Parkson to build malls and lease out space

KUALA LUMPUR: Parkson Holdings Bhd will start building malls and leasing out space to get better margins to deal with pressure on its turnover.
The departmental store company will build malls in Malacca and Cambodia, both scheduled to open in 2017. The company is also building a mall in Qingdao, China, which is set to open its doors in the middle of next year.
The cost of the mall in Malacca will be between RM800mil and RM900mil, while the one in Cambodia will cost RM381mil. The malls will be funded using internal cash.
Parkson owns stakes in Parkson Retail Asia (PRA) and Parkson Retail Group Ltd (PRGL), companies listed on the Singapore Stock Exchange and Hong Kong Stock Exchange, respectively.
PRA has 60 stores in Malaysia, Vietnam, Indonesia and Myanmar, while PRGL has 58 department stores in China. In addition, PRA has 10 stores under the brand name of Centro Lifestyle Department Store and a Kem Chicks Supermarket in Indonesia. The company, however, owns eight malls in China, one mall in Malaysia and another in Vietnam.
“After Malacca, Parkson will look at Kuala Lumpur, Selangor, Johor, Penang and Ipoh,” chairman and managing director Tan Sri William Cheng said at a luncheon yesterday. The group is looking at establishing six Parkson stores in Johor Baru over the next three to four years.
Parkson used to own malls under the Parade brand, but sold them in 2000 to raise RM710mil to repay debts arising from problems caused by the Asian financial crisis.
Cheng said owning malls would improve margins, which are coming under pressure from rental increases from existing leases. Coupled with more people doing online shopping, the group needs to bump up gross profit margins to deal with operating pressures from multiple fronts.
Cheng said that costs would be cheaper by 30% if Parkson were to build its own malls.
In addition to the ownership of malls, the group is also looking at striking partnerships with brands, and even coming out with its own, to boost margins. Selling third-party brands at its stores means margins of between 12% and 16%, which will get compressed during sales, and deals with independent brands where Parkson can distribute to South-East Asia will mean a healthier profit margin. Having its own brand will mean margins of between 35% and 40%.
Cheng said that between now and 2016, the group intended to strike deals with 100 brands, split between Malaysian and China brands. Operating brand stores will also mean healthier margins compared with what it gets from mall operations.
Parkson will be spending RM50mil this year and RM100mil next year to promote brands carried by its stores. It will also start renovating its stores in Malaysia.
Cheng hoped Parkson would be able to generate 30% of sales from its own brands in five years. The target is 50%.

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