Retail industry bracing for another difficult year ahead

Bidding farewell to a dismal year marred by consumer bad loan problems, the retail industry is anticipating a tough 12 months this year with the market experiencing a short-term correction, a chief at Shin Kong Mitsukoshi Department Store (新光三越) said yesterday.

The nation's department store sector last year was estimated to report sales of only NT$190 billion (US$5.8 billion), compared with NT$201.6 billion in 2005, Richard Wu (吳昕陽), the executive vice president of Taiwan's largest retailer, told reporters yesterday.

The contraction, a result of weak consumer sentiment, dealt a big blow to the competitive sector considering that the department store market saw solid growth of 5.47 percent year-on-year in 2005 and 12.85 percent in 2004.

With a low comparison base last year, Wu expected Shin Kong Mitsukoshi to rake in sales of NT$61.5 billion this year in its 13 outlets nationwide, up by 3 percent from last year's NT$59.7 billion.

Nevertheless, this year's goal is lower than the original target set for last year at NT$64.5 billion.

Expansion target

Rival Pacific Sogo Department Store (太平洋崇光百貨) aims to expand 5 percent this year from last year's NT$29 billion. Its sales last year declined by 3.5 percent from 2005, company spokesman James Wang Kuo (汪郭鼎松) said on Tuesday.

"It'll still be a difficult battle this year," Wu said, adding that the domestic market's small scale and the changing business models seen in other industries, such as the online shopping sector and convenience store chains, have limited department stores' growth potential.

He expressed hope that restrictions on Chinese tourists visiting Taiwan could be relaxed soon to invigorate the domestic consumer market.

In addition, the firm is mulling tapping into virtual shopping this year by launching a Web site to boost slow sales on weekdays.

Eliminated

"If department stores only concentrate on their physical channels, they'll definitely be eliminated from the market," the chief said.

To stabilize its market share of 30 percent, Shin Kong Mitsukoshi will continue with a refit project this year in line with changing shopping trends.

It conducted a face-lift for outlets in Tainan and Taichung last year and expects to renovate stores in Taipei, including those in the bustling Xinyi district, this year.

Across the Taiwan Strait, the company is gearing up to prepare a grand opening for its first store in China.

A 50/50 joint venture with China's top retailer, Beijing Hua-lian Group (北京華聯集團), the megastore in Beijing is expected to open its doors for business in April and become the biggest department store in the Chinese capital.

"Business potential in China is huge. We believe sales there can jump by double digits per annum and outpace the local stores' performance in a few years time," Wu said.