Far Eastern Group buys into China

The Far Eastern Group (遠東集團), parent company of Far Eastern Department Stores Co (遠百), made significant inroads into China's retail market after acquiring more than 50 percent of Pacific Depart-ment Stores (太平洋百貨).

Taiwan-based Pacific has eight outlets in Taiwan and has opened eight more in China since 1993.

Far Eastern Group said on Tuesday that it has spent NT$1 billion (US$28.9 million) to buy nearly 90 percent of Pacific Department Stores' majority shareholder, Pacific Liutong Investment Co (太平洋流通). "This indirect investment makes Far Eastern the major shareholder of Pacific Department Stores and gives us the opportunity to expand into China," said Douglas Hsu (徐旭東), chairman of the group.

Shares of Far Eastern Department Stores rose to NT$7 per share yesterday on the TAIEX.

Market pundits said the deal would benefit Far Eastern significantly, especially in the China market.

"It's very difficult for a foreign company to receive a license to run department stores in China ? and Pacific Department Stores is currently the only Taiwanese retailer [authorized to do so]," said Christine Wu (吳婉芳), a retail market analyst at Yuanta Core Pacific Securities Corp (元大京華證券).

While Pacific set up shop in China in 1993, they didn't receive an operating license until 1996. Pacific has eight outlets across the Strait in cities like Shanghai, Beijing, Dalian, Chengdu and Chongqing. Collectively they generated NT$2 billion in sales in 2001.

In an effort to protect local retailers, China has tightened up the application process and doesn't plan to issue licenses before 2004.

"This makes Pacific Department Stores very valuable because of the license," Wu added.

Back here in Taiwan, the deal also strengthens Far Eastern's market position significantly.

"By means of this investment, Taiwan's No. 2 and No. 3 department-store chains, Pacific and Far Eastern combined will be able to outsize Shin Kong Mitsukoshi Department Stores (新光三越) [in terms of sales]," said Raymond Yang (楊晴華), a retail industry analyst at KGI Securities Corp (中信證券).

Far Eastern is currently the third-largest department-store operator in Taiwan, managing nine stores that reported NT$17 billion in total sales last year.

Pacific Department Stores -- or Sogo Pacific in Taipei -- are Taiwan's second-largest department-store chain with NT$28 billion in sales last year. Meanwhile, Shin Kong Mitsukoshi operates 10 stores that registered NT$35 billion in sales last year.