PRG diversifies businesses in China amid slower economic growth

  • Business
  • Saturday, 04 Jun 2016

Asset-light model: Parkson in Urumqi, Xinjiang, is the group’s furthest expansion point in northwestern China. It operates 57 stores in 34 Chinese cities.

Parkson Retail Group Ltd (PRG) is diversifying its businesses in China to face challenges affecting the retail industry amid the communist state’s “new normal” of slower economic growth.

Chief financial officer Sam Au says the group, which first established its presence in China with a store in Beijing in 1994, is now actively engaging new formats as part of its transformation.

Acquiring distribution rights of fashion brands for the Chinese market and bringing in F&B brands into mainland are among the new endeavours.

“We are the sole distributor for (Spanish high-street fashion brand) Mango men in China and distributor for Mango women in selected cities.

“We are also the master franchisee for Johnny Rockets (American diner-style restaurant), Quiznos (American brand offering submarine sandwiches) and Library Coffee Bar,” Au says.

These brands, together with two of Parkson’s own F&B brands Franco (French-Japanese fusion) and Ji Hui (Hainanese chicken rice), are available in Parkson’s latest shopping mall in Qingdao, Shandong province.

This venture known as Lion Mall has opened on April 28. The grand opening ceremony will be held in June, with badminton player Datuk Lee Chong Wei and Hong Kong artiste Bosco Wong as the star guests.

Owned and operated by PRG, the mall brings the total of properties owned by the group in China to eight.

Au says Parkson has always adopted an asset-light model in mainland and its future plans would be guided by this principle as well.

“We wouldn’t be able to expand so fast in the first place if not for this principle.

“There are pros and cons – when we own the assets, we will not face rental pressure but future expansion will be capital-intensive,” he says.

Parkson operates 57 stores in 34 Chinese cities, with Urumqi in Xinjiang province as its furthest expansion point in northwestern China.

With a gross floor area of 70,000 sq m, it opened its doors in 2002.

PRG, which owns 51% of the store, leads the operations and management while its partner, A-share listed Xinjiang Youhao Group, holds the remaining 49%.

“The performance of this store has been very good. We don’t disclose the individual profits of our stores, but this Xinjiang outlet is one of the top five contributors to the group, both top line and bottom line,” Au says.

He adds that Parkson’s presence in this Muslim majority province is an important gateway for the group’s expansion into northwestern China.

Malaysian ambassador to China Datuk Zainuddin Yahya, who visited Parkson Xinjiang on May 30, says he hopes to see this particular joint venture becomes a success story for Malaysian investors.

“With 57 stores in China, Parkson is a symbol of good relations between the two countries,” he adds.

Au says the Parkson’s joint ventures in the mainland were a win-win situation for both parties.

Take the Xinjiang store for instance, the Chinese partner, which owns the building, was seeking for expertise to run a department store while Parkson saw potential in the location.

He adds that Parkson is keen to continue with the format of joint venture with local partners in the future to bank on their strengths.

A local partner’s strong rapport with the local industry players and government will come in handy for a foreign enterprise like Parkson.

Another joint venture in Changning district in Shanghai saw Parkson team up with South Korean retail giant E-Land Group to revamp an existing Parkson into Parkson Newcore City Mall. PRG owns 49% of this joint venture.

Reopened in December last year, after four months of renovation, Parkson Newcore is now positioned as a colourful, trendy “city outlet mall” that houses 200 brands under one roof, 30% of which are E-Land’s and 10% Parkson’s.

“With more than 100 fashion and apparel labels under its belt, E-land has been in the Chinese market for more than 20 years as a brand owner and a distributor, but it has never tried running a department store in mainland.

“As for Parkson, we needed a breakthrough to ride through the challenging times, so this JV is a win-win for both parties,” Au says.

This venture, boosted by the South Korean wave, has breathed new life into the store which opened for business in August 2011. It recorded a 50% year-on-year increase in sales in the first quarter of 2016.

As one of the pioneers of foreign department store chains in China, PRG has seen the ups and downs of China’s development in the past 20 years.

Economic slowdown, strong growth of e-commerce and booming presence of “dai gou” (overseas shoppers who help mainlanders purchase luxury goods) are among the factors contributing to the testing time for brick-and-mortar retailers currently.

Chinese President Xi Jinping’s sweeping crackdown on corruption has also impaired spending.

PRG’s response to the challenges are targeted at both corporate and individual customers.

“We are working out customer loyalty and employee reward programmes with our corporate clients including banks and telecommunication companies.

“As for individual consumers, we commit ourselves to bring the price point lower and introduce younger and trendier brands to offer more value-for-money products,” Au says.

On June 1, it rolled out its mobile app as its latest O2O (online-to-offline) attempt.

Au adds that despite the tough times, Parkson remained confident in the Chinese market.

With its presence in Asean including Malaysia, Vietnam, Myanmar and Indonesia, the group also hoped to be a gateway for its partners in mainland to enter South-East Asia.

Likewise, local brands in Asean can also come onboard with Parkson to set foot into China, Au adds.

“Parkson used to be just a platform provider and not a brand owner, but now we are transforming slowly.

“On one hand, we continue to provide a platform while on another, we want to own certain brands, develop our own brands and become a distributor. Eventually we will bring all the products back to our platform,” Au says.

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Business , Parkson , China , challenges


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