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Luxury spending on the rise in Asia’s former ‘sick man’

Posted on January 26, 2015

IN STYLE this season of uninterrupted economic growth in what was once the “sick man of Asia,” the Philippines: shopping for luxury items.

And high-end retailers are cashing in on it.

In its bi-annual survey that gives an outlook on consumers’ appetite for discretionary spending, MasterCard found that Filipinos intend to spend an average $1,593 (approximately P71,000) on luxury goods in the next 12 months. MasterCard conducted the survey from October to November last year, and the latest result was about a third higher than the $1,205 (P53,000) those polled said they were willing to spend over a 12-month period from the first half of 2014.

“Four percent say they intend to spend more in the next 12 months than they did in the last 12 months,” MasterCard said in its report, titled “MasterCard Survey on Consumer Purchasing Priorities H2 2014: Philippines.”

MasterCard interviewed 403 Metro Manila residents for the survey.

The most owned luxury good among Philippine consumers was jewelry, it found. “Amount planned to be spent on this category continues to increase -- now to nearly $1,600,” it said.

Majority of buyers purchase luxury goods locally on sale, the survey added.

The results do not come as a surprise for high-end fashion retailer SSI Group, Inc., which went public last November and has since brought in more luxury brands like British toy retailer Hamley’s and America’s C. Wonder. SSI sells over a hundred global brands in its 655 stores, including Hermes, Prada, Gucci and Ferragamo.

“The Philippines is definitely a growing market for luxury products,” SSI President Anthony T. Huang said in an e-mail last week.

“We have observed an increase in appetite for discretionary spending as our customer base has grown and customers are now more likely to buy across the range of our different categories. We have also observed customers trading up into more expensive categories.”

Retail giant SM Investments Corp. (SMIC), which brought in popular Swedish retail brand H&M also last year and has built a new wing at its mall in Mandaluyong to host more foreign brands, noted a growing middle class that wants to enjoy the finer things in life.

“Luxury in the Philippines, in a certain sense does not yet refer to the uber-luxury of a Graff, or a Zegna but of affordable luxury brands that people aspire to have, to wear, to use, and to enjoy,” Corazon P. Guidote, SMIC’s senior vice-president for Investor Relations and Corporate Communications, said in an e-mail last week.

“There is growing sophistication among the Filipino middle class that is influenced by e-commerce and the diaspora. The growing middle class presents several opportunities for growth, further iteration, and refinement of business offerings, product choices, and services.”

The rise of the upper class, however, highlights the “widening gap in income disparity,” according to Nicholas Antonio T. Mapa, associate economist at Bank of the Philippine Islands.

“You have the upper end of the social spectrum able to afford luxury imports such as Ferrari for cars, Philip Patek for watches and Louis Vuitton for handbags,” Mr. Mapa said in an e-mail last week, noting that increased discretionary spending is not an indication of a country’s progress.

Luxury brands are targeted at a limited market, said Winston Conrad B. Padojinog, dean of University of Asia and the Pacific’s School of Management and professor of Strategic Management and Economics.

“As the economy continues to grow and inflation kept in check, this high-income segment will continue to prosper in terms of purchasing power and thus will have more funds available for discretionary spending,” Mr. Padojinog said via separate e-mail last week.

Emmanuel A. Leyco, associate professor at Asian Institute of Management, said the Philippines is becoming a luxury market only “on a limited basis.”

“The major driver of discretionary spending for households would be excess income,” Mr. Leyco explained.

“Households would prioritize their spending to cover the basic needs first, like food, housing and clothing and spend on other items when they have an excess.” -- Daphne J. Magturo