(c) Lyrattanak Tram

Rise of the Malls

It is no secret – Cambodia’s middle class is on the rise and they are spending more money than ever. Unsurprisingly then, the race is on for businesses to claim their slice of the Kingdom’s consumer-market pie. Multinational mall developers and high-end retailers have seized on this opportunity, rapidly increasing their presence in Phnom Penh and giving consumers more ways and places to spend their hard- earned cash. By the end of 2015, Phnom Penh will be home to three cutting-edge retail spaces – Aeon, Parkson and Vattanac – each targeting a slightly different bracket of the country’s swelling middle and affluent classes.

“We know the middle class is booming without a doubt,” says Paul Raymond, a long-time market researcher who currently heads up the business consulting arm of Saint Blanquat & A. in Phnom Penh. “They, the middle class, are linked directly with the services industry boom. Look at Aeon, they are a middle class project. They would not have come [to Cambodia] if the discretionary spending was not here.”While Cambodia’s affluent and wealthy account for only 5% of the population, according to Raymond, the middle class represents at least 28% of the country and almost half of all consumption. Obviously, these are the portions of the population that the developers are looking to cater to.“These malls are expanding on something that has been happening in Cambodia since the ’90s,” says Chris Hobden, a surveyor at the global real estate firm CBRE. “That is, the slow move away from high-street shopping market mentality and into shopping ‘centres’.”
The rise of the malls

While local firms have dabbled in multi-story shopping centres with mixed success, Japanese developer Aeon – which last year opened the doors to its $200 million, 190-store mall on Sothearos Boulevard – is the first foreign retail giant to capitalise on the big-spending middle class. And what has surfaced since the mall’s June opening are some middle-class consumer behaviours unique to Cambodia. “Of all of Aeon’s tenants, the vast majority of them are food and beverage providers,” Hobden says. “That was not just by luck.”“Aeon really highlighted the fact that the Cambodian consumer market is more food-focused compared to other markets throughout Asia. The food court is always packed, which sends a clear message that Cambodian shoppers are out for something to eat, not the shops as much.”

Aeon provides a blueprint

Aeon’s foray into Cambodia and the market revelations that ensued have provided a guide for newcomer Parkson, which is apparently aiming for a slightly higher income bracket, according to Hobden, whose CBRE has handled the pre-leasing operations of both Parkson and Vattanac in Phnom Penh. The Parkson City Centre Mall Phnom Penh, set for completion this year, will be located on Russian Boulevard. While tenants’ names are still confidential, CBRE has received more than 200 applications, which is already more than the five-story layout can house. This influx of interest in having a shop front inside a mall is illustrative of the current spending trend, and gives hope to developers and retailers.However, Tian Chee Sung, the CEO at Parkson, believes that, despite overwhelming confidence in the company’s expansion and the blueprint left by Aeon, bringing modern-styled malls to any under-developed market remains essentially experimental.“I think the Cambodian retail and consumer market is similar to Vietnam’s 10 years ago,” Chee Sung says.“At that time, there were very few modern retail outlets. What we had were mostly street malls and traditional markets and it stayed that way for a while. But now after many years, the set-up is very advanced. That process will be the same in Cambodia.”Parkson and Aeon both operate successful shopping plazas in Vietnam.
From the streets to the malls

