SINGAPORE – Seven years after entering Vietnam, Southeast Asian department store owner Parkson Retail Asia Ltd is battling headwinds, but that isn't deterring it from expanding into Myanmar in search of growth.
Singapore-listed Parkson, which has 54 stores criss-crossing Malaysia, Vietnam and Indonesia, was one of the first to enter the Indochina market, and now hopes to apply some of the lessons learnt from Vietnam to Myanmar, where it expects strong consumer spending and economic reforms.
"We are dealing with a country with a huge population and very little services provided. Retail is still very much, compared to neighbouring countries like Vietnam, in the backwaters," Parkson's group managing director Alfred Cheng told Reuters in an interview.
Parkson competes with regional players such as Robinson Department Store PCL, Aeon Co Bhd and Ramayana Lestari Sentosa Tbk PT, but is the largest player in Vietnam.
Comparing his experience in Vietnam, Cheng expects Parkson to see double-digit sales growth in Myanmar in the first four to five years, potentially in the 20- to 30 percent range.
Parkson's early years in Vietnam could give it an upper hand in understanding consumer spending trends in Myanmar - a similar emerging market, Cheng said, adding that many businesses in Myanmar are already familiar with Parkson due to trading activity between the two countries.
Although Cheng concedes that Myanmar is not ready for a full-fledged department store now, it plans to open a relatively small one at 40,000 square feet in Yangon before March 2013 to test consumer behaviour and train local staff.
After years of isolation, resource-rich Myanmar has sped up policy changes, prompting companies to express interest in investing in the country.
Parkson's first store will be developed through a joint venture with Yoma Strategic Holdings Ltd. Beyond that, the group aims to open a full-fledged department store, at around 150,000 to 200,000 square feet, in Yangon in three to four years catering to the mid to upper-middle income segment.
Despite the country being one of the poorest in Asia, Cheng expects Myanmar's economic reforms to boost middle-class incomes and spending, especially in Yangon where Parkson's stores will be located.
"Although as a country they are one of the poorest, but in Yangon itself, there are a lot of wealthy middle class that can afford to shop in Parkson," said Cheng, who estimates that the city makes up about 45 percent of the country's total spending.
"Most of the developments in the next few years are going to be pumped into and through Yangon. The development of Yangon will be a lot faster than the rest of the country."
Shares of Parkson have gained 24 percent since the start of the year, after listing in November. Analysts have highlighted the stock's low liquidity as a concern for investors.
Consumer spending has weakened in Vietnam, where Parkson has eight stores, and is likely to weigh on Parkson's performance in the country.
"It's going to be very tough. We are not expecting tremendous growth in the next 18-24 months because structurally there're a lot of issues in the Vietnam economy and it takes time to be sorted out," said Cheng.
Parkson, which is 67.6 percent-owned by Parkson Holdings Bhd , saw net profit for the year ended June rise nearly 30 percent to S$45.5 million. Vietnam accounted for about 10 percent of the company's total sales last year.
Parkson expects Vietnam to see slower same store sales growth in the low to mid-single digit percent for 2013, Cheng said, compared to 9 percent for the fiscal year ended June.