluent residents of Bangkok and the fast-growing middle class,” Hoshino said, adding that Beams might expand further in the Thai market.

Hoshino said the Bangkok store carries a mix of Beams’ own private label goods as well as brands from Japan and Thailand.

“As for casual fashion, we see [Thai] people enjoying a mix of vintage or high brands with sport styles, much like Japan,” she said, adding that denim and casual jackets are bestsellers. “We target local residents, tourists and also Japanese expats.”