Challenger Technologies

[CityFarmer]

I think challenger could be a bit too aggressive or optimistic
In the jurong east area alone they have stores in westgate/jem/jcube/imm I think

Base on the dialogue during AGM, Challenger might move out of JE area, due to unprofitable stores. There are too many malls around, and rental is too high for profitable operation. Furthermore Big Box is coming soon...

[d.o.g.]

WARNING: LONG POST

I have not written extensively for a while - it feels like years. Anyway, here we go.

The Valore brand is a rather important development for the company. This can be very significant if you consider that brandowners can usually earn about 40-50% gross margins, distributors 10-15% and retailers 20-25%. At the net level it is about 5-10%, 2-3% and 4-6%.

Let's do a unit analysis. Using the low end of the estimates, at $1 retail:

The retailer sells for $1 and earns $0.20 gross and $0.04 net.
The distributor sells for $0.80 and earns $0.08 gross and $0.016 net.
The brandowner sells for $0.72 and earns $0.21 gross and $0.036 net.

In Singapore Challenger can act as all 3 entities i.e. for Valore products, they can earn gross (net) margins of as much as 49% (9%) versus 20% (4%) for other-brand products. It is precisely this type of analysis that has driven the rise of house brand consumer products in supermarkets.

What are the worries for the consumer when buying a house brand product? QUALITY and SAFETY.

Supermarkets deal with this by (a) buying from the SAME suppliers who make the products for the brandowners - yes, your house brand peanut butter may in fact be identical to the one in the Skippy's jar - and (b) putting their own brand name behind their label, which is why only established chains can do this and not your neighbourhood store.

Of course, the house brand product is also deliberately priced somewhat lower, maybe 20-25%. In this way the consumer sees a significant discount, enough to attract interest but not so cheap as to arouse doubts on quality, and then only needs to decide if the supermarket itself is trustworthy, which usually means yes since only established chains have the capital to do this.

Let's look at electronics. Can Challenger go to the same suppliers who make the name-brand goods and buy them for use in their own jars? Yes and no. Suppliers are happy for more business, but you cannot ask for the same "peanut butter".

You cannot copyright a peanut butter formulation that is X% peanuts and Y% sugar. So it is trivial to ask the supplier for the same formula. You can't tell them to give you the "Skippy" formula but if you know the Skippy formula you just give them the percentages needed to get the Skippy peanut butter, and now you've got the same product for a much cheaper price. Consumers don't care about jar design, so any standard jar will do. Roll out the ads in your weekly flyers, and watch the cash roll in.

But in electronics, you can definitely copyright a circuit board design. You can copyright an industrial design. In China copyright may not matter, which is why there are iPad and iPhone clones in abundance. But in Singapore Challenger cannot simply copy a successful design. It has to come up with its own designs, which takes time and money, or buy them from an ODM, who will also sell them to everyone else.

All or almost all the Valore products I have seen are clearly ODM designs, because I have seen them sold elsewhere e.g. Sim Lim Square under random brands or even without a brand. For Valore powerbanks, when I looked at the actual technical specifications I was always disappointed. Instead of providing a better product, Challenger chose to simply offer a commodity product at a lower price. And for lower prices, it is hard to beat Sim Lim Square.

Is it better to sell the same product at a cheaper price, or a better product for the same price? The supermarkets have succeeded with the first strategy. Does it work in electronics? Maybe, but with Valore, Challenger is not selling good products slightly cheaper (supermarket strategy). They are using Valore to sell poor products very cheap. Essentially they are buying no-name products from Chinese suppliers and marking them up.

Take powerbanks. These are products nearly every smartphone user is familiar with. But not all powerbanks are created equal, due to differences in battery chemistry (lithium ion versus lithium polymer), battery capacity as well as quality control (made in Japan vs Korea vs China). The accompanying circuitry also determines the number of outputs and the total output current, as well as the maximum input current. You have to read the box to understand what you are getting. If the box tells you the battery was made by Sanyo in Japan, that is a good sign. If it says nothing, assume the worst.

