Happy New Year to all my readers!
I will like to touch upon an interesting company – Parkson Retail Asia. As usual, my article focuses on the qualitative insights since there are sources on the firm’s financial health.
The roots begin when Parkson Holdings Bhd was incorporated on 26 August 1982 as a private limited liability company under the name of Amalgamated Cement Mills Sdn Bhd. In 1988, it changed its name to Amalgamated Containers Sdn Bhd.
It was publicly listed on Bursa Malaysia in 1993. It is now an investment holding company with stakes in Parkson Retail Asia and Parkson Retail Group Limited, listed on the Singapore Stock Exchange and Hong Kong Stock Exchange respectively. Lion Group owns Parkson Holdings Bhd.
As a major department store retailer, Parkson is Malaysia second largest operator with 37 stores, 20% market shares as of 2012 (source: The Edge Singapore, December 31, 2012). The number one is The Store Corporation with 26% market shares as of 2012, the only local retailer with outlets established in every state of Peninsular Malaysia. Parkson key focus is in emerging growth markets across Southeast Asia. Apart from Malaysia as their stronghold, Parkson has overseas presence in
1) Vietnam - 7 stores, number one department store retailer in retail market shares
2) Indonesia - acquisition of Centro Department stores from Indonesia Sentosa’s Group
According to Parkson company data as published in DMG report, majority is fashion and apparel (55%), 27% is cosmetics and accessories, 14% household and 3% is groceries. Parkson private label apparel products include Linea and Alexander, Dis Direction and Weekenders which are positioned to middle and high end consumer groups. This would be Parkson market segmentation. Southeast Asia middle class professionals will continue to grow as wages rises which make business sense for Parkson to target their loyalty campaigns to them. Therefore, Parkson offers them unique shopping environment and premium brands such as Gucci, Diesel, and Replay. In addition, imported cosmetics are highly sought after by this range of income class.
Parkson refreshing concept
Case in point – In early December 2012, Parkson launched the Shape Sensation Concoon by lingerie maker Triumph at the women’s undergarments section at its KLCC store in downtown Kuala Lumpur. Female shoppers are able to try on Triumph’s latest Shape Sensation range in the privacy of an enclosed cocoon and receive fitting consultations by qualified sales assistants.
To sustain the competitive advantage in the crowded store-based retailing marketplace, primarily the non-grocery sector, Parkson believes in creating new concepts and layouts just like the example above. You can’t simply just price the goods cheaply through bulk volume or import foreign brands, have year-end sales and hope for revenue to jump two to three fold. Simply put, innovation with tenacity to capture the typical shoppers’ mind is the key to gain repetitive customers and this is what Parkson has done while monitoring the markets closely. It is a double edged sword because if you do not meet the customer’s expectations and focus on the declining product/marketing mix, you can probably end up frustrating your bottom line (think of Marks & Spencer women wear – any style?).Online shopping
One may mention about the rise of online shopping against brick and mortar shops. Yes, there is the explosion of group buying website in China and parts of Asia. Yes, there is the convenience of finding what you need or probably head down to your nearest apparel shop, get the information and purchase through the internet since the goods are cheaper.
Mr. Alfred Cheung, group CEO of Parkson Retail Asia, figures that online shopping in Asia will eventually make up 8% to 14% of the entire market (and that’s not huge). In October, Parkson has launched an e-commerce portal that enables customers in Malaysia to order merchandise online. Cheung plans to replicate similar systems over time across the overseas markets.
What this means?
As of now and probably the next few years in Asia, due to host of factors like household nucleus, consumer demographics, shopping patterns and most importantly, the sense of touch, feel and be complemented by your friends when you match with different designs of clothes - give the possibility of department store format to exist. Predominantly, department stores have the ability to capture much larger market shares. A general observation of apparel retailers is to take a walk down the cashiers’ queue, H&M in Orchard, Singapore. Overseas, families shop for clothes and footwear in malls at Indonesia.
