Parkson's regional sales grow

  • Business
  • Saturday, 19 Oct 2013

Parkson Holdings Bhd (PHB) has been moving fast in the last decade.

The Lion Group retail arm has been reaching deeper into Asia following China as its first overseas expansion, then Indonesia, and then Indochina.

Seeing as Thailand was already a matured market, PHB went for Vietnam in 2005.

“It was the readiest of its neighbours in the region. We had been working on Cambodia in the last three to four years, and found that it wasn’t ready either. Myanmar, at that time, was maturing but it wasn’t quite there either,” Parkson Vietnam, Myanmar and Cambodia CEO Tham Tuck Choy tells StarBizWeek.

In the last two years alone, Parkson went from 46 to 54 outlets in China, seven to eight in Vietnam, one in Myanmar and Cambodia, and six to eight in Indonesia via PT Tozy Sentosa’s Centro department stores and Kem Chicks gourmet supermarkets, a deal that gave PHB eight outlets in the country.

PHB opened two more outlets to 38 in Malaysia last year, raising RM841mil in revenues for the financial year ended June 30, 2012, 10% up from the preceding year’s RM766mil.

It took PHB’s pre-tax profit from RM92mil for the year ending June 2011 to RM121mil the subsequent year.

Breaking through

In gauging the readiness of the budding Indochina countries, Tham noticed the streets there were rife with local brands as well as foreign labels breaking into the retail market via standalone stores.

Lacking malls to house the brands, low-end stores stood next to high-end ones in shoplots.

“You could tell that it wasn’t easy for brands to own a good location. We saw our opportunity in providing a comfortable departmental store with supporting facilities for them so that they could sell their brands more professionally,” says Tham.

He illustrates Myanmar as a vibrant, very interesting market, whose opening in 2011 attracted a plethora of foreign investments.

“Investment laws have been developed in their favour and they have the first mover’s advantage. And the government is doing a lot to develop local industries,” Tham says.

Entering Myanmar as its first foreign retailer, Parkson’s competitors are of the local mid-and low-end markets.

Communication is not an issue as the baby boomer generation there speaks clear English, Tham says.

“So far, Parkson Myanmar’s first year results have been encouraging. We are expecting to be able to maintain our performance and break even for the financial year-end,” Tham says.

“The only risks we can foresee would be those of governmental policies. There are complicated land laws, which they are starting to amend,” he says.

With a population of about 15 million and 90 million, the Cambodian and Vietnamese markets are quite similar, Tham says. PHB noticed the similar shift from traditional to modern retail and the only difference was the timing the businesses evolved.

Tham considers the Vietnamese as having the strongest purchasing power among the Indochinese nations.

“The Vietnamese have the higher spending power, but Cambodia will catch up. Both Cambodia and Myanmar have attracted a lot of investors. The countries are vibrant and bursting with new businesses waiting to open shop,” says Tham.

Since its debut in July, Parkson Cambodia has experienced about 20% growth in month-on-month sales.

“There are two peak seasons in the year – wet and dry. We are identifying the sales pattern, but for now we’re just monitoring the growing monthly sales,” Tham says. “Eventually, we will operate like Subang Parade, where there is a cinema, bowling alley and fast food chains.”

Similarly, Vietnam has had very good results until last year’s economic deceleration, Tham explains.

Parkson Vietnam then experienced a drop in sales, bringing its pre-tax profit from RM23mil to RM12mil for the year ended June 30, 2012.

“The slump in economy weakened the people’s buying power, and we began to see a shift in the sales pattern,” Tham explains.

As luxury goods sales declined, however, the cosmetics, beauty and toiletries segment surged on.

“It’s perfectly understandable. Once you start on a good beauty regimen, you don’t cut back because you still want the positive results. But people trim down on other expenses like apparel and luxury items,” Tham says, adding that the cosmetics division in that region continues to grow 10%-15% that year.

To manage the dip in apparel and home-care sales, Parkson Vietnam fine-tuned its strategy by bringing in more affordable brands.

Mid-range brands like Giordano, he says, keep the focus on the middle or upper middle class rather than the high end.

Aggressive promotional activities are carried out on target markets such as customer loyalty programmes and target marketing campaigns.

“The results have been very good. From our database, we understand what they want and market our products directly to them. Last year we built a database of about 300,000 Parkson Privilege Card members in Vietnam. The membership will soon go international,” Tham says.

Similarly, Parkson Myanmar has already enlisted several thousand members in its recently-launched privilege card programme. With a national population of about 60 million, the number of registrants is expected to rise quickly.

At any rate, the economic slowdown shouldn’t persist beyond the second half of 2014, Tham says, adding that the “worst was over”.

Some analysts share this view, seeing as PHB’s earnings have been dampened by the Parkson Retail Group, its 51.5% subsidiary in China, which is listed on the Hong Kong Stock Exchange.

In its first quarter ended March 31, 2013, the China arm dipped 21% from the preceding corresponding period to RMB227mil (RM113.6mil).

It dragged PHB’s third quarter for the financial year 2013 earnings for the year ended March 31 down 25% to RM76.9mil from RM102.4mil the previous corresponding period.

While Hwang-DBS opines that Parkson Retail Group could continue to experience weaker same store sales growth, the China arm, in a report in the South China Morning Post, told UOB that it would reposition as a more niche player and revamp its existing shopping malls there to accommodate eateries and automated teller machines.

Hopefully, it would bring in more sales to counter the higher marketing and promotional costs, the group said.

Then last month, the group told Bursa Malaysia that its retailing division completed the 2013 financial year ended June 30 with a revenue of RM3.47bil.

This was up 2% from last year’s RM3.4bil, thanks to contribution from seven new stores – four in China and one each in Malaysia, Indonesia and Myanmar – that were opened during the period.

While its China operations contributes about 75% to group earnings, the opportunities in Indochina continue to uplift financial results and encourage further expansion.

“We will continue to strengthen our hold in Asia,” Tham says.

PHB has leveraged on the increasing popularity of Internet shopping by setting up online shopping portals in Malaysia and China.

Tham says PHB is to remain competitive as alternative retail channels such as one-stop shopping malls, concept stores and stand-alone brand stores gain popularity, adding that the retail group is reviewing its market positioning, in-store services and latest brand offerings.

“Although our main strategy has always been in departmental stores, we are actively developing malls in major cities,” Tham says.

Parkson Vietnam has five malls in Ho Chi Minh city to date. It will add one more in December and another next May.

PHB’s retailing division chalked up revenues of RM3.47bil for the financial year ended June 2013, up 2% from last year’s RM3.4bil.

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