This article first appeared in The Edge Malaysia Weekly on June 12, 2023 - June 18, 2023

ON April 27, Parkson Holdings Bhd’s Singapore-listed subsidiary Parkson Retail Asia Ltd (PRA) announced that its business in Southeast Asia’s fastest-growing economy, Vietnam, was no longer commercially feasible — after 18 years in the market — and that it would voluntarily be filing a bankruptcy proceeding.

Back home, three days before the announcement, Parkson Corp Sdn Bhd (Parkson), which is wholly-owned by PRA, permanently shut its 103,000 sq ft store at The Spring in Kuching, Sarawak, where it had been operating for the past 15 years. Then, on May 14, Parkson did the same with its 139,999 sq ft store at Nu Sentral, where it commenced business nine years ago.

The three events — which occurred within an 18-day period — coupled with losses registered by Parkson Holdings in the financial year ended Dec 31, 2022, raised concerns over the outlook for Parkson in Malaysia as well as the relevance of department stores in the domestic market.

A Parkson spokesperson tells The Edge that the two store closures in Malaysia were due to an increase in rent but that there will be no more store closures this year. Openings, if any, will be in areas with no cannibalisation.

“Both stores were at the end of their tenancy. All our stores’ tenancy commitment is long term, with an option to renew at each sub-term,” the spokesperson says. “Even though the market is flooded with existing and new retail spaces, rental rates continue to increase at each renewal term. Therefore, it will come to a point where revenue growth cannot meet the compound increase at each renewal term. So, we have to exit and look for new opportunities.

“The whole market is saturated with new malls opening every now and then and they are getting closer to each other, sharing the same market catchment; therefore, if [there are] any [new openings], it will be in areas that are not over-traded. By 4Q2023, we will open a new store in the suburban area around Kuching.”

Parkson also closed stores in 2020 and 2021. At end-December 2019, it had 44 stores; and three years later, it had 38. This year is expected to end with 37 stores.

In FY2022, Parkson Holdings posted a net loss of RM126.18 million on the back of RM2.92 billion in revenue. It has been loss-making since its financial year ended June 30, 2016. Note that it changed its financial year-end to Dec 31 in FY2021.

In 1Q2023, however, the retailer posted a net profit of RM20.68 million, against a net loss of RM8.63 million a year ago, as retail operations performed better, with higher sales generated during the festive and holiday seasons. Revenue rose 1.18% to RM837.79 million from RM828.04 million a year earlier.

In Malaysia, the retail segment recorded a profit of RM56.44 million, up 60% from RM35.32 million in 1QFY2022, as revenue grew 25% to RM201.2 million, from RM160.38 million.

On the outlook for the year, Parkson’s spokesperson says, “While we are optimistic of a positive growth rate in 2023, we have to take caution that the second half of 2023 may be uncertain amid [a] possible global recession.”

If, amid the rising inflation and a weakening ringgit against the US dollar and regional currencies, Bank Negara Malaysia raises the overnight policy rate (OPR) by 25 basis points, it will further reduce disposable income, the spokesperson adds.

Meanwhile, Parkson plans to renovate its Mahkota Parade store in Melaka in 3Q2023.

Apart from the closures at Parkson, it was reported that, after 16 years, AEON Co (M) Bhd’s department store-cum-supermarket would call it a day at Sunway Pyramid. Sunway Real Estate Investment Trust does not intend to extend the lease when it expires in September, as it plans to convert the space into smaller speciality stores, which carry higher rental rates.

Following the Covid-19 pandemic, the country also witnessed the closure of retailers such as Robinsons, The Shoppes@Four Seasons and Debenhams. This has given rise to the debate on whether department stores are becoming less relevant, or whether they are merely evolving.

“Department stores are indeed fading in terms of relevance, not just in Asia but across the world,” Murli Menon, director of retail services at Savills Malaysia, tells The Edge. “Based on published reports, total department store revenues in the US dropped from US$232 billion in 2000 to US$135 billion in 2019, and further to US$112 billion in 2020. The US has seen 83% of its department stores shutting down over the last decade and another 50% are expected to close in the next five years.”

Murli observes, however, that department stores continue to expand in certain markets, such as in the Philippines, and are able to maintain their relevance in terms of shoppers’ needs. “Part of the growth in this case comes from second-tier markets and cities as the largest department store operator continues its expansion plans into these newer markets away from the mature and saturated areas and top-tier cities.

“While this seems to be a global phenomenon, especially in the more mature and evolved markets — with the downslide starting earlier on in the West — it is now becoming more obvious in this region as well.”

Meanwhile, Retail Group Malaysia managing director Tan Hai Hsin says, “Department stores are not fading but, rather, the concepts are evolving. The department store concept is still relevant for now.”

He adds that they offer a variety of brands under one roof, which enables shoppers to browse and compare prices. This, he points out, cannot be achieved at speciality stores.

