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Tag: Parkson Retail Group

  • Retail decline in China, says Fitch report

    China’s traditional retail industry is continuing to decline with demand likely to “remain muted” into next year, according to a new Fitch report.

    The credit rating agency’s report covers shops and and department stores.

    “Not only are shopping preferences changing, but declining consumer sentiment affected retail sales in several categories this year,” analysts Yee Man Chin and Cathy Chao say in the report. “We think the rapid change in shopping formats will increase competition, and therefore expect persistent weak sales for traditional retailers as consumer preferences evolve.”

    In the first nine months of this year, the top 50 domestic retailers saw sales fall 1.9 per cent, representing a slowdown in growth of 2.6 per cent compared to the same period last year, according to the China National Business Information Centre.

    Despite the country’s middle class expanding, sentiment has been dampened by a devalued renminbi and the economic slowdown, says Chin and Chao. Shoppers are now increasingly favouring eCommerce, which makes up 20 per cent of the country’s retail sector, and shopping malls over traditional channels such as department stores and street-level stores.

    This is reducing profitability for retailers who run their own stores with a fixed cost base for rent and staff, the analysts say.

    While the retail sector expanded 10.4 per cent in the first-three quarters of the year, the growth was largely from online sales, which surged 26.1 per cent year-on-year to 3.5 trillion yuan (US$513.8 billion), according to data from the National Bureau of Statistics (NBS).

    Same-store sales for Parkson Retail Group fell 9.7 per cent in the first half, while for the Golden Eagle Retail Group the drop was 8.7 per cent. Chinese shopping centre group Intime Retail, which is backed by Alibaba, had a 3.7 per cent fall in sales in the first nine months of the year.

    More competitive

    Weakness in the industry is making the retail environment increasingly competitive, say Chin and Chao. “Retailers can gain an edge by improving their product mixes, because certain industry segments such as sporting goods are continuing to grow.”

    Sports companies went through consolidation in 2012, and with consumers becoming more health-conscious, suppliers like 361 Degrees International “should benefit accordingly from sales growth,” says the Fitch report. A Chinese athletics brand, 361 Degrees has seen same-store sales growth rebound by more than 5 per cent since 2013.

    Traditional retailers are also resorting to new tactics to attract customers. These include “experimental shopping” whereby outlets increase their F&B, lifestyle and entertainment options, as well as linking online-to-offline shopping capabilities, the analysts say.

    Through “gimmicks” and technology adoption, retailers can draw millennial and middle-class shoppers by offering digital and personalised shopping, says Colliers International (Hong Kong) associate director of research Joanne Lee.

    “We believe technology will come into the market, and artificial intelligence or virtual reality will enhance the shopping experience,” she says.
    Her colleague director Daniel Shih says social media will be a focal point for the future, for both retailers and shopping centres.

    These strategies have been evident in the roll-out of the annual Singles Day shopping event hosted by Alibaba, reports the South China Morning Post.

    While retailers can take steps to reduce costs, such as reducing inventory or closing stores, Fitch says the structural challenges facing the retail sector are likely to persist.

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  • Parkson Retail Asia profit down 71.6% in Q2

    Parkson Retail Asia profit down 71.6% in Q2

    Department store operator Parkson Retail Asia has posted a second quarter net profit of $2.9 million, down 71.6 per cent from the same period a year ago.

    Revenue in the three months to Dec 31 fell 12 per cent to $103.5 million, driven by a 7.3 per cent fall in same store sales growth in Malaysia and 5.2 per cent fall in same store sales growth in Myanmar.

    Some new stores were also in their first year of operations, which is an initial loss-making period, the group said.

    Earnings per share stood at 0.43 cents, down from 1.51 cents a year ago.

    Net asset value per share was 27 cents as at Dec 31, up from 22 cents as at June 30 last year.

    “The Malaysia operations for the next reporting quarter may encounter muted consumer sentiment, however, this drag will be buffered by progressive normalisation of sales post-GST (Goods and Services Tax ),” the group said in a statement to shareholders after market close on Feb 3.

    It said that it expects Vietnam’s retail environment to improve in the second half, while demand from Indonesia’s middle class will remain robust.

    “The Myanmar operations may be affected by the possible closure of FMI Centre, where the store is located, for re-development. However, the landlord has not confirm on the timing for the redevelopment,” the group added.

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  • Online sellers turn Southeast Asia retail industry upside down

    Online sellers turn Southeast Asia retail industry upside down

    Here’s how bad it is in Southeast Asia’s retail industry for sellers. 

    They are paying more to borrow money to keep their business going than consumers do to keep buying from them.

    Courts Asia Ltd., which offers shoppers zero percent long-term credit on higher-end products, has seen its Singapore dollar bond yields rise 28 basis points to 4.34 percent in the past six months and is trying to refinance the note ahead of its May repayment, Bloomberg reports.

    The yield on US currency bonds of Parkson Retail Group Ltd., part of a Malaysian retailer which operates across Southeast Asia, has soared 320 basis points to 10.21 percent.

    Sagging global growth and rising household debt is knocking consumer demand across Southeast Asia, with Indonesian phone seller PT Trikomsel Oke in November becoming the first company to default on Singapore dollar bonds since 2009.

    Retailers that borrowed to finance growth are also losing ground to online market places like Alibaba Group Holding Ltd.

    The median debt load of the region’s retailers rose to 1.75 times operating profit in latest filings compared with 1.3 at the end of fiscal 2014.

    “I have been very careful about some local currency corporate bonds,” said Singapore-based Desmond Soon, co-head of investment management for Asia at Western Asset Management Co., which had US$446 billion under management at Sept. 30 and held Courts Asia bonds as of Nov. 30.

    “Bricks and mortar retailers do have an issue,” Soon said.

