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Sandy Li

Hong Kong-based retailers are poised to make multi-million-dollar investments to strengthen their presence in China and tap into the new business opportunities presented by the mainland's accession to the World Trade Organisation.

Mainboard-listed and Japanese-controlled Jusco Stores Hong Kong plans to invest about HK$400 million to open 10 general-merchandise stores in southern China and Hong Kong in the next five years, the company said yesterday.

The comments coincided with announcements from Dairy Farm, which operates 7-Eleven convenience stores in southern China, that it plans to open at least 70 outlets next year, creating nearly 600 job opportunities in China.

Jusco's south China business development director, Soul Lam, yesterday said he expected the company would open seven stores in southern China and another three in Hong Kong in the next five years.

The expansion in China is due partly to lower rental and labour costs - which are about half those of Hong Kong.

He said a 150,000 square-foot store, including a food court, would cost about HK$40 million to build in China whereas renovation costs alone for its store in Lok Fu would amount to HK$63 million.

Jusco operates eight stores in Hong Kong and two in China, selling food, clothing and groceries. It wholly owns its Hong Kong stores, whereas it has only a 65 per cent interest in the two mainland stores.

Mr Lam said it was easier to find large retail space on the mainland for the company's bigger stores, compared with finding locations in Hong Kong where there was less choice.

Although greater competition in China's retail sector was expected in the coming years, he said the country's massive population could support investments by different types of retailers.

Mr Lam believed direct competition in Hong Kong might be stronger as it was possible for two general-store operators to be in the same shopping mall.

He said the further development of the general-store concept in Hong Kong was likely to be limited considering its population was seven million compared with 60 million in southern China.

If Hong Kong could accommodate 10 general stores, he said this would suggest a demand for about 100 stores in southern China.

Mr Lam expected earnings from mainland operations would continue to show strong growth in the long term because of the large number of stores it planned to open.

In spite of Hong Kong's economic downturn, Jusco's net profit rose 99.26 per cent to HK$15.26 million for the six months to August 31. Mr Lam said Jusco's eight SAR stores had generated an interim operating profit of HK$7 million, much lower than the HK$17 million generated by its two stores in Guangzhou in the first half of the financial year.

David Tso Kun, chief executive of 7-Eleven Hong Kong and southern China, a unit of Dairy Farm Management Services, described the chain's expansion across the border as 'a race against foreign and local retailers'.

'An increasing number of overseas retailers definitely will enter China after its admission into the WTO,' Mr Tso said, adding that the first to gain a foothold in China would secure a better position in the market.

He said the group would open between 70 to 80 stores next year, with each outlet needing about nine employees. At present, there were 68 7-Eleven outlets operating in southern China.

Mr Tso said the group might consider expanding into prime locations such as close to the Lowu commercial centre to lure customers from Hong Kong.

He expected more patronage from Hong Kong residents staying late in Shenzhen as a result of the Hong Kong-Shenzhen border's extended opening hours.

To meet its expansion programme, he believed the group would have to draw up an expansion plan to improve the cost-effectiveness of its Guangzhou-based logistic centre by the middle of next year.

At present, its Guangzhou logistic centre could accommodate 150 stores but would be saturated by as early as next year.



Hong Kong sector leaders prepare to invest millions in race for post-WTO market