759STORE needs to offer more sweeteners to attract customers and investors

By Lam Kwok Tai Sunny

Hong Kong's retail industry is sluggish. CEC International (0759), which is the mother company of retail chain 759STORE, plans to close some outlets. Now, the plan marks its first large-scale shutdown since 2010.

Signs of a market slowdown already appeared in Q2 last year
"The business of gift items for the Easter holiday and other products became worse last year, so we expected the market and our business challenge to start from that period. That is why we didn't focus on the gift business the last Christmas and Chinese New Year," said Lam Wai-chun, the chairman of CEC International in a previous interview.

"When we have a lower level of product inventory, we will have less pressure. Although we still feel tense, but part of the stress can be relieved," added Lam.

For the brick and mortar retailers, they are also suffering from the competition from online platforms. "The business potential of online platform has matured or not in Hong Kong, depending on logistics cost, customer behavior, and whether the company can take advantage of the edge that online platform possesses," said Lam.

"The advantage of online business is that customers can directly purchase products from the manufacturer using online platforms, so it is not easy to do e-business through an online platform in Hong Kong," explained Lam.

Facing challenges over the past 30 years
"When I was 21 years old, I set up a sole proprietorship engaging in choke coil assembly. I learnt a lot and this made me solve the problems more flexibly under insufficient resources and thinking out-of-the-box," said Lam.

Lam added, "At that time, although we competed with international giants, we were still growing our business because we focused on improving the product quality continuously and had attractive pricing to gain market share."

Then, he explained his retail strategy while focusing on retail business from manufacturer. "In 2013, the Yen was depreciating. We directly imported snacks from Japan. As we make use of computer formulae to calculate the prices of the products with standard gross margins, it is the reason why customers may find some suitable products in our outlets." In fact, this strategy will make them in trouble when product cost is going up continuously.

Although Lam has been running a retail business for a few years, someone may appreciate his retail strategy, courage, and achievement of distribution networks in Hong Kong within a short period of time. For businessmen, they may worry about 759STORE's financial situation and business model whether it can be sustainable or not. Maybe facing the coming doom and gloom, the best way is to increase revenue from new products with higher margins.

When readers visited 759STORE, you might discover that they engaged in household, personal care products, cosmetics, and small electronic appliance businesses. "Now, you may find that we focus more on the frozen food category with better margins. In other cities, frozen food is more popular than fresh products, especially meat and seafood," said Lam. However, it is a challenge for them as most of the people prefer fresh food in Hong Kong.

Contradictory feeling
Although 759STORE provides more imported product choices to customers, customers always look for lower price. That is why they face a lot of challenges in economic downturns. It is good for customers, but not for investors.

Lam kept exploring new business opportunities often to maintain the aggressive growth over the past few years. This makes the resources split into different areas which may influence the stable business development of their core business. It is good for the short term, but not for the long term.

Lam's insight and innovation helped 759STORE to grow the business successfully over the past smooth period. Facing the coming challenges, 759STORE needs not only continuous improvement in product mix and pricing, but also a great team and good execution power to deliver better customer experience and more value-added products in outlets. However, customers are the winner finally as they have more choices.

Next business opportunity in the retail industry
Based on part of Warren Buffett's investment philosophy, a company with a franchise economy (product is desired with no close substitute in the market, not subject to price regulation) and taking a close look at management are necessary.

It is obvious that the 759STORE business is an opposite of the franchise economy because of many close substitutes and price under a standard formula. Management performance of the 759STORE business depends on your view from start-up or listed company.

Investors and customers have different comments on 759STORE. I am looking for the next fast-growing retail chain raised in Hong Kong that will be attractive for both investors and customers as it is a fundamental requirement for a competitive corporation to go abroad and develop a strong retail giant globally.

This contributed article was not edited by Hong Kong Business.