Popular Holdings

[psolhawk]

They have also closed down one branch at White Sands. Had received a flyer last month advertising an attractive 20% discount storewide.

[Trader88]

Closing down unprofitable branches is positive for the company.

[ashuro]

Closing down unprofitable branches is positive for the company.

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it begs the following questions:

1. what were initial business plans for unprofitable branches, just proliferation?
2. how long did losses continued until branch closure
3. with economies of scale, were margins inadequate & merchandise incorrect?
4. are they overstocked, stocks too old, too much written off?
5. which department or category losses affected consolidated sales
6. did overseas subsidiaries failed to supply imports cheap enough
7. why an established retailer failed to negotiate better terms in all business aspects
8. why so many buybacks if publicly listed, is being public just half-hearted
9. Do they have appropriate management skills for modern & future retailing
10. have they dabbled too much outside their comfort zone

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I think stationery sales margin is OK since they have a shop in China to import, anyway stationery market can depend on regular consumers replenishing items: little ones at home always need new cute pencil case for school.

Books are a different matter, margins are not great at all even with wholesalers, excess print-runs, sale or return etc. Savvy retailers always watch out for competition discounts as signs of distress.

share dealers don't care about underlying signals though, unless you're Warren Buffet.

[Pursuitofknowledge]

Closing down unprofitable branches is positive for the company.

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it begs the following questions:

1. what were initial business plans for unprofitable branches, just proliferation?
2. how long did losses continued until branch closure?
3. with economies of scale, were margins inadequate & merchandise incorrect? I believe Popular doesn't have an economic of scale in book as those sold in Popular book store are mostly top pick or best sellers books which consist of a small percentage compare to its assessment book. I believe its economic of scale lies in assessment and stationary.
4. are they overstocked, stocks too old, too much written off? With the emergence of online book retailer such as The Book Depository, amazon etc, which book are selling for 50% less compare to those selling in Popular which lead us to qn 7. why an established retailer failed to negotiate better terms in all business aspects- Even if Popular is to negotiate a better pricing, it still need to factor in rising cost such as rental, staff cost which eventually make the book price unattractive to consumer. Compare to amazon and book depositor which can build large warehouse in remote place and through internet they doesn't require a front store to sell their books.
5. which department or category losses affected consolidated sales
6. did overseas subsidiaries failed to supply imports cheap enough - Relate to question 4.
8. why so many buybacks if publicly listed, is being public just half-hearted- I generally view buyback as a sign of confident from the management that their business is worth more than current valuation. With the completion of 8 Raja (cost of development-$60m) which profit is not yet shown, assuming they are able to realize a 5% profit - $63m ($0.07 per share).
9. Do they have appropriate management skills for modern & future retailing- With the closure of Border in 2011 and Barnes and Noble facing difficulties in the book retailing industry, Popular has demonstrated prudent management skill by focusing more on assessment book and stationary and cutting down on books which are facing intense competition from amazon and other online book retailer.
10. have they dabbled too much outside their comfort zone-

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As for the rest of the unanswered question, I do not have the answer to them. Someone with more in depth knowledge can share their views.

[buddy]

Answer 2: You cant close the book store immediately even if it does not break- even as you have duration of tenancy lease. Harris took some time for them to close even though I dont think it made any money. In addition things can change as we have seen strong rental increase in Singapore. Come to think of it retail & distribution division PBT margin are 5-6% : Rental increase of 20-50% can completely destroy the profitability. ( My guess is rental will be atleast 30-40% of cost ex cost of sales). Lastly if you are in Popular management : u will open a shop even if it may not make money as u dont want anybody else to come in the business. Hope it helps.

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Answer 2: You cant close the book store immediately even if it does not break- even as you have duration of tenancy lease. Harris took some time for them to close even though I dont think it made any money. In addition things can change as we have seen strong rental increase in Singapore. Come to think of it retail & distribution division PBT margin are 5-6% : Rental increase of 20-50% can completely destroy the profitability. ( My guess is rental will be atleast 30-40% of cost ex cost of sales). Lastly if you are in Popular management : u will open a shop even if it may not make money as u dont want anybody else to come in the business. Hope it helps.

[a74henry]

The branch at White Sands is renewed for another term as they have negotiated for a win-win deal with the landlord.
Kudos to the management.

Recently, there are a number of delistings.

