KUALA LUMPUR: Slower retail growth in Malaysia is not a dampener on Aeon Co (M) Bhd, as the giant Japanese retailer is set to increase its investments this year.
Aeon is investing more this year in anticipation of sustained spending by consumers. It plans to invest RM700mil in capital expenditure (capex) in financial year ending Dec 31, 2014 (FY14), which is an increase from RM536mil in FY13.
“Consumer outlook may be a little bit cautious now, but I believe there will still be spending. We remain optimistic on our prospects for FY14,” Aeon’s executive director of corporate finance and investor relations Poh Ying Loo told StarBiz in a recent interview.
The company will open three outlets this year in Bukit Mertajam, Taiping, and in Quill City, Kuala Lumpur.
“We will be the anchor tenant at Quill City. The RM700mil capex planned for this year is not for the three stores alone, as it includes stores that were opened towards the end of last year into this year. It also includes stores that have been refurbished,” Poh said.
“In the first year of operations, we usually have to contend with start-up costs of between RM1mil and RM2mil in each store that we open,” he added.
Aeon recently saw its costs rising as a result of the higher electricity tariffs which kicked in this year.
This cost component rise had an impact on the company’s recently announced first-quarter FY14 financial results to end-March that saw bottom line declining by 8.3% year-on-year to RM46.88mil despite topline rising by a similar 8.8% to RM945.5mil.
“This year, we are witnessing the impact of the increase in electricity tariffs. It is not only impacting us but also the rest of the industry. On a net basis, costs have increased by 17% so far after the tariff hike. This cost (component) needs to be reduced to a certain extent,” he said.
“But given this and that this is only the first quarter, generally the (financials) tend to grow stronger as we move along into the third and fourth quarters. We are looking at implementing counter-measures to control these costs,” Poh added.
Aeon will embrace environmentally friendly methods to curb these price hikes by reducing its net energy consumption by using more power-efficient devices.
“We will look at implementing energy-saving initiatives in our stores and shopping centres. These are counter-measures such as using LED lighting and installing escalator sensors. It will be done in phases on a store-by-store basis, with the aim of completing it within the next 12-15 months,” Poh said.
“This will at least help to contain our costs for the time being. It will be difficult to quantify the savings now, but we believe we can bring the cost increase (due to the electricity tariffs) down to a single digit or high single digit in line with our business needs. We do not intend to pass on these cost (increases) to the consumer,” he added.
The company has notably been able to face rising costs in components such as labour, fuel and materials, as net margins have been maintained at a decent 6.5% in the past three years.
Aeon had also over the past five years reported steadily rising top and bottom line figures.
The company also plans to introduce an online shopping portal soon, with the aim of capturing an additional revenue stream from this business segment with a capex allocation of about RM2mil over two years.
“We recognise the need for online shopping and growth possibilities in this area. This year, we will start developing the online side and are now working with some consultants to try to establish and set up our own website. In the future, we will also consider digital advertising,” he said.
“The online business will work hand-in-hand and complement the brick-and-mortar business. I don’t think it will replace it, as Malaysian consumers still like to feel and touch (a product),” Poh added.
Aeon, which also has a property management service business presently, owns 12 of its outlets, leases 13 and is anchor tenant at five of its outlets.
“We are anchor tenant at Sunway, Bandar Utama, IOI Mall, Queensbay and Mid Valley. We basically manage the whole shopping centre at the ones we own or lease - with Aeon inside and the rest of the space sub-let to other tenants,” he said.
The company also does not have an intention to establish a real estate investment trust at the moment, as there is no need for it.
“It’s an option that we are open to (in the longer term), but there is no necessity to jump into it right now,” Poh said.
Aeon will open its first furniture outlet called the Index Living Mall in Puchong via its 70%-owned joint venture with the Thai-based Index Living Mall, which is the largest furniture retailer in Thailand.
“The products will be sourced from Thailand. The initial capital is about RM10mil,” Poh said.
Index Living Mall has its own manufacturing plant in Thailand and is currently already exporting to other countries with a franchise business as well.