Mannings goes for expansion amid high rents
While Hong Kong's surging rents have made many retailers think twice before aggressively pursuing expansion, Mannings, the city's largest health product chain, has decided to enlarge its sales network.
The retail arm of Singapore-listed Dairy Farm International Holdings, which has 252 outlets in Hong Kong, aims to spend an additional HK$50 million to bring the total number to 280 by year-end.
Lily Chan, the pharmacist-turned-chief executive of Mannings (Hong Kong and Macau), said the cut in store size, relocation and closure of underperforming branches while expanding outlets at the same time is the key to coping with rising rental pressure.
Retail rental is one of the biggest operating costs for Hong Kong retailers. According to Colliers International data, average rents for ground-floor shops advanced 26.55 per cent on average over the past year with rates at prime locations such as Central and Tsim Sha Tsui going up the most.
Fashion retailer Ports Design, which has a strong presence on the mainland, considers rental cost as its biggest obstacle to expanding in Hong Kong, according to chief executive officer Alfred Chan.
Heinz Krogner, chairman and chief executive of blue-chip apparel retailer Esprit, also said Hong Kong operations could not make much profit due to high rental costs. Esprit's core market is Germany.
Ms Chan said rental costs account for more than 50 per cent of Mannings' operating cost and sales growth could not catch up with the rent rises.
So Mannings is focusing on improving brand loyalty and product mix when opening new stores to fend off cost pressure.
'Opening stores is a skill, you have to know your market and customer and get a balance between sales and rental growth,' she said.
Ms Chan said that on average it took less than one year for a new store to break even. 'We have around 100 more stores than [rival] Watsons in Hong Kong,' she said.
Watsons is the retail and consumer division of the Hong Kong-listed conglomerate Hutchison Whampoa. It has more than 7,700 stores around the world selling health and beauty products, wine, consumer electronics and cosmetics.
Last year, Mannings opened 21 new stores, but also closed 14 money-losing stores. 'If we can't afford the rental increase at a prime location, then we will relocate it to a nearby but not so expensive place and open new stores at not so prime locations,' she said.
'The property market has its ups and downs,' Ms Chan said. When it is down, Mannings enlarges the size of its stores, and when it is up as it is now, the company reduces the size of its stores or relocates but still maintains growth in the number of outlets.
But customers must be willing to walk several more steps to buy at smaller stores.
To foster customer loyalty, Mannings deploy pharmacists at several of its stores It now has 35 stores with one pharmacist each.
Dairy Farm operates retail chains Wellcome, Ikea and 7-Eleven in addition to Mannings and holds 50 per cent stakes in Maxim's and Starbucks in Hong Kong.