Parkson recognizes the e-commerce threat, takes the first course of action in local market yet understands that consumers prefer to shop in groups or with loved ones, so their strategy concurs with store openings.
There is an exception with specific products like books and music. No matter how you flip the book, the contents remain unlike fashion where different personalities carry different characteristics. Looking through the fitting room mirror combined with excellent atmospherics, a piece of scarf, wrapped with a long sleeved shirt and tailored light pants weave the magic in a particular individual. You can't get that experience through online. Then, there is the unknown cyber crime
Secondly, larger Apparel Retailers are complementing their merchandises with their exclusive websites – not to shift the buying completely online but to introduce new merchandises and induce their customers to head down to the stores to buy. Social media builds up the hype.
Downsides of Parkson:
1) Foreign exchange since earnings are captured in local currencies
2) Overly dependable on concessionaries (see explanation in later paragraphs)
3) Country risk such as main revenue contributor is from Malaysia
4) Competitive pressures from major department store operator like Isetan, Takashimaya
5) Unlikely profitable in short term - department stores take 3 years to entrench their position
1) In September 2013, Parkson will open its first full-fledged department store at the St Moritz, an upmarket shopping mall, Puri Central Business District, West Jakarta, Indonesia
2) Foreign operator - expand to the recently liberalized economies of Myanmar (slated to open in March 2013) & Sri Lanka through partnerships with Yoma Strategic Holdings and Odel respectively. Parkson forms a joint entity with Yoma with 70% stake
3) In 2013 - 2014, Parkson likely to be the first department store opened in Phnom Penh, Cambodia
4) More stores opening up in Malaysia and possibly Cambodia etc.
Why Parkson is appealing
1) Potential growth story in Asia in mid/long term plans - first mover advantage and experiences in penetrating across emerging markets of Asia as Parkson built a track record in Vietnam and China over the years
2) Methodology of how revenue is earned - The Group enters into concessionaire agreements with certain suppliers (known as concessionaires) who display and sell their products in designated areas of the stores. After collecting the payment from the customers, Parkson draws out 15-30% commission (excluding groceries and perishable products) from the total sales of the concessionaires and remit the rest to them
3) Asset light business model – the concessionaires bear the inventory costs, fit-outs, selling and shrinkage charges, repair and maintenance as ownership belongs to them. What Parkson provides is the general lightning, space, and customer service training
4) Management is optimistic yet not overly aggressive in entering new frontier markets like Sri Lanka, Indonesia and Myanmar. Their acquisitions and partnerships enable Parkson enter untapped markets in the region quickly with lesser risk, thus managing their debt and preserving effective cash reserve for attractive opportunities. For example, the first store opened in Myanmar is relatively small (one-third the size of a typical Parkson store, which spans 100,000 to 150,000 sq ft) and is a good platform to test the market, build up a talent pool, launch advertising and promotional campaign and assess local consumer trends and behaviour before developing further plans. If Parkson proceeds ahead to open a larger outlet, their CAPEX will increase alongside with new stores and refurbishments
5) Caring service to strong consumer loyalty programs – for instance, Parkson has enhanced the shoppers’ experience by including an escort service to the multi-storey car park, as well as porter, wheelchair and delivery services
In summary, the point of Parkson venturing into high growth areas like Myanmar to Sri Lanka make the investment attractive. For me, I am vested into Parkson and have taken into account the advantages and disadvantages. In future, I hope is that the proportion of revenue streams of Parkson can be increased through house brands (student Fashion Designers, linking with design schools), rental income (sublease to fast food outlets, restaurants, salons etc.) and retail consultancy fees. Thus, Parkson earnings will not be impacted largely by concessionaires as the agreements are renewable and there is always the slightest chance of the suppliers moving out to their exclusive stores.
As of now, I do not expect earnings to increase in FY2013 but await the story to ripen in the next few years- value to significantly grow and unlock over the longer term. 2013 is a year to watch for Parkson with their new store openings. I am not too overly concerned over the current sluggish price but will add more to my position should the share price drops further.