Fashion leads in tight market

Intense competition in retailing sector

Listed commerce firms were largely overlooked by investors given the likely return on investment in a climate of intense competition and low consumer buying power.

Of the 13 listed companies in the sector, only four gave a higher return on investment than the sector average.

OCC Plc, a distributor of cosmetics and fashion products, gave shareholders' the highest return on investment at 113.7% over the year to June (53% over five years), followed by Berli Jucker Plc at 57.8% (1%) and Big C Supercenter at 32.7% (21%).

OCC's first-half net profit this year was 33.2 million baht (5.54 baht a share), compared with 18.9 million baht (3.16 baht) in the same period last year.

Berli Jucker's first-half net profit was 357.4 million baht (2.28 baht a share), compared with 300.3 million baht (1.89 baht) in the same period last year.

Big C's first-half net profit was 581.9 million baht (0.73 baht a share), compared with 517.4 million baht (0.66 baht) in the same period last year.

Kanchana Saisiriporn, the managing director of OCC, a subsidiary of Saha Group, said the group considered shareholders a priority and therefore had to focus on earnings per share.

Mrs Kanchana said efficient control of costs was the key to generating a high profit margin. Moreover, as a fashion and cosmetic house, the company had to keep up with trends.

Besides being a distributor of foreign brands, the company had developed its own brand of Ka cosmetics, which was now being sold abroad as well as in Thailand, she said.

OCC plans to expand its product lines to other beauty-related products such as furniture for beauty salon.

On the downside, Siam Makro Plc, the operator of Makro cash-and-carry stores, underperformed with a return on stock investment of -2.0% (-6.0% over five years), and Saha Pathanapibul Plc posted -1.8 % (8% over five years).

The low return was caused by a drop in consumer purchasing power last year, said an executive at Siam Makro.

A key factor is that Siam Makro is in a process of transition from being a retailer to a wholesaler. This caused it to lose many end-user customers, said Suttatip Peerasub, an analyst at Kim Eng Securities. The change to wholesaler status also caused a drop in the average prices of products.

Siam Makro was now expanding its number of outlets slowly, by only one or two a year, compared with seven or eight in previous years, she said. This contributed to a decline in both sales and profits.

The executive at Siam Makro said the company's performance would improve after it completely changed to being a wholesaler.

``Changing our store to the wholesale concept, targetting small and medium grocery stores and food vendors, has proven successful in our stores in Latin America. We hope to repeat the story in Thailand,'' he said.

In the meantime, while Siam Makro is trying to attract small and medium vendors, it has lost some retail customers.

``Our new wholesale target group has yet to offset the loss of end-user customers,'' the executive said.

Ms Suttatip said this was unlike Big C, which caught most interest from investors as it had strong fundamentals and profitability. As well, Big C was continuing to expand its number of outlets at a consistent pace.

In contrast, Diana Department Store (0% return over the year to June and -4% over five years), located in Hat Yai, is struggling as it has to face has international giant players that are mushrooming nationwide.

Siam Makro's first-half net profit was 537.3 million baht (2.24 baht a share), compared with 525.3 million baht (2.19 baht) in the same period last year.

Saha Pathanapibul's first-half net profit was 88.79 million baht (3.22 baht a share), compared with 96.49 million baht (3.50 baht) in the same period last year.

Pittaya Jia, the president of the Thailand Retail Association, believes that although sales growth at some stores is slow, the discount store business has strong potential, compared with other retail segments.

In the next six months, the commerce sector would likely show an improving performance in line with the economy, she said. _Sukanya Jitpleecheep

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