In this respect, because Valore is based on ODM products, you can find the same things in Sim Lim Square for less money. If you want something that is demonstrably better you can cough up for name-brands like Sony or Innergie, or you go to Sim Lim and look around. I looked in Challenger for a good Valore product. Or at least, I tried. I looked at powerbanks, I looked at Bluetooth speakers.

In the end, the only Valore product I felt comfortable buying was a camera pouch. I got my powerbank from one of the large retailers in Sim Lim Square (good specs, and the retailer has a reputation to protect too), and I got my Bluetooth speaker in Hong Kong (the Singapore distributor didn't bring in the model I wanted so nobody had it).

EDIT: I just looked at the camera pouch, it's not Valore either, it's Lowepro (branded product). So I guess I didn't trust Valore even for a bag haha! /EDIT

So, in the end, what does the product recall mean for the company and its shareholders? It has clearly damaged the brand in the eyes of consumers, who now believe that Valore = low quality.

Can Challenger recover from this?

Can it invest in R&D to produce its own products instead of buying from ODMs? Yes. Does it have the experience? No. What are its chances? Not good.

What about killing Valore and introducing another brand at a higher price point with better quality? This is also possible - but it will be another experiment, it is not clear Challenger has the appetite for it.

There is no easy answer, but I suspect the Valore brand may not survive for very long unless they put a lot of resources behind it e.g. upgrading the quality at the same price (which means lower margins) or improving the warranty (which means lower margins).

As usual, YMMV.

[Bibi]

They are using Valore to sell poor products very cheap. Essentially they are buying no-name products from Chinese suppliers and marking them up.

I have to agree their USB cable Valore brand design looks nice but quality is not good. My wife went there to buy USB cable. She was initially attracted by the nice design and slightly cheaper Valore USB cable (only after member discount). Then i notice the cable looks thin. I advice my wife to get another brand USB cable instead which cost only a little bit more.

Well the consolation is, she still bought the cable at Challenger cos she lazy to look around in Popular, NTUC etc..

[corydorus]

Not sure this scenario will put Challenger in better light.

Quality product should go to Challenger store always. This is their core business. Selling of house brand products that compete with your own branded suppliers can be touchy. Valore is fancy re-badged and cheap will works fine as in they are not competing directly with their own branded suppliers marketed segment but instead to pull customer away from Sim Lim or other competitors nearby. If that's the case, the brand is expendable.

Nevertheless, for challenger, is either stores as in Bibi situation.

I do not believe is practical to start an RnD. The business is cutthroat and heavily dependent on worldwide distribution to cover the fixed cost.
A poor planning, sales or mis-execution can result in significant obsolescence. Neither it makes sense to compete with your own branded suppliers. Even with major retailers like walmart, bestbuy, ... when comes to electronic products, they do not want to get their feets wet.

[InvestArk]

In the end, the only Valore product I felt comfortable buying was a camera pouch. I got my powerbank from one of the large retailers in Sim Lim Square (good specs, and the retailer has a reputation to protect too), and I got my Bluetooth speaker in Hong Kong (the Singapore distributor didn't bring in the model I wanted so nobody had it).

Consumers buy for many reasons, one may fit the bill of d.o.g 's personal trait while others may make the purchase for the convenience despite knowing that both retailers are selling similar products with different packaging (Sim lim is too far and price is probably gonna be not much of a difference after netting off transport/effort). Of course there are many other rationales as well (e.g no knowledge on the product, warranty issues etc.).

To speak frankly i believe that Challenger has embarked on a strategy of selling something which is of very very low cost at a fairly high price , with the assistance of the "Challenger Brand". The strategy could be a rather risky/ aggressive one since it involves the inception of an entirely new brand of goods ( if everything falls in place then Challenger would have a a better mix of products with higher GPM for its business, but if it were to be found deficient then the company would stand not only to lose its investment on the development of the brand but at the same time damaging the goodwill of its own reputation) However, i very much concur with d.o.g on the issue of the Valore brand image has indeed been dealt a huge blow due to the recent episode of their power banks allegedly catching fire.

