Robinsons Retail considers exit from fashion business amid stiff competition

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By: Business World/Bloomberg

Billionaire John Gokongweis Robinsons Retail Holdings Inc. is considering an exit from the fashion business as it struggles to compete with cheaper, faster chains. Stock jumps to three-week high.

The Filipino retail giant, whose fashion portfolio includes the Topshop and Dorothy Perkins brands, instead sees better returns from pet, health and beauty products where demand is growing, said Chief Executive Officer Robina Gokongwei-Pe in an interview.

We are shrinking fashion, for it has become very difficult, Ms. Gokongwei-Pe said. There are other brands that came in who are more progressive and cheaper. We are already reducing the number of stores and we have to think if we move out altogether.

Shares rose as much as 2.2% on Monday before paring gains.

RRHI is relooking its business as it faces shrinking operating margins and growing competition in the low-cost space. Its pivoting into wooing higher-spending consumers by entering into the premium grocery market, as well as expanding foreign franchises in beauty products and pet care, hoping to achieve 15% revenue growth annually for the next five years.

Pets have become very big, said Ms. Gokongwei-Pe. Dogs now are very spoiled. Just look at Instagram and Facebook, its all about dogs. You should put money where the money is, which is food, drugstores, hardware, and growing businesses like pets and beauty.

Robinsons Retails fashion portfolio has contracted to six brands and 40 stores at end-2018 from nine brands with 60 stores in 2014. Fashion is among the companys specialty shops, which were cut to 341 in March from 387 at end-2018.

The company in December bought the local franchise for South Korean personal care and beauty products retailer Arcova and Club Clio, adding to 15 stand-alone stores selling Elizabeth Arden, Shiseido and Benefit Cosmetics. It also procured the license for Singapores Pet Lovers Center in October and plans to open a second outlet as early as this year.

Robinsons Retail is deploying its capital in a way that promises more growth, said Miguel Ong, analyst at AP Securities, Inc. Fashion isnt attractive as before with the rise of online platforms and brands like Uniqlo dominating the market.

Under a five-year plan targeting mid-to-high teen revenue growth, Robinsons Retail will spend between P3 billion ($59 million) and P5 billion to add 100 to 150 stores a year, according to Ms. Gokongwei-Pe. The retailer has 1,911 stores in various formats, excluding 1,960 outlets of its The Generics Pharmacy.

Revenue contribution from supermarkets will rise to 55% this year from 47% in 2018 after its acquisition of former rival Rustan Supercenters, whose 36 supermarkets cater to affluent shoppers. Robinsons Retails own 160 supermarkets cater mainly to mainstream consumers.

The acquisition and other new stores will improve gross profit margin by 10 to 20 basis points this year, said Ms. Gokongwei-Pe.

Operating margin, which fell below 5% in 2018, will shrink further due to write-offs related to the Rustan purchase. It will definitely improve in 2020, when the integration is completed, she said.

A foreign executive has been hired to manage Mini Stop, which has potential to double its 5% sales contribution in 2018, if the convenience stores are scientifically ran.

Robinsons Retail is considering creating its own e-commerce app for its supermarkets to fill the gap left by Honestbees closure in the Philippines. It may start from scratch or expand Growsari, Inc., a grocery delivery service for mom-and-pop stores.

The closure of Honestbee caused a dip in supermarket sales and will impact this years performance as same-store sales growth could have been 4.2% to 4.5% instead of 3%

The article is first posted HERE on July 2, 2019.