DONKI is expanding too fast. Profit per store in Asia plummets. Products are out of touch with demand. The president hopes to reorganize the business within a year.
The Japanese retail brand Don Quijote (known as DON DON DONKI in Hong Kong), which has many branches in Hong Kong, has been actively expanding overseas in recent years in the hope of replicating its success in Japan. However, every store in Asia is currently facing a sharp drop in profits. President Naoki Yoshida said that he hopes to reorganize the Asian business within one year and plans to send employees to Asian branches to instill the management knowledge of Japanese Don Quijote stores.
Overseas operating profit margin is far worse than Fast Retailing
According to Nikkei Asia, Don Quijote’s parent company Pan Pacific International Holdings (PPIH) announced in February this year that its net profit from July to December last year was as high as 48.2 billion yen (approximately HK$2.49 billion). The annual growth rate was 31%, a record high for the same period last year; however, Naoki Yoshida pointed out that the company needs more time to understand Asia and needs to slow down to establish a stable management structure.
The report compared the overseas operating profit margin (OPM) of PPIH and Uniqlo parent company Fast Retailing. The two were roughly the same in 2015, with Fast Retailing at 5.7% and PPIH at 5.6%; but by 2022, Fast Retailing will As high as 15.9%, but PPIH only has 3.1% left, reflecting that PPIH’s overseas business is declining.
Asian stores rely on headquarters procurement
The report also pointed out that PPIH began to expand to Asia from Singapore in 2017 and has expanded its branches 20 times in 6 years. It currently has 40 stores in Hong Kong, Taiwan and other places. According to official website information, the company already has 10 supermarkets in Hong Kong.
However, Don Quijote’s strategy in Asia is different from that in North America. Most of its stores are self-operated, which is hindering its development. Since the stores mainly sell food imported from Japan, this means that local employees in Asia have limited ability to purchase from local manufacturers. They can only purchase from the Japanese headquarters, and the products are out of touch with demand. Takahiro Kazahaya, senior analyst at UBS Securities Japan, also said that PPIH is opening stores in Asia very quickly, but its organizational capabilities cannot keep up with the scale of expansion, and believes that the company needs to strengthen its organizational structure.
As of June 2021, the company has been unable to increase sales and solve high-cost problems; as of June last year, PPIH administrative expenses accounted for 35% of sales, higher than 34% in North America and 22% for Japanese discount stores , while Japanese supermarkets are 28%.
Naoki Yoshida said the company is busy building brands in Asia, but said these stores have become the same and lack the unique style of their respective regions. The report mentioned that the possible solution for PPIH is to follow the management method of Don Quijote stores in Japan. From purchasing, pricing to inventory management, etc., all are handled by store employees to improve on-site cost awareness.
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2024-04-07 02:29:00
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