Central Group sees flat spending in Thailand
In this article (5)
As Thai retail conglomerate Central Group suffers a sluggish domestic economy, its owners the Chirathiwat family worry that premium customers are spending overseas rather than at home.
“The upper class group is still spending money,” Chief Executive Tos Chirathiwat told reporters in Bangkok on Wednesday. “The problem is that they are spending outside of Thailand.”
In 2015, roughly 7 million Thais travelled abroad, up 9% year on year. Tos said that these outbound travelers spent some 170 billion baht ($4.76 billion).
“What’s worrying is that the figure is growing at 10% every year, while domestic consumption is expanding at only 2%,” he said. At this rate, the spending leak from Thailand will reach 300 billion baht in five years.
The number of inbound tourists meanwhile hit a record 29.88 million in 2015, up 20% year on year from a low base in 2014 following political turmoil. But according to Tos spending has not kept pace, rising just 2% last year. He called for Thailand to promote domestic consumption and tourism.
Central Group is Thailand’s largest retail company with subsidiaries including property development arm Central Pattana. Wearing another hat, Central is itself expanding overseas where operations now account for nearly 20% of group revenue. The company plans to more than double revenue in Europe to 2 billion euros ($2.17 billion) by 2020 — aided by custom from Asian tourists, including China and Thailand.
Central has earmarked over 10 billion baht to renovate its retail acquisitions in Europe, including Berlin’s KaDeWe department store.
Some 10.4 billion baht has been earmarked for renovating five department stores Central has acquired in the region. “We want the stores to be not only a shopping destination but also a tourism destination,” said Tos.
“What’s worrying is that the figure is growing at 10% every year, while domestic consumption is expanding at only 2%,”
Central began its shopping spree in Europe in 2011 buying Italy’s La Rinascente chain, which has a 150-year history. Revenue from Europe has been growing an average 40% each year since. This year, it is expected to jump 70% to 51 billion baht as three German department stores acquired in mid-2015, including KaDeWe in Berlin, start contributing.
Tos said further mergers and acquisitions in Europe are being put off for now. “We have quite a large coverage in Europe now, and there’s a lot of work to do,” he said.
A more immediate focus is Southeast Asia, particularly neighbors Cambodia, Laos, Myanmar, and Vietnam. In Vietnam, France’s Casino Group is selling off its Big C supermarket chain, and Central already has 25% of Big C in Thailand.
“We are interested but we have not decided yet whether to join the bidding,” Tos said. “The acquisition will require a substantial amount of money which could be used to acquire something else.”
TCC Group, the parent company of Thai Beverage, is also reported to be looking at Big C in Vietnam. It recently acquired Casino’s 58.56% stake in Thailand’s Big C for 3.1 billion euros.
Bidding for Big C in Vietnam is expected to conclude next week. Tos said that if Central acquired the chain, its sales in Vietnam would double from $600 million at present. The company already has two Robins department stores there, and acquired Nguyen Kim, an electronics retail chain, last year.
Tos said Central has no plans to reenter China after recently exiting. “China was a difficult market,” he said, noting the need for good government connections. “We learnt a lot.”
Central’s group revenue in 2015 was over 283 billion baht, up 13.5% on 2014. It is targeting growth of 18.9% this year, with international sales contributing the lion’s share of the increase. Revenue from abroad will contribute 24% of the total, up from 18% in 2015.
Questions & Answers
Q.What is Central Group's main concern regarding Thai customers?
What is Central Group's main concern regarding Thai customers?
The Central Group is concerned that its premium Thai customers are increasingly choosing to spend their money overseas rather than within Thailand. This trend contributes to a spending leak from the domestic economy, expanding at 10% annually.
Q.How much does Central Group plan to invest in its European retail acquisitions?
How much does Central Group plan to invest in its European retail acquisitions?
Central Group has earmarked over 10 billion baht for renovating its European retail acquisitions. This includes 10.4 billion baht specifically for five department stores in the region, aiming to make them both shopping and tourism destinations.
Q.Why is Central Group interested in acquiring the Big C supermarket chain in Vietnam?
Why is Central Group interested in acquiring the Big C supermarket chain in Vietnam?
Central Group is interested because acquiring the Big C chain in Vietnam would double its sales in the country from the current $600 million. However, it is still evaluating the substantial investment required for such a purchase.
Q.What is Central Group's revenue target and growth strategy for the current year?
What is Central Group's revenue target and growth strategy for the current year?
Central Group is targeting 18.9% growth this year, aiming for group revenue over 283 billion baht. International sales are expected to contribute the largest share of this increase, rising to 24% of total revenue from 18% in 2015.
Reader pulse
Is Central Group's overseas focus the right move?
18,641 votes so far