In the News: 2005

More in Store

Asia Inc.
1 May 2005

Reinventing the department store has paid off for Bangkok's Central Retail. Now it's going regional.

When Tos Chirathivat moved back home to Bangkok in 1989 after studying and work-ing in the US for 10 years, he should have been on top of the world. Thailand was one of the world's fastest-moving economies, and Tos was in a prime position to ride along.

After all, he had degrees from elite schools: a BA from Wesleyan University and an MBA in finance from Columbia. He'd done stints at Citibank and Macy's, the US' leading bank and department store respectively. It was all the right stuff to prepare him for his real calling in life: being the son of Samrit Chirathivat, who in 1957 founded what is today Thailand's dominant retailer, Central Department Store (Central), the core operation of Central Retail Corp.

But there was just one problem. As Tos, 40, recalls: "In the US, department stores were getting weaker and weaker. How could we reverse the trend?" Luck was not on Central's side. In 1995, a mysterious fire devastated its flagship Chidlom Road store. Then, the economic crisis hit in 1997. Thailand was soon invaded by the same aggressive retail formats - discount hypermarkets and speciality chains - that stole market share from department stores in the US and Japan.

Central had another problem. Like other traditional department stores, it had become too complex, offering merchandise in every category. How could a single head of marketing or a single head of operations run the whole store effectively?

Says Tos: "In department stores, the main focus is fashion. It was hard to get someone who is good at fashion to pay attention to books or to take an interest in exercise machines or television sets. Those departments just became afterthoughts."

US department stores took a ruthless approach to this problem - they simply eliminated departments in which they could not compete. Tos worried that once this process of elimination got started, it might kill the heart and soul of a broad store like Central. What's a department store without departments?

Says Tos, CEO of Central Retail since 2002: "I said, 'Let's not drop departments; let's make them better. Let's grow them.' So we decided to restructure our whole company. We worked to build up the departments, then expand them outside the store to create our own chains, to create economies of scale."

The results? Those speciality stores have become leaders in their categories in Thailand - books, electronics and sporting goods - helping make Central Retail the largest non-food retailer in Southeast Asia. Sales have been growing at double-digit rates for seven years, and will pass 70 billion baht (US$1.8 billion) this year.

All this has helped parent company, Central Group, become one of Thailand's five largest conglomerates, with other successful operations in property development, shopping centres, hotels and fast-food restaurants, and 35,000 employees. After a restructuring was completed in 2002, the group brought in more professionals from outside the Chirathivat circle. Now, less than half of Central Retail's 24 key positions are held by family members.

With a dominant position in Thailand, Central Retail has only one place left to go: international. "We need to grow 10% a year, to find US$200 million more in sales every year. With our size, it's hard to do that domestically. The market is getting quite saturated," Tos says. "We just started working on it last year but, for the next five years, our main focus will be in the international area."

Indonesia and Vietnam will be the company's first destinations, with a possible stop later in the Philippines, he says. "The regional economy is not too bad. The market is less developed, and there's potential to do more." Central is focusing on Southeast Asia rather than China because the markets are similar in terms of income levels, product preferences and clothing sizes.

Central is not going to just test the waters overseas. It will likely launch a full flagship Central Department Store - anything smaller just won't carry enough freight to be worthwhile, Tos says. Acquisitions might work on a smaller scale if they match an existing Central speciality like electronics, sporting goods or other line. "We think there's no need to narrow ourselves to anything. It could be a joint venture; it could be a start-up. It's going to be different in each area."

Wherever a Central Department Store arrives, a fleet of speciality retail operations is likely to follow. This two-in-one strategy has paid off in Thailand: Each department store has a roster of competitive stores-within-the-store that anchor successful chains of standalone operations. PowerBuy, for example, is a home electronics and appliances brand that leads the market with US$250 million in sales, and 60 locations. Supersports, another chain that Central owns, has become Thailand's leading sporting-goods specialist, with some 40 locations. In addition, B2S is an innovative chain of 50 trendy stores that combines books, music and stationery in one location, usually along with in-store cafés and Internet stations.

Other operations, too, might help overseas. Central also owns the second-largest Thai department store - the middle-market Robinson's - and yet another high-end department store, Zen, focused on fashion. Central has the leading supermarket chain, Tops, and a chain of drugstores in affiliation with Watson's of Hong Kong. There are also Big C hypermarkets, Office Depot office-supply stores and HomeWorks home-improvement shops.

Central Retail's international strategy will push more than just stores: Thai fashion and housewares will flow into the region. Thanks to the Asean Free Trade Agreement (Afta) and other FTAs, the company will be able to introduce the same in-house and Thai national brands that overseas shoppers snap up on visits to Bangkok. Merchandising - the strategic fusion of production, marketing, advertising, display and sales tactics - is Central's core strength. In 2002, its flagship department store on Chidlom Road was chosen for the Global Innovator Award by Retail Asia magazine and the International Housewares Association. Publisher Andrew Yeo says: "Some of their housewares departments are as beautiful as those you can get in the Magnificent Mile in Chicago or in the streets of London and Paris. Their range of products is just as fascinating."

Credit for this international standard goes to Tos' sister, Yuwadee Bhichanchitra, 52, president of Central since 1996. Yuwadee swears by the old industry maxim: Retail is detail. She fusses over store decor, layout, lines of sight, position of escalators, columns, service, merchandise ordering, signage, training and all the rest of it. "It's in our blood. My father brought us up to work in the store," says Yuwadee, recently elected president of the International Group of Department Stores, the industry's leading trade association.

Beyond all the little details, the big picture matters too. Central prides itself on innovations like midnight sales, which bring shoppers out in bargain-crazed swarms. Bulk buyers who like to pile up purchases without being encumbered by bags can tap an "Easy Shopping" service - store employees gather the products and pack them into shoppers' cars.

A hit innovation at Central's flagship Chidlom store is its Food Loft - a Mercedes-class approach to the venerable food court. The Loft persuaded a handful of Bangkok's most popular gourmet restaurants to set up open kitchens on the store's ninth floor and offer a variety of fares in one place - Italian, Indian, Thai, Chinese, Japanese and others. Yuwadee's years of dining amid the vast Chirathivat clan - her father had 25 siblings, 10 children and dozens of nieces and nephews - convinced her that Thai families would flock to a quality restaurant that could accommodate diverse tastes. "Customers were so happy when we launched. Families always fight about food, so this brings everybody together." Niceties like table service and high-end interior design make it complete. "We haven't had to advertise it, but it's been successful from the start. Sales in 2004 were up 22% from the first year in 2003."

If someday Yuwadee and Tos run out of ideas like these, the next generation of Chirathivats will be ready to help. Dozens of their children, nieces and nephews are enrolled in an official family programme that launches their Central careers early. Like his father before him, Tos' 13-year-old son helped with stocking shelves and sticking on price tags last year, just as Yuwadee's teenage daughter has been doing.

Tos explains: "I started at 10. Our father did this to give us a passion for retail and also to make us down-to-earth. You need to build a work ethic, and to understand you have to earn your living."