The consumer will assume effective control of the industry

was burned down, while Makro (now with two additional outlets in Novaliches, Quezon City and Bacoor, Cavite) is facing scrutiny from the Department of Trade and Industry (DTI) for allegedly violating the Retail Trade Law by allowing “retail” purchases. The matter has been forwarded to the Secretary of Justice for an opinion.

Roberto Claudio, vice- president for national affairs of the Philippine Retailers Association ( PRA), said Uniwide’s experience from Makro’s operation reinforces the “domino theory” that would arise from the entry of foreign retailers in an unprepared local sector.

The domino theory presupposes that large foreign retailers would edge out local counterparts, such as Robinson’s, SM, Ever Gotesco and Uniwide, and force them to downsize and compete at a lower level department store/convenience store-type operation, similar to what Uniwide is doing with its Family Stores sprouting in densely populated areas such as Quiapo in Manila.

The middle- level stores will now be forced to downgrade their operations until the situation eventually displaces so- called mom-and-pop stores which are mostly of the next- door- neighbor-type operation.

However, Sen. Sergio Osmeña III, author of the retail trade liberalization bill, said it would be difficult to drive mom- andpop stores out of business as they operate at a very low capital — at least P5,000 to P10,000.

Based on submissions by the DTI to the House committee on economic affairs, opening up retail businesses to foreigners with a minimum capitalization of P10 million would only affect 28.4% from a sample size of major department stores, 22.2% of supermarkets, 6.1% of those engaged in medical supplies and equipment, and 25% of those in the books, office and school supplies stores.

As a percentage of the total retailing picture, the study shows that half of total registered retailers are single proprietorships, of which 72% comprise those with a capitalization of P25,000 and below ( sari-sari or convenience stores). Only 0.33% have a capitalization of above P10 million.

Sari- sari stores still source majority of their stocks from major supermarkets. The convenience stores, in turn, impose a price markup of at least 20%. The high end-price of a product is one of the major reasons for opening up retail trade.

Jose Albert, president of the Philippine Association of Supermarkets, Inc., said the retailer’s margin is one way of improving service to a price-conscious client. He said retailers, in a way, are prevented from improving their service due to their pricesensitive consumers.

“Service is a function of price. If you give rock- bottom prices, I cannot give you service. If you pay higher prices, then you get better service. You pay for better service,” he said.

In addition, PRA’s Mr. Claudio said Filipino retailers have the lowest gross margin at between 20% and 25%, compared with counterparts from the United States (60% and 80%) and even from Asian neighbors such as Hong Kong, Taiwan and Singapore (50% and 60%), due in part to high tariff structures.

Mr. Osmeña said tariff is not an issue given the large volume of imported items left unchecked by Customs. “You do a spot check on the retailers in the malls, department stores and tiangges (rolling stores) and see who really pays tariff... very minimal. Of course they will not admit that.”

The Cebu solon said Filipino retailers are not actually at a losing end as they are not engaged in “real retailing,” and since their items are sold on a consignment basis.

He said the arrangement is such that a producer rents a space in a major department store. The retailer pays the monthly overhead cost, including the rent, plus a percentage of the gross sale to the mall owner, all of which are paid to a central cashier. In effect, the producer is also a retailer and a tenant of the mall owner.

Mr. Osmeña said the consignment arrangement frees the big retailer from the high inventory carrying cost, which is now passed on to the producer-retailer, who eventually passes on the additional cost to the consumer through higher prices.

“They’re ( big retailers) just making a ride. Not even a retailing profit. It’s a rental of the space. It’s a real estate business.”

Mario Lamberte, vice- president of the Philippine Institute of Development Studies, describes what would likely happen if the retail market is liberalized.

In a study published by the University of the Philippines Center for Integrative Development Studies, he said: “A strong competition within the retail trade would eventually let the “consumer assume effective control of the industry, even if all the firms in the industry are owned by foreigners.”