Aeon Malaysia pursues expansion despite dip in revenue

No matter how big data is crunched on consumer behaviour, the truth is, consumers are changing at a pace that is unfamiliar with retailers. Items are more accessible than ever and the culture of mall hauling has shifted to support more entertainment and F&N offerings than ‘shoppable’ stores.

One retailer feeling the heat is Aeon Malaysia. Over the last three years, the Japanese retail conglomerate injected an additional RM600-700 million (>USD163.9 million) to expand and refurbish existing stores. Despite declining sales, a depreciating ringgit and implementation of GST, the largest retailer in Malaysia by market value pressed on.

However, analysts are rooting for the retailer, upgrading Aeon’s stock to ‘buy’ after an assessing the future that faces the company. “Aeon fits into our strategy and preference for cyclical stocks,” writes the latest RHB research report,”as it’s well positioned to benefit or capitalise from a recovery in the economy and sentiment, with its portfolio of 26 malls.”

In April, Aeon called off a 20-acre land deal a USD7.87 million land deal in Batu Pahat, Johor that was meant to be developed into a shopping centre. The company also recently underwent a restructure, closing some stores and reshuffling its staff.

Aeon Malaysia is going through growing pains at a time when consumer sentiment is low and buying habits shift from off to online. Furthermore, the state of Malaysia’s retail landscape is same-brand competition and an oversupply of retail space, especially in and around the Klang Valley. According to other research houses, a mall with 80 per cent occupancy rate during the first month is ‘considered good’.

(Read also: Aeon Big undertakes new business strategyAeon Big appoints new managing director)

MIDF Research downgraded Aeon Malaysia’s stock from neutral to sell while Kenanga Research remains neutral but warns of a challenging year ahead for Aeon Malaysia. “We expect Aeon’s retail segment performance to remain subdued in FY17,” said MIDF Research.

Aeon Malaysia owns and operates 33 department stores and supermarkets, plus 26 shopping malls. The retailer also runs MaxValu, a small format supermarket, almost 50 Wellness outlets, 29 Daiso stores and furniture outlet, Living Mall, which it brought into the market via a joint-venture with a Thai retailer.

Last year, it opened two new malls in Kelantan and Shah Alam. By next month, Aeon Malaysia will open two new locations in Johor and Kuching.

Evidently, Aeon Malaysia is persisting with its three-year plan despite a dip in result.