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Newsbreak: Parkson enters recovery phase, closes more stores

This article first appeared in The Edge Malaysia Weekly, on March 22, 2021 - March 28, 2021.

LION Group’s retail arm Parkson Corp Sdn Bhd (Parkson), which has been struggling since even before the outbreak of the pandemic, will shut two of its department stores this year and is mulling the closure of a third store.

One of the two stores that will cease operations is the 18-year-old Parkson Plaza OUG in Kuala Lumpur when the lease comes to an end in mid-2021, while the other outlet is a non-performing store. Parkson 1st Avenue in Penang may also shut in mid-2021 due to declining patronage.

The move will add to the number of store closures by Parkson, including the 35-year-old Parkson Holiday Plaza in Johor Baru and the outlet in Terminal 1 Seremban in the October to December period last year. Both stores were underperforming.

While the closing down of loss-making stores will see the company’s revenue take a hit, profit may strengthen.

Parkson is wholly-owned by Singapore-listed Parkson Retail Asia Ltd (PRA), which in turn is a subsidiary of Parkson Holdings Bhd. The financial year end for Parkson and Parkson Holdings is June 30.

In Malaysia, Parkson saw two consecutive quarters of negative growth and anticipates that the current quarter will also see a contraction. Nevertheless, the department store operator remains hopeful of improving performance going forward.

“We project that our department store sales will still hover around negative 40% for 1Q2021 (January-March),” Parkson chief operating officer Law Boon Eng tells The Edge. Parkson, like most retailers, saw its revenue take a hit when the Movement Control Order 2.0 was imposed beginning Jan 13, ahead of the peak Chinese New Year sale period.

Parkson’s outlook for the quarter appears to be in line with the recent data from Malaysia Retail Sales Report (March 2021) released by Retail Group Malaysia. RGM estimates that the department store category will contract by 47.4% in the current quarter ending March 31.

The country’s department store segment had contracted every quarter in 2020, ending the year down 38.3%. In the July-September and October-December periods, retail sales contracted by 17.7% and 44.7% respectively, whereas Parkson saw sales contract by 25% and 46% during the same quarters.

For the six months ended Dec 31, 2020 (1HFY2021), Parkson’s revenue declined 37% to RM289 million from RM458 million a year ago. “Hopefully, by the end of the second quarter, interstate travel restrictions will be lifted, which will help to increase consumer spending,” says Law.

“Barring unforeseen circumstances, we should remain narrowly positive for FY2021,” he adds. The retailer posted a segment profit of RM10.91 million from RM28.07 million previously.

A search on the Companies Commission of Malaysia website shows that in the financial year ended June 30, 2020 (FY2020), Parkson made a net loss of RM137 million on the back of RM643.49 million in revenue. It also had total liabilities of RM894.65 million, of which RM366.87 million were current. Total assets stood at RM890.71 million. The retailer also had RM106.75 million in accumulated losses.

“Though the outlook for 2021 is still uncertain, the market is picking up. The availability of vaccines and the ongoing process to vaccinate the majority of the population in Malaysia augurs well for quicker recovery, though it will take time to vaccinate enough of the population to reach the targeted 70% to 80% herd immunity,” says Law.

In the current fiscal year, Parkson will continue to stay focused on rebuilding its sales and bottom line and keeping an eye out for new opportunities.

“We will continue to improve operating efficiencies in our stores during the Covid-19 recovery year of FY2021/22 and tap further on the omnichannel [approach] to achieve sales growth. We will also need to address the supply chain disruption,” he says.

According to Law, Parkson relaunched its online platform in December 2020 and is assessing the numbers. It is still too early to form a conclusion on the sales contribution from online versus physical stores, he continues.

“For the financial year 2021/22, unless we see an extraordinary pace of recovery, we are still looking at a single-digit negative growth for our department stores compared to the financial year 2018/19,” he says. He reiterates that FY2021/22 is the Covid-19 recovery year and trusts that Parkson will perform better than in FY2020/21.

Overall, in 1HFY2021, Parkson Holdings posted revenue of RM1.69 billion and net loss of RM49.99 million. Malaysia and China delivered segment profits while Vietnam and Indonesia were in the red.

Meanwhile, elaborating on Parkson OUG, Law says Parkson is vacating the store measuring 152,000 sq ft to “pave the way for the landlord to redevelop this property”. Parkson started to operate at the mall in 2003, taking over from Yaohan Department Store-cum-supermarket.

As for Parkson 1st Avenue, where the tenancy is expiring in the middle of the year, he says, “We are considering this and have not made any decision whether to stay or to exit from the premise.”

This 90,000 sq ft store has been operating since 2010. “Over a period of time, the shopping activities in this downtown area in George Town have shifted elsewhere, leaving the town very quiet. Compounding this is the closure of international borders due to the Covid-19 pandemic, which has affected the inflow of overseas travellers and tourists to George Town. We are evaluating the situation.”

Last February, Parkson closed its outlet at MyTown Shopping Centre in Cheras. In 2019, it shuttered the store in Suria KLCC as well as Parkson M Square Mall in Millenia City, Puchong.

At the end of December last year, Parkson had 41 stores — a decrease from 44 stores as at December 2019. Parkson is scheduled to open a store at the end of 2021.

https://www.theedgemarkets.com/article/newsbreak-parkson-enters-recovery-phase-closes-more-stores

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