New World to Open Up to Six Stores in China on Demand

New World Department Store China Ltd., controlled by Hong Kong billionaire Cheng Yu-tung, will open as many as six stores in China this year to benefit more from the stimulus program driving the nation’s growth.

The retail arm of Cheng’s New World Development Co. plans to open two stores in Beijing and two in Shanghai this year, and may open one each in Shenyang and Zhengzhou, Chief Operating Officer David Lin said.

New World Department Store and rival Parkson Retail Group Ltd. had the slowest sales growth in at least three years in the six months to June even as retail spending in the world’s fastest-growing major economy surged 15 percent. Both companies are renovating stores and boosting marketing to attract customers as the government’s 4 trillion yuan ($586 billion) stimulus package puts more money in pockets.

“The market is fragmented and there’s plenty of department stores that are state-run and poorly run,” Matthew Marsden, who heads consumer research at Samsung Securities Co., said in an phone interview today. “The modern listed department stores are well-capitalized and can continue to take market share.”

New World Department Store, with stores in 17 cities nationwide, had a net gain of one outlet in its fiscal year ending June 2009, taking the total to 33 from 28 two years previously.

Acquisition Opportunities

New World Department Store rose 2.3 percent in Hong Kong to close at HK$7.88, the highest value in 19 months. The stock has more than doubled in the past year, compared with a 64 percent gain for the benchmark Hang Seng Index.

The retailer, which makes all of its sales in China, has been in talks to buy rivals to boost growth, Lin said in a phone interview from Shanghai on Jan. 13.

“We have many companies offering to sell but we’re not going to just acquire for the sake of buying,” Lin said. “We are looking at expanding in areas in China, where we’ve already established good networks of suppliers and customer flow.”

The cost of opening and leasing a new store, covering an average 40,000 square meters (431,000 square feet), is 70 million to 80 million yuan, he said.

Cash Rich

“We’re cash rich but it doesn’t mean that we’ll be throwing our money away as we expand,” Lin said. “A lot of the spending is still on big-ticket items such as cars, electronics, appliances, not fashion.”

New World Department Store had HK$2.19 billion ($282 million) in cash at the end of June.

The department-store operator’s revenue growth in the six months through June slowed to 1.4 percent, after averaging 40 percent in the previous five periods, according to data compiled by Bloomberg.

Rival Parkson’s sales growth in the first half of last year slowed to 10.6 percent from a year ago after averaging 29 percent in the previous four six-month periods.

“Department stores will benefit indirectly from the stimulus,” Samsung’s Marsden said. “Consumers are more comfortable shopping in a department store environment, where they have the chance to see many, many brands and learn about the brands.”