To put simply : Banking on the Innocence/illiteracy of consumers and appearing everywhere where its competitors are not currently available (probably works for the short-mid term but perhaps not for the long run). Not really a nice way to phrase it but hey its business after all at the end of the day.

I am still very much interested to know how this will play out for the company and what are the possible ways that they could take to grow/turnaround the brand.

(Vested)

[ValueMaster]

I feel that investors should look at the bigger picture, valore is only a small part of Challenger's revenues
Hasn't Challenger prove itself by growing revenues and net profits consistently over the last 10 years?

If it makes 4 cents this year, its only selling for 13 times earnings! Quite cheap for a net cash company with no debt and makes a return of equity of about 30%

If it makes say 4.5-5 cents this year, that would be only 12-10 times earnings only, even cheaper

I still think that their core business is fine, and way superior as compared to Courts and Harvey Norman.

Over the last 10 years their memberships have grown from 200,000 to 500,000 the typical uncles and aunties just love challenger.

While the more sophisticated consumers shop online or at sim lim, its fine since they are the minority.

[Ferns]

Over the last 10 years their memberships have grown from 200,000 to 500,000 the typical uncles and aunties just love challenger.

While the more sophisticated consumers shop online or at sim lim, its fine since they are the minority.

I tend to agree with this. Not everyone is as analytical as d.o.g. In fact most are not.

If I didn't read his article, I would still have seen Valore as something branded.

So, people would continue to buy Valore products because they don't know better.

As a teacher, I see every other student having a powerbank. Where did they get it from, probably not Sim Lim and probably not online. They lose their things pretty often too, not to mention they have an innate ability to spoil something pretty fast. So they will continue to contribute to the sales of Valore.

Also, on membership, every time I go to challenger, I'm given a sales pitch on membership. The cashier is very well trained and has probably rehearsed the script multiple times.

[ValueMaster]

Over the last 10 years their memberships have grown from 200,000 to 500,000 the typical uncles and aunties just love challenger.

While the more sophisticated consumers shop online or at sim lim, its fine since they are the minority.

I tend to agree with this. Not everyone is as analytical as d.o.g. In fact most are not.

If I didn't read his article, I would still have seen Valore as something branded.

So, people would continue to buy Valore products because they don't know better.

As a teacher, I see every other student having a powerbank. Where did they get it from, probably not Sim Lim and probably not online. They lose their things pretty often too, not to mention they have an innate ability to spoil something pretty fast. So they will continue to contribute to the sales of Valore.

Also, on membership, every time I go to challenger, I'm given a sales pitch on membership. The cashier is very well trained and has probably rehearsed the script multiple times.

Wow you are a teacher, I used to be a teacher too.

I noticed its common for youngsters to have like 2-4 powerbanks and multiple devices (example phone+tablet)... I don't understand it because I myself only use 1 device and 1 power bank, however this trend of people using more IT products seems to benefit the IT retailing industry

the IT retailing industry I feel, is just as competitive as the supermarkets
its like NTUC, Sheng Shiong, Dairy farm having tough competition but somehow all 3 of them are very profitable

looking at the annual reports of Challenger and Courts, they seems profitable too
however if given a choice of 12 times earnings Challenger or 6 times earnings Courts, which one will value investors pick?
I would somehow pick Challenger

[nitro]

As a teacher, I see every other student having a powerbank. Where did they get it from, probably not Sim Lim and probably not online. They lose their things pretty often too, not to mention they have an innate ability to spoil something pretty fast. So they will continue to contribute to the sales of Valore.

i must admit these students have spending power. i witnessed it myself. After getting my 1st iphone4 2 years ago in Bugis, went to the opposite pasar malam to buy a casing which costs $18, and i was trying to bargain down to $15.

2 young chicks dressed in uniform came in to buy a hello kitty casing which costs liks $30+, just pay and go without even bargaining.

[Ferns]

i must admit these students have spending power. i witnessed it myself. After getting my 1st iphone4 2 years ago in Bugis, went to the opposite pasar malam to buy a casing which costs $18, and i was trying to bargain down to $15.

It's all part of the process of becoming an uncle.

These students will do this in 20 years time