On FY14 guidance and expansion strategy
Partly as more space will be leased out, we estimate NWDS’s FY14E SSSG at high-single to low-double digit (FY13: 11.4%). The newly acquired Shanghai Hongxin Mall generated RMB60-70m rental income last year, and management expects higher rental rate upon completion of renovation, brand filtering and rebranding in three years. NWDS plans to match the number of new managed stores with that of new self-owned stores, such that the consultancy fee will cover new store loss es. It is possible for the company to form partnership with regional and/or national developer(s) for store management in the longer term.
Consumers demand for freshness and newness
Chinese consumer’s growing sophistication will translate into spending on a wide variety of categories. NWDS believes the weighting of shoes and apparels will be coming down, and that of lifestyle and home improvement going up. The company opened its first ‘LOL’ lifestyle store-in-store in FY13, selling private label lifestyle gadgets sourcing from around the world. NWDS plans to expand the LOL chain to 50 stores by FY17.
On e-commerce, O2O, etc.
The company will only use digital revolutio n to complement its retail operation, eg., NWDS will launch QR code shopping wall in its stores soon. In its latest national promotion campaign (late May-early June 2013), NWDS used O2O marketing for the first time, and reckoned 180% yoy GSP increase during the campaign period. Partly due to more e fficient digital marketing, NWDS also aims at cutting A&P expense ratio (to GSP) by 30 bp in FY14. NWDS has yet to see competition from e-commerce, for no w. This is because NWDS targets at middle class aged from 30, whereas e-commerce consumers are mostly below 30. In addition, average ticket size of online shopping is below RMB200, but NWDS’s average ticket size is over RMB500. Management nonetheless agrees that the gap will narrow down in future, and the timing hinges on 1) rising logistic cost (including insurance); and 2) e-commerce tax implementation, both of which will lead to higher cost, and therefore pushing online merchants to move upscale. Management believes that brick-and-mortar retailing never die, but has witnessed the change of ‘golden ratio’ between retail: lifestyle/entertainment from 6:4 in the past to 5:5 or 4:6 now.
Depending on the market and store size, NWDS will work out the optimal operating area, and lease out the balance to a ccommodate F&B and other lifestyle outlets to seek a balance between shopping and fun, and aims at increasing the leased area to 30% of its self-owned stores in three years from 20% now.
On FY14 guidance and expansion strategy
Partly as more space will be leased out, we estimate NWDS’s FY14E SSSG at high-single to low-double digit (FY13: 11.4%). The newly acquired Shanghai Hongxin Mall generated RMB60-70m rental income last year, and management expects higher rental rate upon completion of renovation, brand filtering and rebranding in three years. NWDS plans to match the number of new managed stores with that of new self-owned stores, such that the consultancy fee will cover new store loss es. It is possible for the company to form partnership with regional and/or national developer(s) for store management in the longer term.
Consumers demand for freshness and newness
Chinese consumer’s growing sophistication will translate into spending on a wide variety of categories. NWDS believes the weighting of shoes and apparels will be coming down, and that of lifestyle and home improvement going up. The company opened its first ‘LOL’ lifestyle store-in-store in FY13, selling private label lifestyle gadgets sourcing from around the world. NWDS plans to expand the LOL chain to 50 stores by FY17.
On e-commerce, O2O, etc.
The company will only use digital revolutio n to complement its retail operation, eg., NWDS will launch QR code shopping wall in its stores soon. In its latest national promotion campaign (late May-early June 2013), NWDS used O2O marketing for the first time, and reckoned 180% yoy GSP increase during the campaign period. Partly due to more e fficient digital marketing, NWDS also aims at cutting A&P expense ratio (to GSP) by 30 bp in FY14. NWDS has yet to see competition from e-commerce, for no w. This is because NWDS targets at middle class aged from 30, whereas e-commerce consumers are mostly below 30. In addition, average ticket size of online shopping is below RMB200, but NWDS’s average ticket size is over RMB500. Management nonetheless agrees that the gap will narrow down in future, and the timing hinges on 1) rising logistic cost (including insurance); and 2) e-commerce tax implementation, both of which will lead to higher cost, and therefore pushing online merchants to move upscale. Management believes that brick-and-mortar retailing never die, but has witnessed the change of ‘golden ratio’ between retail: lifestyle/entertainment from 6:4 in the past to 5:5 or 4:6 now.
Depending on the market and store size, NWDS will work out the optimal operating area, and lease out the balance to a ccommodate F&B and other lifestyle outlets to seek a balance between shopping and fun, and aims at increasing the leased area to 30% of its self-owned stores in three years from 20% now.
