Parkson Holdings Bhd, which last month made a S$138 million initial public offering (IPO) of its Southeast Asian unit in Singapore, is looking to expand its footprint into the Philippines, Thailand and Myanmar through acquisitions or greenfield projects as part of its plans to become one of the region’s largest department store chains.
Parkson Holdings now operates 53 department stores in Malaysia, Indonesia and Vietnam, and 49 in China with another four expected by year-end. It is expected to open its first store in Cambodia in 2013.
Parkson Retail Group Ltd group managing director Datuk Alfred Cheng (pix) told SunBiz that the group’s strategy is to maintain a strong balance sheet, including a sufficiently large cash position, so as to ensure the financial flexibility to make an acquisition should opportunities arise. Its cashflow now stands at RM3.2 billion and it has been in a net cash position since 2005.
“In China, for example, there are opportunities to acquire some of the regional players that cannot withstand the competition. The same (opportunity to acquire) goes for Indonesia, the Philippines or Thailand,” he said.
“And we want to be in a strong position financially so that we can undertake that. We want to be the consolidator rather than be consolidated,” he said, but was quick to add that nothing concrete has emerged so far.
“We could buy into a platform which will allow us to grow quicker than if we start greenfield operations. However, in markets like Vietnam and Cambodia, the choice of entry mode has to be greenfield as there was no strong franchise for us to buy into. When we go into Myanmar, probably that is what we have to do too,” said Cheng.
Parkson Holdings is also looking to buy the property of its major flagship stores.
“Currently, in the 102 stores that we have in the four countries, we own about eight locations and it is our intention to continue to look at good strategic locations to buy. Having said that, we are not a property developer and so, we do not intend to own every property that we operate in,” said Cheng.
“Currently, the ratio of space that we own is 17% in China and less than 10% in Southeast Asia.
We hope to eventually bring that ratio up to 20-25% of self-owned space and the balance long-term leases,” he added.
On its capital spending, Cheng said the group has spent RM600 million a year, on average, in acquisitions of competitive stores or properties in flagship locations in the last six years. These include acquisitions in China, Vietnam and the Active Lifestyle stores in Malaysia.
Meanwhile, the group plans to open eight to 10 stores in Southeast Asia annually in the next three years as part of an aggressive expansion in the fast-growing region. It will use the proceeds from Parkson Retail Asia Ltd’s recent IPO to fund the store expansion.
The group will open about two new stores in Malaysia per year, two to three stores in Vietnam and four to five stores in Indonesia, with an average investment per store of some US$2 million to US$3 million.
Cheng said the slower pace of new store openings in Malaysia is due to its more mature retail demographic.
“We continue to focus more on improving sales productivity at existing stores in Malaysia and thus, the pace of growth will be at a more moderate level compared with Vietnam and Indonesia,” he said.
And while Vietnam’s retail market has huge growth potential, Cheng revealed that bureaucracy hinders the group’s ability to grow faster there.
“In Vietnam, we could have targeted to open five to six stores per year, but there is a bit more bureaucracy there.
“The process of identifying a site to getting it build with licences/permits takes a bit longer. So, the two to three stores per year (target) takes into account the time it takes to operate in the respective markets and the fact that there are not too many major private property developers there yet,” he added.
In addition to its plans for Southeast Asia, the group will open about eight to 10 stores in China a year, spending about 30-40 million RMB per store.