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Retail giant A.S.Watson promises to stick with stores, and spend US$160m on tech and logistics to keep pace with changing mobile world

Chief operating officer says group will open 1,400 new stores globally this year, 500 in China, and a substantial portion of the rest in merging markets in Eastern Europe, Russia, Turkey and Ukraine

PUBLISHED : Tuesday, 27 June, 2017, 6:49pm
UPDATED : Wednesday, 28 June, 2017, 10:45am

A.S. Watson, the retail unit of Li Ka-shing’s flagship conglomerate CK Hutchison, plans to plough US$160 million over the next three years on technology, logistics and staff training to stay competitive in a fast-changing retail landscape, as mobile and online sales continue to gain popularity.

The business has already spent US$78 million upgrading its operation digitalisation and customer relations management tools over the past six years, according Malina Ngai Man-lin, the chief operating officer of what claims to be the largest health and beauty retailer in Asia and Europe.

“The three-year budget covers the application of new technology, big data analytics, e-commerce tools, warehouse and logistics as well staff training,” she said as the 175 year-old Hong Kong-based retailer launched the “MoneyBack” mobile app on Tuesday, that will complement its membership card-based customer loyalty programme that has been operating in the past decade.

“We need to keep ourselves up-to-date and stay relevant by being among the first to offer the various mobile payment services,” she added.

The retailer has 230 information technology staff located in Hong Kong, London and Milan running some 190 projects.

Those include working on artificial intelligence-based systems, such as machine learning of consumer preferences, so its customers are better informed than ever of promotional offers.

“In the old days, customers would come in and listen to your sales pitch on different products,” she said. “Nowadays, they are very well informed after surfing the net and often they want to find out quickly where to get the product, so to them, speed and helpfulness of our staff are key.”

A.S. Watson operates 13,300 stores selling groceries, electronics and fast-moving consumer goods under 13 retail brands in 25 markets. Its brands include ParkNShop, Fortress, Superdrug, and The Perfume Shop.

Revenue was flat last year at HK$151.5 billion (US$19.4 billion) due to unfavourable foreign currency movements.

Earnings before interest and taxes in local currency terms rose 3 per cent, with a 68 per cent fall in Hong Kong due to lower tourist arrivals, which was more than offset by an 8 per cent increase elsewhere.

Despite traditional bricks-and-motor retailers in the United States closing stories in their thousands last year, under attack from rivals selling primarily via online channels, Ngai said the company has kept adding stores even as she conceded high street retailing is a tough business with thin margins.

It will open 1,400 new stores globally this year, she said, 500 in China, and a substantial portion of the rest in merging markets in Eastern Europe, Russia, Turkey and Ukraine.

Asked if it will gradually operates less stores, by adopting a so-called “omni-channel” distribution strategy that mixes physical and online channels, Ngai said: “People call this trend by different names, but the most important is, what the customers want?

“We have worried that our online strategy would cannibalise our physical store sales, but analysing data from the past two years, we found customers who buy both from our bricks-and-motor and online store spend on average 2.5 to three times more than those who only buy only from our physical stores.”

Customers who buy both from our bricks-and-motor and online store spend on average 2.5 to three times more than those who only buy only from our physical stores
Malina Ngai Man-lin, the chief operating officer, A.S.Watson

Even with the firm’s total online sales growing 46 per cent last year, they only accounted for “a few per cent” of total sales. In Britain, the proportion was close to 10 per cent.

Its fastest e-commerce growth was seen in its Taiwan and British operations, at 60 to 80 per cent, while in mainland China they doubled.

The MoneyBack program has rewarded points worth some HK$800 million to its customers since it launched a decade ago.

The new app will offer users various coupons and discounts until July 26. The company says it has 3.6 million registered members in Hong Kong, and 124 million members globally using various loyalty programmes.

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