    Retail store sales in Singapore dropped for a third month in November, falling 2 percent from a year earlier, Department of Statistics data show.

    Meanwhile, online transactions in the region are growing.

    Singapore Post Ltd.’s domestic e-commerce orders in Southeast Asia and Australia rose 384 percent in the 12 months through November, according to a company presentation.

    Courts Asia, which sells goods from electronics to home furniture in Singapore, Malaysia and Indonesia, began meeting investors last week ahead of its scheduled S$125 million (US$87.1 million) repayment of notes in May. It’s looking to raise funds to help refinance and repay the bond, Courts’s Singapore-based spokeswoman Tammy Teo said.

     

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  • Moody’s lowers Parkson Retail Group debt outlook to negative

    Moody’s lowers Parkson Retail Group debt outlook to negative

    Moody’s Investors Service has lowered the outlook for Parkson Retail Group Ltd’s Ba3 corporate family and senior unsecured debt ratings to negative from stable.

    In a statement issued on Wednesday, Moody’s has also affirmed Parkson’s Ba3 corporate family and senior unsecured debt ratings.

    A Moody’s vice president and senior credit officer Lina Choi said: “The outlook change reflects Parkson’s weaker-than-expected financial results for 3Q 2015.

    “Our expectation that its profitability and financial leverage will likely remain weak for its Ba3 ratings over the next 12-18 months, given the ongoing challenges apparent in China’s retail market.”

    Parkson, which is listed on the Hong Kong Stock Exchange and one of the largest operators of department store chains in China, reported a normalised operating profit of 86.7mil renminbi — after excluding a one-off litigation penalty of 140mil renminbi — in the first nine months of 2015 compared with 346.4mil renminb in 2014.

    “This decline was due to the consideration that the company faced strong competition during this time and also experienced a 9.4% decline in gross sales proceeds (GSP) in 3Q 2015, a further deterioration from the 3% fall in 1H 2015.

    “Moody’s notes that subdued retail sentiment and strong competition have prompted Parkson to offer more promotions and discounts on its products,” it said.

    Moody’s also estimated Parkson’s profitability — as measured by EBITDA/GSP — would decline to 11% for all of 2015 from 12.7% in 2014.

    At end-2014, it owned and managed 60 stores spread across 34 Chinese cities. It targets the middle-end of the Chinese retail market. It is 53.1%-owned by Parkson Holdings Bhd (unrated), an affiliate of Malaysia’s Lion Group.

    Moody’s said despite the company’s plan to improve profitability through more direct sales, Moody’s expects EBITDA/GSP to fall to around 10%-11% in the next 12-18 months. Such a range would be close to its rating downgrade trigger level.

    The ratings agency also said Moody’s expected Parkson’s retained cash flow (RCF)/net debt to decline to 8% at end-2015 from 11.3% at end-2014 due to the fall in cash holdings.

    It pointed out Parkson’s cash and cash equivalent fell to 3.6bil renminbi in 3Q 2015 from 4.8bil renminbi at end-December 2014 due to increased working capital outflow and capital expenditure on new stores.

    Moody’s expects RCF/net debt to stay around 8% over the next 12-18 months, a level which provides little space from our downgrade trigger of 8-10%.

    At the same time, Parkson’s liquidity remains adequate, although its cash buffer has narrowed. Cash and cash equivalent of 3.6bil renminbi at end-September 2015 could cover its short-term debt of 700mil renminbi.

    Moody’s said Parkson’s Ba3 corporate family rating reflects its competitive position in China’s highly fragmented department store industry, underpinned by its well-recognised brand name and national presence.

    “The rating also considers its low level of collections risk and adequate liquidity profile. However, the rating is constrained by structural challenges, such as intense competition from other retailers, rising rental rates, online retailing and the execution risks associated with its aggressive expansion into lower-tier cities in China.

    “In particular, Parkson’s dependence on leased stores is high, exposing the company to the risk of reallocations and escalating rents. These challenges, together with its ambitious investments in new stores, will continue to pressure its profitability and financial metrics.

    “The outlook could return to stable if Parkson curbs the deterioration in gross sales proceeds, and demonstrates an ability to restore profit margins,” it said.

    Moody’s said the metrics which it would consider for a return to a stable outlook include:

    (1) adjusted EBITDA/gross sales proceeds recovering to above 10%-11%; and (2) adjusted retained cash flow/net debt rising above 10% on a sustained basis.

    The ratings could experience downward pressure if Parkson fails to stabilise its profitability and financial metrics due to: (1) rising competition; (2) reduced bargaining power over its concessionaires/suppliers; or (3) the need to make large investments for store expansions.

    Credit metrics indicative of downgrade pressure include the likelihood of adjusted EBITDA/gross sales proceeds trending below 10%-12% or of adjusted retained cash flow/net debt trending below 8%-10% on a sustained basis.

    Any sign that the company is extending financial support to its parent, the Lion Group, will also pressure Parkson’s corporate family rating.

  • Parkson HK to take over Singapore assets

    Parkson HK to take over Singapore assets

    Malaysia’s Parkson Holdings is to sell a 67.6 per cent stake in its Singapore-listed Parkson Retail Asia Ltd to its Hong Kong listed subsidiary Parkson Retail Group Ltd.

    The rearrangement of its assets will net it US$167.2 million, according to the financial press.

    The purpose of the exercise is to consolidate the retail business of the Singapore-based business, which operates in Southeast Asia, with the Hong Kong listed business which operates in China.

    All three companies predominantly trade in the department store business with their formats becoming increasingly aligned across markets.

    The move will also allow Parkson Holdings (Malaysia) to raise cash for investment in business expansion which has not been detailed as yet.

    Parkson is a subsidiary of the Lion Group, headed by Malaysian billionaire William Cheng.