Watsons plans US$80m mainland expansion
Asia's richest tycoon, Li Ka-shing, will pump US$80 million into the mainland's fast-growing but competitive consumer market next year, drawn by young adults' growing appetite for health and beauty products - and with eyes on the lucrative pharmaceutical sector.
Li, through Hutchison Whampoa's retail flagship A. S. Watson Group, aimed to double the number of Watsons stores to 1,000 in the next two years, A. S. Watson managing director Dominic Lai Kai-ming said as the group prepared to open its 500th mainland store today in Shanghai.
The extended retail network will set the stage for the group to expand into pharmacy services, a highly regulated sector dominated by state-owned retailers and pharmacies.
'When it comes to drugs, the government has built good distribution in China and, depending on the development going forward, we may follow in the long term,' Lai, who is also executive director of Hutchison, said yesterday.
He said some Watsons stores currently sold a limited number of drugs such as paracetamol and fever tablets under licence on the mainland.
With the global recession continuing to bite and the central government spurring domestic demand, Watsons' cross-border expansion was a core part of the group's planned US$380 million global investment next year, Lai said.
The money would be spent on upgrading information technology systems, renovating stores and increasing the number of stores in Asia and Europe from 8,600 to 10,000 by 2011.
A. S. Watson's international retail portfolio also includes European health and beauty chain stores such as Kruidvat, Rossmann and Trekpleister, and the Nuance-Watson duty-free outlets.
On the mainland, the new stores would largely be located in Guangzhou, Beijing and Shanghai and some second- and third-tier cities.
'In Watsons, skin care is the fastest growing product category, followed by colour cosmetics,' he said. 'Japanese, European or Western brands sell well, especially those popular in Japan and endorsed by international movie stars.'
Lai added that Watsons customers were mainly aged 24 or younger.
One retail analyst, who did not wish to be named, said Watsons' bright stores and well organised displays attracted younger shoppers.
'Its Hong Kong brand name, the Western packaging of products and its shop design gives consumers more confidence,' he said. Such consumer confidence would bode well for Watsons if it entered the mainland's pharmacy market.
'However, it is difficult to break into [the mainland's] drug retailing under the existing regulatory regime,' the analyst said.
He said that even the definition of drugs varied from city to city.
In some places, for example, the energy drink Red Bull was classified as a drug and a licence was required to sell it.