The arrival of the two in Cambodia has given retailers and tenants direct access to the middle class consumer, whose monthly wages now average around $750. The arrival of the malls has also created and highlighted the challenges facing the capital’s high-street shopping strips.For Ly Souden, executive director of Sovereign Retail Group, which operates high-end stores such as Mango and Axara on Sihanouk Boulevard and in Aeon Mall, Phnom Penh’s shopping strips are quickly losing their relevance. “You could say we are exclusively a middle class operation with up to 80% of the company’s clientele being Cambodians that identify as ‘middle class’,” Souden says.Sovereign has seen consistent year-on-year profit growth of about 10% since it opened on Sihanouk Boulevard 10 years ago. However, since opening in Aeon Mall in June, more than 50% of its sales have shifted away from the Sihanouk Boulevard store and into the mall. “The arrival of the malls is definitely changing the image of retail industry and the image of the city by providing a new experience… I do expect that sales through the malls will continue to grow beyond the strip shops,” Souden says.Keeping the city’s urban fabric and strip shopping district – such as Sihanouk Boulevard – attractive and functional is one of the biggest challenges for Vannak Seng, the deputy head of the urban management department at the Phnom Penh Municipality. He says as Phnom Penh moves rapidly towards becoming a more modern, “middle income” city, urban behaviours are in desperate need of change.

Old habits must change

De-cluttering the city’s footpaths of unlicensed traders, improving garbage collection and educating people to respect the urban environment all remain barriers to sustaining a profitable and functional strip shopping industry.“These are very basic needs for the business owners that have shops on the street and this is really an issue of changing the mindsets of Phnom Penh residents,” Vannak says.“Rural residents new to the city that find income here are not aware of how to operate within a crowded urban fabric – putting your rubbish in a bin, not setting up a stall or a shelter wherever you feel like, sharing transport, etcetera.”“These malls and modern urban environments will hopefully show people how clean and functional a city environment can be. Residents do not only need the income to be considered a developed nation – they also need the social considerations to keep it functioning.”At the forefront of this new, clean view for the city is the 39-floor Vattanac Tower on Monivong Boulevard, which opened its doors to the public in August last year.Housing grade-A office spaces, a five-star hotel, an indoor lifestyle and outdoor leisure area and a luxury mall with outlets such as Hugo Boss and Christophle, Vattanac goes far beyond the Aeon blueprint.“We have come into the market as a luxury boutique-style mall operation, catering to the higher end consumers, so we are certainly different from the model that Aeon or Parkson are using,” says Reno Mueller, general manager of Vattanac Capital, the asset management firm for the property.A new face for Phnom Penh
Vattanac’s behemoth centre for spending will stand next to the established Canadia tower at the northern end of Monivong Boulevard. And with numerous other high-rise projects planned for the area, Mueller believes the scene is set for Phnom Penh’s first central business district – a symbol of Cambodia’s class evolution.“As the country moves into a more consumer and service driven society, we are trying to encourage the modern work-life culture that you would normally associate with more developed cities,” he says.“Traditionally in Phnom Penh all those components would be in separate buildings. And for the consumer market itself, this model means we can attract different levels of income and promote a more complete lifestyle.” And this upper class lifestyle that Mueller hopes to create inside Vattanac could, he believes, spill over into other aspects of society.“Educating our employees on how to maintain and operate in a modern environment, and also having hundreds of people working and almost living in it, is key to fostering widespread behavioural change beyond the confines of Vattanac,” he says. “Word of mouth and Cambodians’ appetite to learn is a great driver of the aspirational class and then income growth.”“If young people can see and are exposed to these higher-standard urban landscapes, then that instils in them an eagerness to improve their own lives and break the mould.”

Maintaining the boom

There is no doubt that the rise of the malls is closely linked to the rapid transformation of Phnom Penh and its citizens as income levels across the nation edge closer to the World Bank’s definition of Lower Middle Income.But for Raymond, the expert analyst from Saint Blanquat, this transformation of a city, its citizens and their spending habits demands equal commitment from both the public and private sectors to ensure the middle class expands sustainably. According to him, if the infrastructure, laws and standards around the retail expansion are not sound, the boom can easily turn to bust.“Policies should promote upward social mobility and provide safety nets that protect the most vulnerable lower middle class when facing life risks,” Raymond says.“Middle class consumers are no longer satisfied with simply having access to basic public services; they are increasingly concerned with their quality. If public services do not follow suit with middle class expansion, we could one day be saying it was all just a facade.”

Text & Photographs by Eddie Morton