Okazaki expects yearly rise in sales in Jusco stores despite SARS

ON average, Jaya Jusco Stores Bhd experiences 20% increase in sales volume year-on-year. Managing director Soichi Okazaki expects that trend to remain the same for this year despite the outbreak of the Severe Acute Respiratory Syndrome (SARS). 

He is not worried that consumer spending may shrink; instead, he believes it would increase this year. 

This year, he said, Jusco would focus on expanding its presence in the Klang Valley and Johor. There are already plans to develop another outlet in Johor Baru, but Okazaki is not letting the cat out of the bag yet.  

Jusco spent RM36mil to acquire a land in Kepong with developmental cost of about RM60mil, which was financed through internally generated cash. 

Work on the mall foundation has already started and it is expected to be open to the public before the end of Jusco's financial year ending February 2004. 

Already, Jusco has more than 100 tenant lots signed up at the new mall, achieving 100% occupancy. Analysts polled by StarBiz said that if the fear of SARS were prolonged, they would downgrade Jusco's profitability outlook. 

An analyst from a local research house who tracks the retail sector said that “from the way things are at the moment”, she foresaw that the fear would continue into the third quarter and even the fourth. 

Jusco recorded a total turnover of retail and rental of 16% quarter on quarter (Sept-Nov 2002 quarter to Dec-Feb 2003 period). Retail sales for 2002/2003 dropped from 32.9% to 17.4% on for the same period. 

She said growth in sales was definitely slowing down and she doubted that Jusco could achieve more than its projected 10% year-on-year growth in sales revenue. 

“Because of the fierce competition, Jusco would spend more on its stores and products differentiation, and I foresee that its profits would definitely be affected,” she commented. 

She added that Jusco's pre-tax margin plummeted from 11.2% to 10.6% year-on-year. 

On the competition between Jusco and Tesco, she commented that the Mutiara Damansara area was expanding rapidly and the population could support such expansion in the retail industry. 

“Jusco in Mid Valley shopping mall is one of Jusco's best money-spinning outlets despite the fact that Carrefour is just around the corner. It is still difficult to say how Jusco would fare with Tesco.” 

She sees the accessibility to the booming Mutiara Damansara area is not great at present.  

She said that although initially sales would be affected, Jusco was quick to react in terms of pricing strategy and was operating at full capacity to cater to more customers. 

She commented that Jusco's move to open another mall in Kepong was seen as a good business strategy as there is no one significant shopping mall in Kepong. 

She expects consumer spending growth would be a slight or flat this year.  

Another retail analyst at Mayban Securities said the setting up of Tesco outlets adjacent to Jaya Jusco stores proved to be a good strategy for Tesco. These areas are populated with middle-income earners and newlyweds, which she sees can contribute to Tesco's sales revenue. 

For now, she does not foresee Tesco outlets adjacent to Jusco stores affecting Jusco's sales revenue. However, she cautioned that the upcoming shopping mall in Mutiara Damansara,  

The Curve, would certainly pose a challenge to Jusco's business. The Curve is due to open its doors to the public early next year. In the long run, she feels The Curve may affect Jusco's sales revenue.  

“The 1 Utama shopping mall outlet has the biggest value (in terms of sales revenue) to Jusco; however, The Curve may steal Jusco's limelight.” 

On the other hand, she said, Jusco's decision to open a mall in Kepong was seen as a defensive strategy as it could in some way redirect traffic and curb the Kepong residents from venturing to the Mutiara Damansara area, where Jusco can further lose its potential clientele to The Curve or Tesco. 

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