Padini fears margin squeeze
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Malaysia-based Padini Holdings expects an even tougher year ahead as it deals with a double whammy of having to cut prices and pay more for its stock.
Padini owns the brands Vincci, Seed and Miki as well as stores trading under its own brand.
The company has revealed margins reduced by between three and five per cent across its brands during the year to June 30 – and it fears even more reductions in the current year. It’s margin is now sitting at around 40 per cent.
The company has had to absorb the additional six per cent GST applied on retail prices on April 1. At the same time, stock costs have risen due to the rapid deterioration of the value of the ringgit.
“This financial year is going to be more difficult than FY15 as the weakening ringgit is affecting the cost of goods due to higher import costs,” CEO Chan Kwai Heng said in a news conference after the group’s annual meeting.
But Chan says the market won’t accept price increases given deteriorating consumer sentiment.
“We are more focused on driving top-line growth, and have no plans to increase our prices in the short term in order to remain competitive,” he said.
In the year ahead the company will focus on boosting its online sales (which carry lower overheads than stores), and searching for cheaper supply sources.
Padini plans to open 16 new stores in 2016, including nine outlet stores, mostly in new malls under construction.
The company had earlier reported an 11.8 per cent reduction in net profit last year, blamed on aggressive promotional and discounting activities.
Questions & Answers
Q.What caused the reduction in Padini's margins in the last financial year?
What caused the reduction in Padini's margins in the last financial year?
Margins were reduced by between three and five per cent because the company absorbed the additional six per cent GST on retail prices and faced higher stock costs. The ringgit's rapid deterioration contributed to increased import costs for goods.
Q.Why is Padini not planning to increase its retail prices despite rising costs?
Why is Padini not planning to increase its retail prices despite rising costs?
The company believes the market will not accept price increases due to deteriorating consumer sentiment. Their strategy is to focus on driving top-line growth and remain competitive by not raising prices in the short term.
Q.What strategies will Padini employ to mitigate increased costs and a challenging market?
What strategies will Padini employ to mitigate increased costs and a challenging market?
Padini plans to boost online sales, which have lower overheads than physical stores, and will search for cheaper supply sources. They also intend to open 16 new stores in 2016, including nine outlet stores.
Q.How much has Padini's net profit fallen, and what was the reason given for this decline?
How much has Padini's net profit fallen, and what was the reason given for this decline?
Padini reported an 11.8 per cent reduction in net profit last year. This decline was attributed to aggressive promotional and discounting activities carried out by the company.
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