Parkson selling assets

  • Business
  • Thursday, 01 Sep 2016

Parkson retail mall in China

PETALING JAYA: Parkson Holdings Bhd is in the final stages of discussions for an asset disposal, of which proceeds would be used to shore up its balance sheet.

A Parkson spokesperson told StarBiz that the company was always on the lookout for opportunities to unlock the value of its assets.

“One of the main reasons for the reduction in our cash reserves is that we paid cash totalling RM1bil for the construction of our Lionmall in Qingdao, which started operations in June 2016,” he said.

The company believes that despite the rise in e-commerce, the department store business still has its place in the wider industry despite it going through some tough times at the moment.

Parkson’s core retail business is facing strong competitive pressure, especially in China where e-commerce has taken market share off the traditional departmental stores and malls.

The changes in China has impacted the company significantly because it derives a substantial portion of its revenue from that country.

Parkson reported a fourth-quarter ended June 30 loss that widened to RM95.8mil from RM87.2mil a year ago despite an improved revenue to RM884.1mil.

The losses were mainly due to its China operations, where 80% of the group’s assets are mainly based in.

The company in its financial statements attributed the loss to growing competition in the country that has led to negative same store sales growth.

It added the stronger yuan had resulted in the higher revenue that was translated to the ringgit.

Losses were also due to costs incurred by new business ventures and new stores during their ramp-up period, it said.

The spokesperson believes that the department store business is not a sunset industry in China or in other countries.

The spokesperson said that it was taking steps to address the thinning margins by bringing in complementary businesses such as shopping mall management and food and beverage, gourmet supermarket, agency brand and house brand development to attract crowds to its stores.

“We hope this will improve margins. This will take time but so far, the results have been encouraging. We are also embarking on some cost-cutting measures such as rental reduction, control on capital expenditure which has seen a one-third reduction, collaboration with suppliers for better margins as well as to reduce manpower, and retraining our staff to be multi-skilled,” he said.

China has seen the tremendous growth of the usage of WeChat on the smartphone as a one-stop app for almost everything that can be done on the Internet from food reviews, hailing a cab, fund transfers to friends or companies, investing money or even for making passports.

This is forcing a rethink of how traditional businesses must integrate if they want to remain relevant.

This development has created a new ecosystem for businesses to reach out to consumers and if caught unaware, traditional businesses that do not keep up with the times and integrate with these new technologies will likely be staring at a bleak future.

Brick-and-mortar malls are not spared from this development either, as manufacturers can have their products marketed directly to end-consumers through other means with peer-to-peer agents that use WeChat rather than through the traditional supply chain of the supermarkets.

The agents utilise WeChat to facilitate payments, market and promote their products and gain trustworthy reputation through peer recommendations on the WeChat platform in a country that is known for manufacturing counterfeit products.

“Peer recommendations can go viral and are continuously being monitored by customers and potential customers, so any counterfeit products discovered will tarnish an agent’s name or sales line. Thus, the onus is on the agent to ensure his or her integrity is kept up on the platform,” a market observer said.

A New York Times report earlier in the month reported on this phenomenon, noting that China’s mobile tech industry often provides an improved replica of what is available in the West and the country in some ways has pulled ahead of the United States in the mobile tech space.

The report even said that big tech firms in the US are also taking note of this development and are now looking at the tech companies in China for ideas.

In the most recently reported quarter, Tencent’s WeChat had 762 million monthly active users, which is close to 60% of the country’s entire population of 1.36 billion.

Back home, the Parkson spokesperson said that the online business is a “very important” platform for the company, especially in China.

“We are actually already collaborating with some online players, including one of the top-three in China and are strengthening our position in online operations,” he said.

Meanwhile, analysts are mostly neutral to bearish on the stock.

Parkson, which received very positive response from the market when it entered China, has been on an established downtrend since five years ago in 2011 and was last traded at 74.5 sen.

Coincidentally, 2011 was also the year when WeChat was just introduced to China.

Parkson, with a net gearing of 0.47 times and total assets per share at RM2.38, also continues to conduct share buybacks in the open market.

It holds a total of 58.6 million shares or about 5.3% of its total outstanding shares in its treasury account to date.

While the company believes its shares are undervalued at the present moment with the continual share repurchases, the key for it will still be to sail safely the rough waters of doing retail in China and continuously making important adjustments to its strategy to compensate for the strong winds of change, if necessary.

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