Mon, Dec 15, 2008 page12

• Wholesalers thrive in spite of slump

  VOLUME Sales from retailers are important as they represent real private consumption and because the government hopes consumer spending will help boost the economy

  • By Amy Yang and Kevin Chen / STAFF REPORTERS
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  While high-end retailers gets hit by the economic downturn, some mass merchandisers have been swimming against the tide by reporting record high sales thanks to their low-price high-volume strategies.

  Costco President Taiwan Inc (台灣好市多), the local operator of the US warehouse-club chain, saw its sales grow 21 percent last month from a year earlier, following increases of 46 percent and 37 percent in October and September respectively, Ahmen Lee (李伯孟), regional marketing manager at Costco Taiwan, said in an interview last week.

  Excluding four newly opened stores in Taichung, Taipei and Kaohsiung, Costco Taiwan’s sales in the three months to last month were up by 15 percent to 16 percent from a year earlier, Lee said.

  

  A few cars are parked in front of the Taichung Costco store on Feb. 27.

  PHOTO: CHEN PIN-CHU, TAIPEI TIMES

  “Top-end customers, who did not frequent Costco Taiwan as much in the past, are now increasing their visits in a bid to save costs amid the weakening economic conditions,” Lee said.

  Hard discounter Chuan Lian Center (全聯福利中心) is also expected to see revenue increase 10 percent to 15 percent this year from last year, despite the tainted milk powder scandal that had temporarily hampered its sales in September, the company’s general manager Tsai Chien-ho (蔡建和) said.

  Excluding newly opened stores, same-store sales grew by 5 percent year-on-year, he said.

  While some retailers have suspended expansion plans or even decided to call it quits in response to this harsh business environment, companies that advertise their low prices like Chuan Lian have decided to buck the unfavorable trend.

  “We plan to open new outlets closer to where consumers live, in a bid to help them save transportation costs amid difficult times,” Tsai said.

  The company plans to add 65 new outlets to expand its network to 440 nationwide, and increase annual sales to between NT$42 billion (US$1.26 billion) and NT$43 billion, he said.

  By the end of next year, “Chuan Lian plans to expand its outlets to more than 500 on an annual sales target of NT$50 billion,” Tsai said.

  Both Lee and Tsai made their remarks after the local representatives of the US gourmet food store Dean & DeLuca said on Thursday that the store has seen declining sales in recent months, amid market speculation that the upscale store was considering leaving Taiwan next month.

  The less-than-expected domestic consumer spending has dampened retailers’ revenues, as consumer confidence fell to its lowest level in nearly eight years last month.

  Dean & DeLuca is not alone in suffering from falling sales in Taiwan. The top UK retailer Marks & Spencer Group Plc announced in July it would withdraw from the market, less than 18 months after its entrance, while Sunrise Department Store (中興百貨) ended its 23-year operation in Taipei at the end of that same month.

  Sales from retailers are important because the figures represent an indication of real private consumption, and because the government has pinned it’s hope on consumer spending to support the slumping economy in light of plunging exports.

  But the combination of the credit crunch, the falling equity markets and the dismal economic outlook has forced retail sales to post five consecutive months of contraction since June. The sales dropped 3.75 percent year-on-year in October to NT$271.7 billion, the Ministry of Economic Affairs’ tallies showed on Nov. 24.

  “The next catalyst for domestic consumption will be the release of consumption coupons in January/February,” Andre Chang (張致竑), a Taipei-based analyst at Citigroup Global Markets, said in a client note dated on Thursday.

  Last week, the Cabinet approved a special budget bill that enables it to spend a total of NT$85.7 billion by distributing shopping vouchers to the public in a bid to stimulate domestic consumption.

  Dissemination of the vouchers will start on Jan. 18 and citizens need to spend their vouchers (NT$3,600 per person) no later than the end of next September.

  “Some short-term push may be expected, but a structural recovery may still need to wait until the second half of next year or later,” Chang said.

  The NT$85.7 billion spending accounts for around 1.1 percent of annual consumption or 2.5 percent of retail sales in Taiwan’s economy, an estimate by Merrill Lynch showed.

  However, Merrill Lynch’s Hong Kong-based economist Arthur Woo said last week that the anticipated stimulus effect would be “very limited” given Japan’s prior experience in 1999, when Japanese consumers ended up using the coupon to buy items they had planned for and save up the money that should be spent.

  The Cabinet expects 95 percent of the vouchers will be spent, but Tine Olsen, a Sydney-based economist at Moody’s Economy.com, believes the measure won’t have a long-lasting effect on the economy apart from pushing up prices.

  “The vouchers are unlikely to turn consumer sentiment around,” Olsen wrote in a report.
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