“In Malaysia, the role of department stores has been under threat since the 1998 Asian financial crisis. During that period, several established department store operators closed. They include Ocean, Fajar, Printemps, Globe Silk Store, Yaohan and Chujitsu,” Tan says. Over the past decade, stores such as UDA-Ocean, Tangs and Robinsons shuttered for good.

“After the Asian financial and economic crisis, retail brands commonly found in department stores started setting up speciality stores in shopping centres so that they do not go down with department stores,” he says, citing Padini as one such brand.

This evolution saw speciality stores take away sales from department stores. And when hypermarkets began to open, it further contributed to the decline in department store sales. More recently, the emergence of value stores such as Daiso, Mr DIY and Eco-Shop began to take away sales from traditional department stores.

Even as this was happening, Tan says, speciality stores evolved to become mini department stores, including H&M, Uniqlo and Marks and Spencer.

“A key factor seems to be that department stores in their existing format and way of doing business seem to be losing relevance in an ever-evolving retail market. This change was further accelerated by Covid-19 and the retail lockdown that followed,” Murli says.

“Department stores had always been ‘many things to many people’ and, in the process, ended up being faceless and without any distinct character chasing per sq ft productivity by maximising display and merchandise.” This gave rise to almost identical-looking department stores — in terms of layout/shopper flow and brand and merchandise offering.

Murli highlights that as consumer preferences as well as buying behaviour evolved, so did shopping patterns and expectations, with the shopping experience taking on greater importance.

The onset and growth of online shopping and e-commerce further eroded the excitement and interest level that department stores could offer shoppers. E-commerce and mobile shopping became “many things to many people” in a more efficient and easier way.

Murli and Tan agree that the department store concept remains popular in secondary towns with a relatively small population.

“Given that all markets are at various stages of their own development as far as retail is concerned, there is still room for department stores as a format to exist and perhaps grow in the smaller cities and less developed markets, which may not be ready for full-fledged shopping malls with a full range of mono brands across all categories,” Murli says.

He adds that due research and attention should be put in to optimise the store size as well as its positioning, and to ensure there is enough flexibility in the format (in terms of layout as well as merchandise offering) to enable the transition to the next stage as shoppers in these markets evolve in the future.

Tan says speciality stores do not set up shop in small towns because of limited demand. While some older brands do not operate speciality stores, other brands do not have sufficient merchandise to set up a physical store. Thus, department stores continue to be relevant.

The department store concept is also relevant in countries where High Street shopping is still popular, including China, Japan, South Korea and Taiwan, Tan says. “They also remain popular in European countries where the city centres are still very alive — where many retail shops are found in the inner cities and are able to attract office workers, tourists and locals and are open every day. They include the UK, France, Italy, Spain, Denmark and the Netherlands.”

Tan points out that in Malaysia, department stores that cater for affluent shoppers are performing well. These include Parkson Elite, Isetan and Sogo. AEON stores in suburban areas that cater for the mass market with a wide selection of goods at affordable prices are also doing well.

According to Murli, AEON continues to enjoy the advantage of having several outlets located in secondary and less developed cities, or in neighbourhood areas within main cities where department stores are still relevant.

“In most of the locations, the department stores are part of their own mall, hence complementing the offerings of the brands outside of the shopping mall. Given their large footprint and scale of operations, they have the advantage of being able to source a wider range of affordable brands and products, thereby being able to offer a wide range as well as value for money. The AEON department store-only concepts are mainly in high-traffic malls in well-established catchments where they can ride the strong footfall and shopper base of the mall itself,” Murli says.

Parkson’s locations that perform relatively well, he adds, are those either in the strong malls with high footfall and shopper base or in the secondary cities where department stores are still relevant to a certain extent, as these markets are still evolving in terms of consumer behaviour and shopper preferences.

In general, rather than department stores doing well and pulling traffic, Murli says “they are only able to perform well where the mall itself is able to pull in footfall”. And when there is high footfall, they record better turnover and are then able to provide a better/fresher variety of merchandise, better shopping ambience and service levels as well.

For Tan, department stores are still an important anchor tenant at large shopping centres. “A large shopping mall without a department store anchor will affect [its] offering and attraction,” he says.

“Over the next five to 10 years, department stores in major cities need to operate as lifestyle stores,” Tan says, elaborating that they must offer shoppers an excellent experience and brands that are found in speciality stores.

Murli concurs. “Visits to shopping malls and department stores need to offer more than just shopping — given the convergence of online and offline, this is the best opportunity for the category to evolve and be more than an assortment of brands and merchandise under one roof.”

He says department stores are already being partially repurposed as event spaces and could become a platform for online brands, which are realising the importance of a physical presence in department stores in the form of counters or pop-up stores.

Murli adds that department stores should provide the opportunity to curate and offer exposure for interesting local brands as well as for shoppers to explore and check out new product concepts.

“The new-age shopper is also tech-savvy, hence the need to offer a convergence of technology at the physical retail level. In their current format, there is nothing that invites shoppers to simply walk through or browse and experience. We go to a particular floor or section of a department store based purely on our needs or requirements,” he says. 

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