Friday, April 3, 2015

Thinking about the retail business of Parkson Retail Asia

I have always wanted to buy a piece of retail business.

Parkson Retail Asia is on its way to becoming a star candidate of a falling knife nomination. It is with good credentials that it is this year hot favorite.

1) Malaysia Retail Sector is facing a lot of headwinds. GST is implemented, the Missing MH370 has no proper closure and is pissing Chinese Tourists.

2) Malaysia economy is not actually roaring too, falling ringgits and being affected by the weak oil prices.

3) The sector itself is competitive, while Parkson is a well established brand in Malaysia, its concepts are hardly different from other department stores. At least, I cannot really understand the difference, it is still cosmetic at first floor, ladies accessories etc... How do differentiate it from Isetan, and although Parkson do not operate in Singapore, how would it have match up with OG, Robinson or even CK Tang. 

4) Its horrendous handling of the closure of Keangnam tower Parkson store at Hanoi. (See past post here) The amount of compensation is unknown, but at very rough estimate of 27 mio for a year rent for the NLA at Keangnam tower Parkson as compensation would have wipe the whole year's earning off. 

Reasons of why I like it are here, which I would not elaborate.

So, I decided to think about the business deeper and find Parkson still an interesting counter to continue researching. 

First of all, I researched on 2 failed department stores that have once seen his hey days- Oriental Emporium (英保良) and Japan Yaohan.

I stumbled upon a very wonderful blog which I will add on my blog roll, "Remember SIngapore", readers might want to check up the blog and his write-up on Oriental Emporium . But to keep the story short, high debt levels, aggressive expansion and a turn of economy lead to once retail big brothers to go the way of the dodo. Is Parkson facing a similar fate (It does not need to fail, but just do badly enough to make investor cry.)

Parkson is also expanding aggresively overseas in the SEA market, it wants to have a first mover advantage in relative untapped markets like Myanmar, Vietnam etc. Alas, how quickly the SEA consumers story turn, and how Mr market which used to view it as a Grow Stock not see it so depressingly. 

Why am I still harping on Parkson? I am not vested, but I seriously think I will consider buying some if there is some light in the compensation or if it really continue its freefall.

1) I believed MH370 is temporary and Chinese tourists will return. Not in the near term, but they have a short memory. 

2) GST at Malaysia might create a knee-jerk reaction in the Q4 from 1 april onwards, but GST is used to replace SST (Read here), so the net effect on consumers should be more muted after the confusion settled.

3) Parkson is in a net cash position. So the case of it going the way of Dodo is not high. Assume a rather high compensation of 3 years rent for Parkson Store at Hanoi, Parkson 200 mio cash will be enough to pay it.

4) Retail is a bad business to be in. Isetan closed its Wisma store, John Little is closed at 2 locations which I cannot remembered. So what is Parkson offering? Of all my concerns, I believe 4 is the biggest bugbear. Retail is facing competition both from conventional players and also from e-commerce retailers. Although I always believed both are not mutually exclusive, a scuttlebutt to Parkson Malaysia Website show me it is under maintenance until August, which I thought is really a long time if Parkson is serious in getting into the e-retail game.

A browse at Vietnam website show a lot of advertising and information and various products, and just when I wondered if I can just buy something online, I was directed to a member login page. I thought this is highly unfriendly given the ease of use of credit cards to shop online on various boutique shops. 

When I went JB the other time, there was a Parkson Warehouse clearance sale, and I must say the quality of Polo T-shirts and leather shoes are rather value for money after 50% and 70% discount, and also after converting it back to Singapore dollars. I seriously do not think I can get such good quality polo-t and leather shoes for S$15 and S$40. But if there is no discount, would I buy?.... ....

It is a business worth more looking at and thinking.   


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