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Friday July 13, 2012

Designed for success

THE act of giving not only brings joy to the receiver, but has become a money-making business for suppliers in the premium gifts industry.

In 2011, the turnover for Arch Associates Sdn Bhd, famed for their miniature 3D buildings and framed veneer art pieces, reached RM7.2mil. Of this total, 25% came from the export market.

But the story of Arch could have easily taken a different turn if it had remained an architectural model making company, which had been its original venture.

Open for public viewing: The production area at the KL City Gallery sees about 15,000 visitors a month.

Flashback to 1997, when the financial crisis slowed demand for model production to a trickle.

With a team of 50 staff members, 20 subcontractors and a commitment of some RM250,000 in salaries to meet, Andrew Lee, founder and CEO of Arch, had to think of something fast.

“I thought it would be a good idea to retire. I had enough to raise a family and had paid for all my properties, but my family was dead set against it. At 30, they said I was too young to stop working,” recalled Lee.

True enough, Lee’s decision to go into the business of premium gifts, souvenirs and collectibles proved to be rewarding in more ways than one when they started their first outlet at Suria KLCC in 1998.

For one, it has helped to realise his love for heritage preservation in the form of the Kuala Lumpur City Gallery, which occupies two storeys of a colonial building between Warisan Restaurant and the Kuala Lumpur’s Children’s Library in Dataran Merdeka.

Pretty things: Lim showing off some of the unique items in his stock that will probably end up in some goodie bag.

Though Lee declined to reveal how much was spent on this pet project, he said that he has landed a seven-year contract with Kuala Lumpur City Hall to run and manage it.

A 50ft x 40ft size model, depicting the skyline of Kuala Lumpur from Sungai Buloh to Kajang and Mont Kiara to Jalan Ampang on the second floor, is said to be going to cost Lee some RM3mil to construct.

But, the journey hasn’t been entirely free of hiccups. When Lee first showed his products to KLCC’s management, they turned him down, saying there would be no market for it. Unperturbed, he got in touch with the general manager who promptly turned up at Lee’s office the next morning and within 10 minutes, Lee got his 380sq ft shoplot on the second floor which came with a monthly rental of RM15,000.

With a renovation budget of RM100,000, eight carpenters were specially flown in from Sabah to construct the display racks and islands.

Fortunately, there was a warm response from the public and sales in the first month came up to RM60,000, which to Lee was a good figure.

However, by the third month, things began to go wrong. The supplier, from whom he had obtained the balsa sheets for his framed souvenirs, had run out of stock. To reorder, they would need to wait for two months. But Lee knew it would take longer due to the 1997 financial crisis.

Going places: Alex Yow, division head of Kuala Lumpur City Gallery where the Arch showroom is located, shows off a certificate from the Malaysia Book of Records recognising the longest KL skyline made of veneer. Their target for the number of visitors per day is at 1,500.

It proved to be a blessing in disguise as it paved the way for Plain Tree, a veneer sheet company, to pitch their products. To Lee’s delight, not only were the sheets thinner, they were available in varying grains and shades. Aesthetically, this would triumph over the plain balsa sheets.

Then of all times, his laser cutter broke down. Arch was among the first in the field to own such a device.

At that time, the only way to have it repaired was to fly a technician from the US and it would cost Lee some US$20,000 (RM63,000) for the service charge alone.

Just in the nick of time, Lee’s trusty accountant, Alice Fernandez, revealed the company had a reserve of some RM200,000 set aside. The emergency reserve fund ultimately allowed Lee to invest in another laser cutter and restart production.

Detailed workman ship: Arch employs some 30 full time experienced modelers like Tham Kam Hong to construct its veneer pieces and miniature heritage buildings.

Now, with all his company savings gone, Lee, a father of one, really had no choice but to continue to work!

The first step was to enlist a team to act as the company’s thinking cap. Between 1999 and 2000, Lee recruited eight designers and one of them was Carol Khan, 40, who now sits in the design director’s chair.

It was she who transformed Arch’s format of veneer art into functional every day objects. Among Khan’s ideas that have become an integral part of Arch are its range of book marks, magnets and smaller classic frames depicting cultural images of Malaysian life.

Of the last range, two series featuring a composite variation of 20 historical landmarks — Tribute To KL and Pride of KL have become Arch’s best sellers in the souvenir category.

“By 2002, people started to ask if we could custom-make gifts for them. That was when we started a team to handle the corporate gifts division,” says Lee.

Currently, the team is headed by sales and marketing director Leon Kim Yoke, 48, who joined Arch in 2009.

She guides a team of five, and one of her challenges is reaching out to the right market and to determine the correct quantities for each order to ensure they are economically viable due to the labour-intensive nature of the production process. Currently, a team of 100 skilled model makers work full time to put orders together. According to Lee, they are paid about RM3,000 each.

One of the platforms Arch has made use of is the Malaysia External Trade Development Corporation, which awarded them a Brand Promotion Grant worth RM1mil to be utilised over two years.

Within these four years, Arch has taken their products on the road to international gift shows in Europe, the US, Middle East and Australia. The company recorded exports sales to 11 countries worth US$2mil (RM6mil) in 2011 and forecasts 2012 figures are expected to see an increase of 50%.

Currently, exports to Singapore make up some 60% of sales while 8% comes from the Middle East. Other markets include Indonesia, Brunei, Kazakhstan, Macau, United Kingdom, the US and Holland.

So what are the most popular items to go into a goodie bag?

Lim Zhen Roong, 29, of IPC Gifts, a two-year old premiums company located in Kepong gives us a list of the top five based on their sales figures.

Coming in at fifth place is the ubiquitous brolly. Supplying umbrellas in rain-all-year-round Malaysia brought IPC total revenue of RM80,000 last year.

Though the black brolly may be a fashion statement, premium gift suppliers have discovered clients prefer them to be either in blue or red as these are the predominant shades in both government and corporate departments. Another popular shade is orange, with one out of 10 going for this sunny colour.

Bags come in at a close fourth. For toiletries, backpacking or shopping, bag sales account for some 12% of the sales revenue in Lim’s company. Their popularity comes in at one out of three proposals as they are suitable for everyone from management to production.

Drinkware, as in mugs, water bottles and flasks, take third place. So sure is Lim of the demand for drinkware that he is willing to stock some 8,000 pieces in varying colours and designs. Considering the average price per piece is RM12, there is quite a considerable sum on hold there. Diaries are the second most popular item in the world of premium gifts.

To fulfil consumer demand, Lim and his partner, Lydia Vong, 29, have embarked on small-scale production in binding and hole punching to insert additional prints into the folders.

Last year, production activities took up some 15% of the overall company operations and has gradually increased to 20% this year. From the ordering process to the sourcing of materials and the coordination with the factories in China right down to the embossing details, has taken Lim up to 112 hours.

Thumbdrives may not be so popular but what they lack in numbers, they certainly make up for in value. According to Lim, gross sales came up to RM350,000 for 2011, making them a top money spinner for the company.

But what about T-shirts and pens?

As Lim’s company does not specialise in tees, he has omitted them from the list. However, on the occasion when he has to serve some of his clients last year, the smallest delivery came up to seven cases each containing 200 T-shirts each. This, says Lim, comes nothing close to the kind of volume supplied by the ‘big boys’ which can carry a worth of RM30mil per delivery.

As for pens, though they are immensely popular, the value is rather small. But what has become a hot item in the past two years are lunchboxes as they are seen as more eco-friendly than Styrofoam boxes and plastic bags.

Last year itself, Lim sold more than 8,000 pieces.