Technology retailers enter new businesses amid market saturation

Monday, Jun 14, 2021 07:16

An FPT shop in the southern province of Dong Nai. FPT said that the company’s two retail chains, FPTShop and F-Studio by FPT, which sell digital products such as mobile phones, tablets and laptops, were still the main revenue spinners but non-core businesses also brought significant revenues. Photo

At FPT Digital Retail Joint Stock Company’s annual general meeting recently, shareholders gave the green light for plans to diversify from core businesses and enter some new product categories.

This is not the first time the company is eyeing new products.

In the first quarter of this year the company reported sales of VND4.67 trillion(over US$203 million), a year-on-year increase of 14 per cent.

An FPT spokesperson told Dau Tu Chung Khoan newspaper that the company’s two retail chains, FPTShop and F-Studio by FPT, which sell digital products such as mobile phones, tablets and laptops, were still the main revenue spinners but non-core businesses also brought significant revenues.

The Long Chau Pharmacy Store chain for instance is expected to report sales of VND582 billion (over $25.3 million) in the period, up 144 per cent. Its consolidated profit before tax was up 265 per cent to VND39 billion ($1.7 million).

Last December MobiFone and FPT Retail signed a deal to sell co-branded sim cards at FPT Shop nationwide. Customers who buy MobiFone-FPT Shop sims get special deals when shopping at FPT Shop.

The positive results from such non-core businesses have encouraged FPT Retail to consider entering more new product categories.

In April FPT Shop began selling Xiaomi’s IoT household appliances, and, together with Garmin, opened the first Garmin Brand Store in Ha Noi, the first in Viet Nam.

With the new product categories lending a hand, FRT expects to generate sales of VND 6.4 trillion ($713 million) in 2021 and pre-tax profits of VND120 billion representing year-on-year increases of 12 per cent and 320 per cent.

Similarly, non-core products have also made an important contribution to electronics retail giant Mobile World Joint Stock Company (MWG)’s turnover.

In the first three months of this year its consolidated net revenues were VND30.83 trillion, up 5 per cent from the same period last year, and after-tax profit was VND1.34 trillion, up 18 per cent.

But interestingly its food and grocery chain, Bachhoaxanh, was a leading contributor, with 19.3 per cent of MWG’s revenues after registering 32 per cent growth. Its core business, the Thegioididong chain, accounted for only 26.8 per cent of revenues after they fell by 1 per cent.

Bachhoaxanh’s gross profit margin in March stood at 25 per cent, and it is expected to go up thanks to adding several new food products and fast moving consumer goods to its line-up.

A company spokesperson said the effort was always to diversify the mobile phones and electrical and electronic devices sold to give customers more options. But the company would also focus on further developing the new product and fast moving consumer goods categories to tap a promising market of $60 billion, much higher than the phone and electronic devices market which is only worth $10 billion.

DigiWord Corporation (DGW) recently floated plans for entering the medical and cosmetics retail market at its AGM. A company executive, Lu Tran Anh Dung, admitted to Investment and Securities magazine however that DGW only wanted its shareholders to apply their minds to the proposal at this time so that it could move rapidly if any opportunities come in future.

DGW also expected to enter other new product categories in the coming years, he said.

It already had a strategic partnership with Nestle to sell the latter’s nutrition products through its distribution channels. This fetched DGW revenues of VND81 billion in the first quarter of this year, a year-on-year increase of 29 per cent.

DGW also owns a 21.86 per cent stake in pawn chain operator Vietmoney.

Analysts said technology retailers had managed to sustain growth though the market had gradually become saturated because they had shown the flexibility to enter other businesses.

Raw material prices rise across the board, hit bottom lines

Since May 2020, when they bottomed out, the prices of PVC resins have been increasing relentlessly due to a supply shortage and rising logistics costs.

According to Viet Dragon Securities Joint Stock Company, they topped their historic high of $1,216 per tonne reached in February 2018 to reach $1,400 in March this year.

The prices of petrochemical products including PVC resins have increased by 26 per cent this year, while oil prices are up 19 per cent.

Market observers attributed the drastic price hikes to a global supply disruption caused by the pandemic and power shortages in the US that caused refineries to stop production.

A spokesperson for Binh Minh Plastics Joint Stock Company (BMP) said the sharp rise in the prices of PVC resins had badly hit the company’s profits.

So, though the company hiked the prices of its plastic products twice by a total of around 14 per cent since February this year, its gross profit margin decreased to 17.9 per cent in the first quarter compared to 24.1 per cent a year earlier, the lowest rate since 2006.

A similar situation also plagues businesses in other sectors.

Seafood company Vinh Hoan Joint Stock Company saw its profit margin decline within a year from 14.4 per cent to 7.5 per cent.

For Minh Phu Seafood Joint Stock Company, it went down from 3.6 per cent to 0.8 per cent and for Sao Ta Food Joint Stock Company, from 6.4 per cent to 3 per cent.

The Dry Cell & Storage Battery Joint Stock Company (PINACO) saw the margin fall from 15 per cent to 14.2 per cent between October 2020 and March due to a sharp increase in the price of two main raw materials the company uses, zinc and lead, according to a spokesperson.

The Mercantile Exchange of Viet Nam reported that on May 12 the prices of several metals increased, zinc by 0.1 per cent to $2,995.50 per tonne and lead by 0.2 per cent to $2,217.50.

Ngo Tri Long, former rector of the Ministry of Finance’s Price and Market Research Institute, said the prices of materials used in industrial production and construction such as plastic, steel, bricks and sand are up 20 per cent this year.

Steel, which accounts for around 20 per cent of the cost of a building, increased by 40 per cent.

Le Nhu Thuy My, director of the Nhan Quoc Ceramic Tiles Company in Dong Nai Province, said there had been a slight increase in the prices of ceramic tiles due to a rise in packaging, fuel and transportation costs.

According to the General Statistics Office, in the first four months of this year the prices of raw materials used in industrial production have increased by 4.64 per cent year-on-year.

The price of raw materials and fuel used for agriculture, forestry and fisheries increased by 6.77 per cent, while those used in industrial production increased by 4.95 per cent.

How have businesses reacted to their rising costs?

Vinamilk has decided to increase prices.

KIDO Group Joint Stock Company, one of the country’s leading food processors spends 60 per cent of production costs on soybean oil and palm oil, whose prices have increased by 67 per cent and 76 per cent since last year.

The company could pass on the costs to its suppliers since it dominates the niche market for vegetable oils, an industry insider said.

But it would also probably increase prices by around 12 per cent, he added.

Analysts said however it was not easy for most companies to hike prices due to the COVID-19 pandemic, which had badly hit the incomes of both corporate and individual customers.

The Tien Phong Plastic Joint Stock Company (NTP) decided to increase its inventories of raw materials until the market calms down.

This way, it had managed to overcome the worst effects of the raw material price hikes, a company spokesperson said. VNS

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