Popular could be considering delisting since it is profitable and trading below its BV.

[KopiKat]

The branch at White Sands is renewed for another term as they have negotiated for a win-win deal with the landlord.
Kudos to the management.

Recently, there are a number of delistings.

Popular could be considering delisting since it is profitable and trading below its BV.

I must have missed the news / annc on the White Sands branch. Any links?
What is this BV you are referring to?
Different from latest NAV = 27.29ct? Last done Market Price = 28ct is above NAV...

[ashuro]

Hi trader88: thanks for the response

I was alluding to rental costs as one of the terms for better negotiated outcome.

you also covered my hints about online retailers & the categories supplying the captive market: so despite their dominance in the textbooks & stationery market, they still posted a plunge in gross profit?

let's use a generous rudimentary approach to their group annual account figures:

first take a guess-timate for non-retail publishing & property business, take the remainder profit & split between 150 retail stores in all countries.

profit per store is then split between all product categories, then per week or per day...not looking so great now. either some tems have razor thin unit margins, or just making losses supported by big margin items.

without economies of scale & income from vertical integration, it'll be like Harris or borders for every store

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Hi Buddy, thanks for response

terms of lease, yes indeed...so the underlying question was hinting at the duration of suffering losses before they could pull out of location.

As to maintaining market presence against competition: competitors will always open shop if local consumer market is available, & we know that consumers are generally happy to travel just to shop for what-ever-it-is.

Popular retail is not exactly a first choice business for most entrepreneurs, so just having a site regardless of profitability is having confidence but not having prudence.

[Pursuitofknowledge]

Hi trader88: thanks for the response

I was alluding to rental costs as one of the terms for better negotiated outcome.

you also covered my hints about online retailers & the categories supplying the captive market: so despite their dominance in the textbooks & stationery market, they still posted a plunge in gross profit?

let's use a generous rudimentary approach to their group annual account figures:

first take a guess-timate for non-retail publishing & property business, take the remainder profit & split between 150 retail stores in all countries.

profit per store is then split between all product categories, then per week or per day...not looking so great now. either some tems have razor thin unit margins, or just making losses supported by big margin items.

without economies of scale & income from vertical integration, it'll be like Harris or borders for every store

---

Hi Buddy, thanks for response

terms of lease, yes indeed...so the underlying question was hinting at the duration of suffering losses before they could pull out of location.

As to maintaining market presence against competition: competitors will always open shop if local consumer market is available, & we know that consumers are generally happy to travel just to shop for what-ever-it-is.

Popular retail is not exactly a first choice business for most entrepreneurs, so just having a site regardless of profitability is having confidence but not having prudence.

Hi ashuro,

I don't think retailer in Singapore command bargaining power in rental fee. As land is scarce in Singapore, those mall operator does't have to lower rental fee to attract those retailer into their mall.

Popular has broken down their Distribution, Publishing and Property revenue in their Annual report.

As for "first take a guess-timate for non-retail publishing & property business, take the remainder profit & split between 150 retail stores in all countries." 
Singapore
POPULAR 26 Retail stores,
34 School outlets
UrbanWrite 1 Retail store
{ prologue } 2 Retail stores (closing soon)
Malaysia
POPULAR & HARRIS 76 Outlets
Hong Kong
POPULAR 17 Retail stores

Therefore I feel splitting the profit between 150 retail stores is not a good measurement as 34 popular bookstore are school outlets.

I believe Popular has a very narrow moat which come from it's publishing department as teaching material is regulated by the government. Not everyone is able to come out with an assessment book without consent or being scrutinize. I do feel Popular has established a strong foothold in publishing of assessment book. However the publishing profit has been quite cyclical for the past 6 years, from their past annual report Mr Chou has mention assessment can last for 6 year after publishing before change of syllabus but I feel this is no longer true as the world is moving at a much faster pace thus education materials has to be revise or change at a faster rate. I think of the publishing business as a complement to the distribution business.

[KopiKat]

Some info which need someone else to verify...

8Raja was launched on 15-May. So far 3 units sold (according to agent).

Anyway, won't see impact in coming results as FY end is Apr.

<Vested>

Looks like agent info was quite accurate after all.... Must be delay in caveats lodged as it was not reflected in URA site when I checked from 17-Jun onwards. Latest from URA,

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