Magazines Archives - 2009 October

Thai retailers overcome negative growth with effective management
Story 5 - Focus

While the rest of the region is grappling with the global economic slowdown and the fear of an Influenza A H1N1 pandemic, Thailand has more to worry about. Political uncertainties, unrest in the southern provinces and the rising cost of living continue to have a negative impact on local businesses.

The retail sector is not spared either. Besides the factors above, the bad image portrayed by the
international media after months of street demonstrations and crackdowns on the anti-government
protesters have led to a decline in tourist arrivals, which is an important customer segment for the retail sector. Adding to these woes, the economic slowdown resulted in massive retrenchment
and unemployment, affecting consumer spending, particularly for luxury goods.

With all these negative factors facing the country, Kasikorn Research Centre (KRC) has projected that the retail sector will face its lowest growth in history this year. The sector registered a drop of -3.3% growth in the first half of the year compared to 2.9% in the corresponding period in 2008, and is
the worst performance since the Asian financial crisis a decade ago.

Among the most affected were durable goods and services such as vehicles, furniture, and electrical and electronics, going down by 15.9% while semi-durable items went down by 8.5%. But food products remain on the positive side, says KRC. Overall, the retail sector saw better performance in the second quarter, with a -2.8% decline compared to -3.7% in the first quarter.

Among the factors contributing to a positive outlook are the government’s stimulus package and higher income for farmers. In the last quarter, retailers usually gear up with various campaigns
to tap increased business from the yearend and New Year celebrations and the high season for tourists. With all these factors and figures in mind, retailers across the kingdom are taking steps to address the situation.

Effective retail management is seen as a key factor in overcoming the problem. Central Food Retail’s (CFR) vice-president for marketing and public relations, Phattaraporn Phenpraphat, says the emphasis is not so much on cutting cost but on effective retail management.

“In the retail sector, the profit margin is not that high, so we have to be more efficient in dealing with a variety of issues, more so since we are dealing with fresh food and many staff,” she says.

Ensuring an effective retail management is “our top priority”, says Phattaraporn, whose company operates more than 117 Central Food Hall, Tops Market, Tops Super and Tops Daily outlets.
She says, overall, the retail industry is showing an upward trend. “Our business went up because of our expansion plan and opening of new stores in Q1 and Q2. We also put more fresh and quality
products on the shelf,” she points out.

The management also went on a promotional drive to create awareness by holding events to attract customers from different backgrounds. Among the events held were the “Taste of Japan” food festival and “Taste of USA, Health Trendsetter”, a festival of more than 3,000 healthy-food products imported from the US.

She says CFR also joined a campaign to mark the Commerce Ministry’s 89th anniversary by cutting prices of more than 1,000 products. Sound management The sound management system adopted
in recent years and strong ties with customers also ensure the company rides the economic storm.
“We have regular customers to our outlets. There are 4.5 million members and our good service and track record ensures they remain loyal with us,”

Phattaraporn says. Retailers are also making efforts to tap the IT-savvy younger generation
and middle-class group. With the rising use of the Internet, retailers are expanding their online business presence as well as looking for new business partnerships.

Central Retail Corporation (CRC), the country’s largest retail conglomerate and CFR’s parent company, has two million “1 Card” and four million “Spot Reward” members. It has shifted to direct marketing to ensure customer satisfaction. “We want to be customer-oriented.

Employees must learn to understand individual customers preferences ... this is a right strategy to deal with the economic slowdown as customers demand higher value for their purchases and services,” said CRC’s CEO, Tos Chirathivat.

Under the new approach, the company is shifting between 5% and 20% from its mass-marketing
budget to direct marketing where tailor-made messages will be delivered to each customer. This
is a timely strategy as consumers are more careful in their spending.

According to KRC, there is a tendency for consumers to postpone buying new products; instead,
more are buying used goods or going to discount or stock-clearing shops more frequently.
“Under such conditions, retailers have to compete by offering higher discounts and adding more
value to their loyalty programmes to stay ahead of their competitor,” suggests KRC.

Besides various strategies to attract and retain customers, retailers are also enhancing their
information technology system and distribution network. CRC spent Bt600 million (US$17.95 million)
on new software for purchasing and supply-chain improvement. It also adopted the Electronic Data
Interchange to facilitate its logistics system. Besides that, the company is hoping to increase sales by spending over Bt1 billion to help manage inventory, vendors, deals, pricing and promotions.

Company officials say staff productivity has increased due to more automation and a shift towards management by exceptions, for example, invoice matching.

Tos says the company is always on the lookout for new opportunities. For instance, last month CRC signed an agreement on purchasing and supplying products with PTT Retail Management,
which manages 146 Jiffy convenience stores located at PTT petrol stations. Under the three-year agreement, CRC will purchase and supply about 60% of the 4,500 products available at
Jiffy stores, which are valued at Bt2.3 billion per year.

Both companies will also work together in the future expansion of PTT stations throughout Thailand. PTT has about 1,400 stations nationwide. Tos believes the deal will help both companies develop synergies across the two groups, ensuring they meet the expectations of their respective customers.
Supply will come from the group’s new 42,000sqm distribution centre in Bangbuathong, Nonthaburi province.

The slowdown has also put a dent in CRC’s plan to build several malls, including in the northern cities of Chiang Mai and Chiang Rai.

Tos says a Bt10 billion investment plan for this year has been postponed due to the economic uncertainty and lack of consumer confidence. The director of the Centre for Economic and Business Forecasting, Thanawat Polwichai, says Thailand’s retail business is expected to grow by
5% this year, especially with the tourism sector expected to bounce back in the second half of the year.
“It also depends on how retailers react to market conditions. Some retail businesses are already offering promotions like buy one get one free,” he adds.

Customers are interested in such promotions because they can buy quality goods and services at cheaper prices,” Thanawat stresses.

Despite the slowdown, he says big retailers like Tesco Lotus and Big C are still launching new television advertising campaigns. “This is because for retailers, domestic customers are still their
biggest clients. But for tourist areas like Phuket, Samui or Pattaya, retail business owners have to serve what the customers (tourists) want as the first priority,” he maintains.

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