Already expanding rapidly on the back of strong economic growth and rising disposable incomes, Myanmar’s retail industry should receive a boost as the lifting of remaining US sanctions clears the way for greater foreign direct investment.
The official end of the decades-long restrictions by the US was formalised on October 7 by presidential executive order and confirmed by the US Department of the Treasury, striking all individual names from a transactions blacklist, unblocking sanctioned properties and removing various banking restrictions and reporting requirements for investment.
Exporters and manufacturers will be the main beneficiaries, but Myanmar’s retail market could also see an influx of Western brands seeking local partners.
Despite concerns that ending sanctions may further enrich representatives of the former military regime – the main target of the sanctions – the end of the ban on investment is widely seen as benefitting companies across the broader economy.
"The lifting of sanctions is a major step forward. Local partners will be easier to find for prospective international firms looking to enter Myanmar, but due diligence still needs to take place," U Aung Myo Saw, business development director at Max Myanmar Group, told OBG.
Myanmar’s economy is expected to expand by 7.8% in FY 2016/17, increasing to an average of 8.2% per annum over the medium term, according to the World Bank. This is projected to boost disposable incomes, and with them, national retail spend.
Recent years have seen a rising tide of foreign brands seeking to take advantage of that increased buying power; the largest strides have been made by apparel and food and beverage franchises, including KFC, Pizza Hut and Gloria Jean’s Coffees. Only recently, however, have standalone overseas names begun eyeing a move into Myanmar.
Leading the way is Japanese retail chain Aeon, which this year became the first foreign retail chain to gain access to the Myanmar market.
Under an agreement signed at the beginning of August, Aeon partnered with Creation (Myanmar) Group, owner of the Orange chain of supermarkets, to operate a series of outlets in Yangon and Mandalay. The partnership, branded Aeon Orange, will operate out of Creation’s existing 14 outlets, with plans to open 10 more over the next five years.
The first Aeon Orange-branded store opened at the end of September, stocking some 8000 products, 70% of them imported from Thailand and a further 1% from Japan. The balance, mainly fresh produce, was sourced locally. The next challenge for local producers will be to raise the ratio of domestically sourced goods on Aeon’s shelves, which may require investment in quality assurance.
More foreign retailers are likely to follow Aeon’s lead into Myanmar’s mixed-goods and grocery market, spurring an increase in demand for prime retail space, currently in short supply in the main population centres.
At the start of the third quarter occupancy rates in Yangon’s organised retail space were up to 93%, leaving little room for new entries, according to an August report by Colliers International, a real estate consultancy. By the end of 2016 Colliers expects Yangon’s gross leasable area (GLA) to reach almost 300,000 sq metres, more than double the level recorded in 2013.
In particular, there will be a greater focus on mall development rather than standalone outlets, with three new retail centres currently in the works. Even so, demand for GLA may continue to outstrip supply, Colliers noted, opening the door for developers to invest further in the retail property market.
Though Myanmar’s stock of organised retail space is expanding rapidly, much of the market is still dominated by small traders, with just 10% of retail sales made through modern outlets such as supermarkets.
While it will likely take time for retailing trends to shift away from local stores and markets in favour of larger retailing centres, this pattern is clearly changing – especially in major urban centres – and increased access to malls and larger outlets, along with a wider range of products and exposure to foreign brands, will only accelerate this process.
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