Once considered a miracle in the retail industry, CEC International Holdings (00759.HK) was able to carve a niche in the market despite the intense competition by focusing on Japanese snacks.
Sadly, its success didn’t last very long and the company is now struggling to cope with falling sales and two years of consecutive losses.
CEC opened its first 759 store in Kwai Chung Plaza, a mass-market shopping mall, in July 2010. Its founder, Lam Wai-chun, who has over 40 years of experience in the coils manufacturing industry, ventured into the retail business with the belief that offering good value Japanese snacks was a viable business proposition.
Hongkongers love Japanese snacks, but the choices at leading supermarkets like PARKnSHOP and Wellcome were limited.
Meanwhile, Japanese-style supermarkets like Sogo, UNY and YATA usually have high price tags for such products.
Leveraging on his experience and contacts with Japanese clients, Lam started importing Japanese snacks directly from Japan and selling them at more affordable prices.
The business model worked and 759 Store soon embarked on an expansion spree.
By 2015 the number of its outlets exceeded 280, close to that of PARKnSHOP and Wellcome (about 300 each). The company soon expanded to snacks from mainland China, Taiwan and South Korea, and other products like cosmetics, homeware and bakery. The group launched noodle shops and eateries as well.
But here is where things began to go wrong. 759 stores no longer had a clear positioning (a focus on Japanese snacks). Expanding into other products also means running into more direct competition with bigger rivals.
Lam thought boosting the scale would increase the firm’s bargaining power with suppliers and landlords, but the strategy backfired.
Meanwhile, online stores like Ztore, HKTVmall joined the market, eroding 759’s advantage.
For the year ended April, 759 store operations reported an 11.8 percent drop in revenue and a loss of HK$29.5 million, following a loss of HK$15.8 million in the previous financial year.
The FMCG (fast-moving consumer goods) retail segment is a tough market, where even leading supermarket chains like PARKnSHOP and Wellcome only achieve low single-digit profit margins. So there is very limited room for errors.
Fortunately, Lam has learned his mistake and said he would cut the number of his outlets and add more Japanese snacks.
This article appeared in the Hong Kong Economic Journal on Aug. 1
Translation by Julie Zhu
[Chinese version 中文版]
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