Stickman Readers' Submissions May 27th, 2017

Phuket Decline Or Transition

As a weekly reader of Stickman’s column I’ve noticed a subtle recurring theme within his posts which suggest that Phuket is on the decline with an emphasis on the naughty boy scene. I am involved within the adult, hotel and restaurant scene in Phuket and have been on the island for a few years. I am on friendly terms with many in the hospitality scene who have been here for the long term and the short term. My observations are based on my experience on the island and my personal feelings as to what exactly is going on in Phuket at the moment.

Let’s start with a brief chat about B. B has been on the island since the late 1990s and I always use B as a reference point for foreign success on the island. B had the opportunity to move either to Johannesburg or to Phuket after he left his successful career as a stock broker. B decided to open a bar in one shophouse unit which morphed into two and on it went until he built up what proved to one of the most enduring brands on the island. B took his profits and bought land, went into residential development and has made a small fortune on the island. B also has interests in Hong Kong and possibly in more Asian countries but the aforementioned is all I can state as a fact.

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Then there’s J. He arrived on the island in the early 2000’s. J saw that there was a real gap in the adult entertainment segment of the market only problem J didn’t have much capital. He knew that if he built it, they would come. He gathered a few investors together and all these years later he is the king of adult nighttime entertainment on the island with no signs of slowing down either.

Finally we have to chat about S. I would be lying if I told you I knew exactly when S arrived but it was before our first two characters. S saw the massive surge in Australian visitors and created a pub aimed toward them, starting only with one unit. S an extremely smart and shrewd businessman built up his interests so much the man runs an entire Soi. S also has business interests in Hong Kong and Singapore.

I use these three as examples in my piece as they are all humble people who are open to talk to anyone and have made a success of themselves but what do they all have in common besides being successful business people? I believe it was a case of being in the right place at the right time and taking advantage of the opportunities afforded to them. None arrived with hundreds of millions of baht but they did have an element of luck in building their fortunes. They arrived at a time the island was in a state of transition, what I will call the first transition. The first transition was where Phuket went from being a small off the map island to a world renowned tourist destination.

During the first transition which I would say was from the early to mid-1990’s there were many market characteristics that made this a prime stage to invest in this market:

1) Rentals were low even in prime locations

2) Competition was minimal

3) Exchange rates were favourable

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4) Phuket was seen as a cheaper holiday alternative

5) Cambodia, Vietnam and Burma tourism markets were non-existent

6) Patong was really the only developed area for tourism

7) The Chinese market was not even a consideration

The Phuket of 2017 is the direct antithesis of the above:

1) Rentals were low even in prime locations: To rent even a small space in Bangla Road would set you back a few hundred thousand baht. To find a prime location to rent is difficult if not near impossible, the ship has sailed so to speak

2) Competition was minimal: There are many bars, nightclubs and beach clubs around Phuket. In areas where you could still see buffalo feeding in 1993 there are numerous guesthouses, restaurants and bars. Bar Plaza’s are around every nook and cranny

3) Exchange rates were favourable: Today the British Pound to Thai Baht exchange rate is 43.61, I don’t have the data at my fingertips right now but I can recall some old timers telling me when they arrived the rate was 80 to 1. I may be wrong but if I am even in the ball park consider that the value has almost halved, add to this that above characteristics you can see that it was truly an opportune time to invest in the market.

4) Phuket was seen as a cheaper holiday alternative: Phuket can no longer be seen as a cheaper alternative. If you take a look at the rates for drinks, food and plane tickets it is on a par with most Caribbean and European holiday destinations for the most part. Why spent the extra money to fly all this way when you can take a quick trip to Spain where prices are very similar.

5) Cambodia, Vietnam and Burma tourism markets were non-existent: Thailand in general is facing tough competition from neighboring countires for tourism dollar. Cambodia has gone from 1 million tourists in 2004 to 5 million tourists in 2016. Vietnam has gone from 2.9 million visitors in 2004 to 10 million visitors in 2016. While Thailand has gone from 11 million in 2005 to 32 million in 2016 it is clear that there is a demographic change within these tourism statistics that I will get to later on.

