Retailers feel the crunch from card-debt problem

The consumer bad-loan problem has taken a toll on the retail market, with department stores reporting worse-than-expected sales over the past two months.

"It has really dealt a blow to the department store sector," said Alex Ro (羅仕清), vice president of Pacific Sogo Department Store (太平洋崇光百貨), in a telephone interview yesterday.

"It'll be a very difficult year for the sector. We can, at best, manage to maintain the same level of revenues as recorded last year, or even worse, post declines," he said.

Growth at risk

Department stores have grown by an annual rate of 4 percent to 8 percent over the past few years, but this might not be the case this year.

Last year, the sector generated NT$201 billion (US$6.18 billion) in sales, up 5.47 percent from 2004, according to the Ministry of Economic Affairs' statistics.

A market watcher who declined to be named, estimated that purchases at department stores and designer-brand products might shrink by NT$2 billion this year.

Ro said Pacific Sogo will have to increase promotional activities to spur consumption.

Lower revenues

Shin Kong Mitsukoshi Department Store (新光三越), the sector's largest player with 13 stores nationwide, is also feeling the pain.

"We had expected revenues in January and February to expand by at least 10 percent but actually the figures only edged up a little bit," spokeswoman Shauna Lee (李香萩) said.

Starting last May, consumers' shopping habits and their willingness to buy luxurious goods turned conservative due to rising oil prices and the launch of the new labor pension system last July, she said.

The impact of card debt was not yet obvious in the fourth quarter thanks to the annual sales season, which effectively bolstered performance, she said.

But it surfaced more than two months ago when sales of clothes and accessories decreased, she said.

The pricey designer-brand goods segment is the only sector to have survived intact thanks to strong demand from affluent customers, both Ro and Lee said.

A cautious attitude among shoppers is also being felt in the mobile phone market, with retailers continuing to offer zero-interest installment programs amid weaker demand.

"Sales growth has slowed down," said Flora Tang (唐淑珍), senior manager of marketing planning at Arcoa Communication Co (全虹通信), adding that the credit and cash-advance card problem should constitute only one of the many factors affecting performance.

The company's sales during the first two months of the year grew only 5 percent from the previous year, compared with the traditional 10 to 15 percent increase, she said.

Safe so far

Tourism and hypermarkets have not yet seen their markets affected but operators urged the government to map out better measures to reduce the fallout from the card-debt problem.