By Trefor Moss
CEBU CITY, Philippines--The Philippine high street is undergoing a face-lift, as retail giants look to capitalize on Southeast Asia's most profligate consumer-spending sector.
The country's biggest developers including Ayala Corp., JG Summit Holdings Inc. and SM Investments Corp. are spending billions on malls to ramp up their nationwide presence, while global brands such as Swedish retailer Hennes & Mauritz AB, which once ignored the Philippines, are suddenly arriving here in force.
For retailers seeking growth, the Philippines has emerged as a rare bright spot. National gross domestic product grew at a healthy 6.1% last year, fueled by $27 billion in overseas remittances and over $18 billion in outsourcing revenues--and much of that money was spent in shops.
A trip to a mercifully air-conditioned mall is a national pastime in this tropical country and helps drive household consumption, which equaled 72% of GDP last year, according to the World Bank. The Philippines is also proving more resilient to external factors, from China's economic slowdown to depressed commodity prices. That stands in contrast to its neighbors: Thailand's household consumption was only 53% of GDP, not far behind Indonesia's 57% and Vietnam's 64%.
With stores among the chief beneficiaries of the surging economy, the Philippines has emerged as the star retail performer in Southeast Asia, posting sector growth of 6% in 2014, according to Nielsen--the highest in the region, and the only performance based on solid growth in both volume and value terms.
"The Philippines has had sustainable growth driven by consumer spending for a few years now," said Stuart Jamieson, Nielsen's managing director in the Philippines. "That makes it highly attractive, and puts it on the radar of big foreign players."
Such robust growth is driving a proliferation of supermarkets, shopping malls and convenience stores. From 2012 to mid-2015, the number of supermarkets grew 53% to 644, according to Nielsen, while the number of convenience stores rose 60% to 2,270--a number set to double again by 2018.
The expansion of malls is gradually changing the shopping experience for millions of Filipinos, whose retail experience consists largely of sari-sari stores, variety shops selling everything from food to clothes to household goods.
On a recent afternoon in Cebu City, close to the site of a new shopping center, a solitary customer at Remedios Soson's street stall tucked into a plateful of crispy dried fish, one of various snacks sold there.
"People around here get paid on Saturdays," Mrs. Soson said, scribbling an entry in a battered ledger recording hundreds of tiny debts, most equivalent to one dollar or less. "They'll pay me then--well, most of them will."
Swedish fashion retailer H&M is one of the many global brands belatedly embracing the Filipino consumer. Having opened its first Philippine store just one year ago, it will have 13 by the end of 2015, encouraged by the emergence of a fashion-conscious youth market with disposable income, said a company spokesman. Zara, owned by Spain's Inditex, and Uniqlo, owned by Japan's Fast Retailing Co, have also entered the market here. Japanese chains Lawson Inc. and FamilyMart Co. recently entered the Philippines' convenience store sector, each planning hundreds of branches, even as entrenched players like 7-Eleven multiply.
In Cebu City, home to four million people as well as thriving tourism and outsourcing sectors, the retail boom is changing the landscape. SM's new City Seaside mall--the second largest in the country with 470,468 square meters of floor space, built at a cost of $161 million--is due to open this month.
The Philippines' largest retailer and property developer, SM already has a mall in central Cebu City, but 60% of the shoppers at City Seaside, five kilometers to the south, won't ever have visited the older outlet, said SM Vice President Marissa Fernan.
SM's portfolio of 53 Philippine malls will balloon to 75 by 2018, and others are following. Robinsons Land Inc., the retail and property arm of JG Summit, another local conglomerate, will also open a major new mall in Cebu City this month -- its third in the city. The company has 40 malls nationwide, and aims to tap "huge unmet demand" in the provinces with openings over the next few years, including 10 malls in regional cities by 2017, said Arlene Magtibay, general manager of Robinsons' commercial centers division.
New entrants are piling in. In March, DoubleDragon Properties Corp., a new retail and real-estate company co-founded by Jollibee Foods Corp. owner Tony Tan Caktiong, launched the first of 100 CityMall outlets planned by 2020. Conglomerate Ayala Corp. and retailer Puregold Price Club Inc., the country's largest supermarket operator, opened their first jointly owned Merkado supermarket in July, with dozens more in the pipeline.
For traditional street-corner vendors, most of whose shops are unlicensed, the outlook is less clear.
Mrs. Soson, a 47-year-old mother of three, is anxious about the upmarket shift spurred by the arrival of the City Seaside mall, though, ironically, construction workers have been adding to her lunch business. "In the city center, they've already been demolishing sari-sari stores," she said, adding that the $20 the stall earns daily is her family's only source of income.
Nielsen's Mr. Jamieson said the number of sari-sari stores is expected to drop from 1 million to 800,000 nationwide by 2020, but many will remain viable. "Even in developed economies, there's still a role for small neighborhood stores," he said.
Write to Trefor Moss at Trefor.Moss@wsj.com