In an era of booming retail sales, department store chains like Parkson Retail Group (3368.HKG) are becoming a trend of the past. Parkson, one of the first foreign retail brands to establish a foothold in mainland China, was once a kingpin of the retail scene, peddling cosmetics and jewelry from some of the country’s best locations. As of June 2011, it operated 49 department stores in 30 Chinese cities.
Like other retailers, Parkson has benefited from favorable macro trends, including rapidly rising urban incomes and policies that aim to boost consumption. But despite these tailwinds, Parkson has begun losing market share to newer retail models. Many Chinese shoppers now swear by e-commerce sites like Taobao and Moonbasa. Meanwhile, “fast-fashion” retailers like Zara, H&M and Uniqlo have gained ground. These stores refresh their product mix every few weeks and have an almost scientific approach to product display. Parkson, in contrast, seems to feature a jumble of apparel brands.
Within the department store segment, Parkson faces tougher competition from two rising regional brands, Golden Eagle and Intime. These companies have concentrated their stores in their respective home bases of Jiangsu and Zhejiang provinces, thereby magnifying their brand strength and making the most of supplier relationships.
The varying success of these strategies is evident in financial results. In the first half of 2011, Parkson reported that sales in stores open for more than one year grew 13.3%, compared with 28.7% for Golden Eagle and 28.4% for Intime.
These middling results have pushed Parkson’s majority shareholders, the Kuala Lumpur-based Parkson Holdings, to look to other markets. The parent company also owns another offshoot, Parkson Asia Retail, which manages 53 stores in Malaysia, Vietnam and Indonesia, and just received a fresh injection of US$108 million from an IPO in Singapore. In December, executives revealed plans to use that cash to expand into Myanmar, Thailand and the Philippines next year.
The shift should benefit the parent company. Southeast Asia is just beginning to replicate China’s consumer story. Parkson executives expect sales to grow by around 15-20% annually in Vietnam and 8-10% in Malaysia and Indonesia.
But any bump for the Singapore-listed unit is likely to translate into greater stagnation for the mainland business. After all, a market as large and fast-moving as China retail demands a brand’s full attention.