6) Patong was really the only developed area for tourism: A humorous story was told to me by a friend. A gentleman lets call him Pete had bought a house in Rawai in 2006 but left Thailand to go back to do contract work in the Middle East. It was not until 2014 that he went back to Thailand to sell his house, problem was that when Pete arrived back in Rawai he had no idea where the hell his house was. He spent hours looking for the landmarks that used to service him before but the gravel roads were no longer gravel, the local Thai restaurant was now a 7/11 and more side roads with apartment blocks had been added. He eventually had to phone the real estate agent who was taking care of the house and follow him to his home. That is how much the area has changed. Areas that were not even on the map 10 years ago are buzzing with development. Beach Clubs, hotel, restaurants, shopping centers – you name it, it is being built. This means that the tourism dollar is spreading throughout the island instead of being concentrated to a few areas.

7) The Chinese market was not even a consideration: In 2006 there were under 1 million Chinese tourists to Thailand, in 2016 that number jumped up to 8.7 million tourists.

The Chinese are far and away the dominant market for tourism and that is the main thing to take away from this submission. The Chinese are the market of the future, the Westerners’ time as king of the hill is coming to an end. And this is why I say that I feel that Phuket and maybe even Thailand as a whole is not a market in decline, but rather a market in transition.

The Chinese demographic market will only continue to increase. This year the tourism authority of Thailand expects the number to increase even further. The tourism authority of Thailand expects the number of total tourists in Thailand to increase to 100 million by 2032, in anticipation of this a new coal-fired power plant was built in Krabi. They anticipate 40% of the tourists will travel to the Phuket, Krabi and surrounding areas – that will be 60 million tourists, more than the total population of Italy. And where will these tourists come from? It is only natural to assume the bulk will come from China.

New shopping malls, more hotels and rapid urban development are taking place throughout Phuket. These development are being done by major corporations and why on earth would they be undertaking such projects if the market was in the decline?

I am not writing this piece to defend Phuket, this is far away from my thoughts. In an idea world the demographics would be Western as it is a market I understand and can market to. In this new world that is inevitably coming operators such as myself will either have to adapt to the Chinese market or lose our position, the numbers are there and do not lie.

The majority of complaining I hear are from bar owners on Bangla Road, the numbers they were making are simply no longer there. I often try to put myself in the shoes of the customer, the Chinese in this instance. Why would they want to go into a bar that is overwhelmingly Western? I personally would very quickly walk right past a bar packed full of Chinese, is it racist? Do I hate Chinese? No, but I cannot relate to them and it is way too unfamiliar for me – why would the Chinese view an Aussie or Irish pub any differently?

My personal prediction for the future of Phuket is very simple. I think more and more hospitality businesses that hold onto their Western clients will hold on for a while yet but they will continue to see a decline in their sales. Eventually they will list their business for sale and a Chinese buyer will come in (this is happening to me right now with one of the businesses I am involved in). The Chinese buyer will revamp the venue and will form strategic alliances with Chinese based travel agents, the venue will become a “Chinese venue” and this will happen slowly but surely until the majority of businesses are Chinese owned and that is when the second transition will be over and the island will become to the Chinese what the South of France and the Costa’s of Spain are to European travelers.

But before this happens there will be many more tough years for Phuket, personally I have seen the last few low seasons and each low season becomes quieter than the one before. I think this, the second transition will result in more business closures, more foreigners leaving the island seeking greener pastures and that the market will correct itself in terms of rental prices making it more affordable for Chinese investors to come in.

Am I suggesting for all businesses to completely change their strategy and shoot for Chinese customers? Not at all, I have seen Thai investors I know open a Chinese restaurant in anticipation of this and lost tens of millions of baht. The time is not right just yet, and I have no crystal ball to determine when the right time is. You have to get the timing right and ensure you have the right Chinese partners and like the three gentlemen I mentioned in my opening piece that will require an element of luck.

I am no property expert, I am no sage – I am just a regular guy on the ground that is looking at what is happening around him, and of course I could be horribly wrong but my intuition for whatever it is worth tells me that these changes are upon us and the numbers are evident for those who do the research.

The author cannot be contacted.

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