Japan Home Centre aims to diversify products after planned IPO

The former knick-knacks chain now specialising in housewares hopes to move into products for men after its planned initial public offering

PUBLISHED : Friday, 13 September, 2013, 12:00am
UPDATED : Friday, 13 September, 2013, 3:00am

Facing a slowdown in retail growth in the city, the operator of Japan Home Centre - a chain that sells affordable household goods - aims to increase its revenues by diversifying its product mix and expanding further abroad.

"Our customers are middle-class housewives," Peter Lau Pak-fai, chairman and co-founder of International Housewares Retail, told a news conference to announce details of a planned HK$607 million initial public offering.

Mainlanders [prefer] imported and Hong Kong brands

But Lau said the firm would try to broaden its customer base by expanding into men's personal and health care and more upscale products.

Despite its name, Japan Home Centre has no relation to that country. A Hong Kong firm, International Housewares was launched in 1991 and operated for some time as a chain of "HK$10" one-price shops before specialising in housewares.

It now has 303 shops and is the biggest player in Hong Kong, with 235 shops and a market share of 39 per cent. It has five shops in Macau and 38 in Singapore as well as licensed stores in East Malaysia, Saudi Arabia, New Zealand and Indonesia.

Much of the firm's success has hinged on a lack of direct competitors. Its main rivals are supermarkets, where the core focus is not on housewares, or small family owned shops with a limited product range.

Japan Home offers more than 20,000 distinct products and enjoys high margins on its custom-made goods. Gross profit margin on these lines has been at about 55 per cent for the past three years.

"They don't have a direct competitor," Bank of China International analyst Elaine Wen said. "[In Hong Kong] the only real competitor they have is Living Plaza by Aeon, but they are slightly different because [Living Plaza] sells mostly HK$12 fixed-price products. IHR has a full range of categories."

Swedish giant Ikea is differentiated by its focus on furniture.

"Their houseware products are a less focused category, and also [Japan Home] has higher-value products from different brands. Ikea is just one brand and most of the time is cheaper in terms of housewares," Wen said.

But International Housewares is seeking to grow beyond its established market. Its plans to offer men's personal and health care products and more upscale housewares could position it against Watsons, Mannings and even Lane Crawford.

In Malaysia, the firm made a loss of HK$4.8 million in the year to April, and its mainland operation lost HK$3 million.

On the mainland, its greatest challenge is building brand recognition. It operates under the name Living Plus to avoid backlash from Sino-Japanese tensions. And mainland consumers prefer local shops, analysts said.

Lau sidestepped questions on when the mainland stores would become profitable but said he was confident of market demand and said the firm would open 25 new stores, concentrating on the Yangtze River Delta area.

"Demand is relatively inelastic during economic slowdowns … increasing GDP and rising levels of disposable income will drive sales," he said. "There is strong growth in shopping malls, and mainland customers also show a preference for imported and Hong Kong brands."

The mainland housewares market grew to HK$655.3 billion last year from HK$263.5 billion in 2007, according to data from the Frost & Sullivan consultancy.

Local property sales have been sluggish in the wake of government cooling measures, reducing demand for home furnishings and products. The sales volume of fixtures and furniture in the city fell 12 per cent in July year on year, figures show.

About half the money raised in the IPO will go towards opening new stores.