Mon, Jul 14, 2008 page12

• Weak consumer spending leaves retailers pinched

  NUMBERS DOWN A survey of local retailers showed that five showed year-on-year declines in monthly sales, while two showed two-digit growth in monthly sales

  • By Kevin Chen / STAFF REPORTER
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  Top UK retailer Marks & Spencer Group Plc’s decision on July 8 to withdraw from Taiwan has again reflected the impact that less-than-expected domestic consumer spending has had on dampened retailers’ revenues.

  The planned closure of three Marks & Spencer stores in Taiwan comes as retailers here are struggling to survive in a market where consumers face rising prices and stagnant wages, even though an anticipated increase in the number of Chinese tourists would likely benefit this sector.

  Analysts said that no one — both the newly entered and long-established — was immune to this harsh business environment, as consumer confidence softened to a six-and-half-year low last month, and inflation hit an eight-month high for the month.

  “Consumer confidence didn’t show a typical rebound after the big drop in May,” Andre Chang (張致竑), an analyst at Citi Investment Research in Taipei, said in a client note dated July 10.

  Marks & Spencer is not alone in grappling with falling sales and increasing losses here in Taiwan.

  Cash-strapped Sunrise Department Store (中興百貨), a 23-year-old retailer based in Taipei, said last month it would close its store at the end of this month after incurring a capital shortage of more than NT$900 million (US$30 million).

  In late May, Tainan-based Danby Food Industry Co (丹比食品實業) said it would shut down its business on June 1 following 29 years of operation. The candy and confectionery maker said it faced NT$200 million in capital shortage at the time amid intensified market competition and rising raw material costs and utility fees.

  Bucking the unfavorable trend, however, was Shin Kong Mitsukoshi Department Store (新光三越), which added four outlets last month in Taipei, Taoyuan and Chiayi in a bid to boost its market share to 31 percent from its previous 28 percent, after it acquired debt-ridden Idee Department Store (衣蝶百貨) for NT$705 million. Kaohsiung-based Hanshin Department Store (漢神百貨) also opened its second store on July 10 with a target revenue of NT$7 billion in the first year.

  But given more fuel and utility price hikes in the months ahead and a still weak stock market amid weak sentiment followed by margin calls and stop losses, Citigroup didn’t foresee a rebound in consumer confidence anytime soon, the research note showed.

  A survey of eight Taiwanese retailers conducted by Citigroup showed that five retailers — namely Far Eastern Department Store Ltd (遠東百貨), Shin Kong Mitsukoshi Department Store (新光三越), President Chain Store Corp (統一超商), Tsann Kuen Group (燦坤實業) and E-Life Mall Co (全國電子) — reported year-on-year declines in their monthly sales last month.

  Only Hola Home Furnishings Co (和樂) and Taiwan FamilyMart Co (全家便利) saw two-digit growth in monthly sales from a year earlier, while Les Enphants Ltd (麗嬰房), a major retailer of children’s garments, posted near-zero sales growth, the survey showed.

  “These [results] suggest that the correction in the stock market and rising inflation have hurt consumption and we still don’t expect the situation to improve meaningfully for the remainder of 2008,” Chang wrote.

  On the automobile retailing business front, Yuanta Securities Co (元大證券), the largest brokerage in Taiwan, said it expected to see sluggish sales momentum ahead because of the approach of the traditional “ghost month” and didn’t expect sales to rebound until the first half of next year.

  The brokerage forecast sales of new vehicles would total 253,000 units this year, down 23 percent from a year earlier, it said in a report issued on Friday.

  Based on the latest statistics compiled by the Ministry of Transportation and Communications, 132,367 new vehicles were sold domestically in the first half of the year, which reflected a decline of 22.7 percent from a year earlier and the lowest since 1986.
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