Thu, Jan 12, 2006 - Page 11 News List

Retailer optimism strong despite narrower margins

VARIABLES An analyst said that Chinese tourism and easing cross-strait tensions may be the antidote for the retail sector, which is facing a saturated market

By Jackie Lin  /  STAFF REPORTER

Driven by intense competition and slow growth in domestic demand, the nation's retail market this year should at most post stable increases with few variables likely to shake up the industry, market watchers predicted.

"Our observations will be focused on economic expansion and whether exchanges between Taiwan and China will be further relaxed," said Neo Lee (李承瀚), a researcher with SinoPac Securities Corp (建華證券).

The general merchandise retail industry, including convenience stores, hypermarkets and department stores, raked in revenues of NT$587.6 billion (US$18.4 billion) for the first 10 months of last year, up 3.01 percent from the previous year, according to the latest figures provided by the Ministry of Economic Affairs.

With signs of business saturation appearing, the retailers' operational strategies this year will focus on increasing revenue in "comparable stores" with well-orchestrated marketing campaigns rather than rapid store expansion.

"Comparable stores" refer to outlets that have been operating for more than a year.

CONVENIENCE STORES

Last year, the number of 7-Eleven outlets, operated by President Chain Store Corp (統一超商), reached 4,037, more than double the number of closest rival Taiwan FamilyMart Co's (全家便利商店) 1,851 stores.

But the total number of convenience store outlets could climb to between 8,500 and 9,000 nationwide this year.

"Of course competition is getting much more intense, but what we are more concerned about is whether people's consumption habits are changing in favor of convenience stores," said Yeh Jung-ting (葉榮廷), vice president of Taiwan FamilyMart, during a telephone interview last week.

To court public favor, chain stores have expanded service categories by offering photo development services and collecting fees on behalf of banks.

Although rivals are quick to duplicate each other's strategies, "The major principle is to unite with our business counterparts to compete against different sectors so that the pie will continue to grow," Yeh said.

Even so, the sector has to face the reality that margins are threatened by fierce rivalry.

This led to several waves of large-scale marketing campaigns led by the top two players last year.

SinoPac's Lee said the shift toward heavily invested marketing strategies was understandable because store expansion had slowed.

Ideal store locations had been used up and market segmentation was becoming increasingly difficult, he said.

"Only big players are likely to survive in the mature market. Small operators may need to unite with their counterparts," Lee said.

HYPERMARKETS

While convenience store operators remain eager to fill in vacant lots with new outlets, hypermarkets are taking a more conservative approach on concerns that the declining birth rate could eventually become an adverse factor.

The hypermarket industry posted NT$118.2 billion (US$3.7 billion) in sales for the first 10 months last year, only edging up by 0.4 percent year-on-year, government statistics show.

Cutthroat competition has forced the British retail giant Tesco Plc to pull out of the local market, with its six stores and two development sites to be taken over in the first quarter by the nation's largest hypermarket player, Carrefour Taiwan.

"Retail performance in 2006 should, at most, remain stable. We shouldn't be that optimistic," Kaufmann Wei (魏正元), president of RT-Mart (大潤發) with 23 outlets around the country, said last month. "Our expansion plan will be conservative."

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