Network expansion: ASW aims to open 1,000 stores a year as market returns to ‘normality’

During the firm’s first half (H1) earnings conference, group managing director Dominic Lai announced that the company has budgeted to unveil over 300 stores in China this year.

“We budget to open over 300 stores this year, based on very stringent financial model payback, and focusing on quality, not just quantity.”​

This marks a return to the pre-COVID-19 status quo of opening around 1,000 stores a year.

“This year, we have returned to normality. So, I would expect to return our store growth and momentum to pre-COVID levels. We used to open around 1,000 new stores per year. So this year, we expect to return to that level of new store openings,” ​said Lai.

Lai emphasised that expanding its network of brick-and-mortar stores was crucial to the success of its offline plus online (O+O) retail model.

“The store network itself is a very important part of our O+O strategy, where we offer our customers a seamless experience of shopping across both offline and online channels. it also provides customers the convenience of click and collect, i.e. buy online, collect in stores, or delivered directly from our store network. The physical stores or the offline stores are very important as part of the O+O strategy.”​

According to Lai, the average payback period for new store openings was around 11 months.

“It’s a very big payback versus average lease length of say, five to eight years,”​ he said.

ASW operates several retail brands including health and beauty chains Watsons and Superdrug.

Its health and beauty division accounted for 87% of the entire retail revenue in the first half of this year.

Store number updates​

For the first six months of this year, ASW opened 282 new stores and shuttered 260.

At the end of June 2023, the firm recorded 16,164 stores across 28 markets. This was a 1% decrease year on year.

“We continue to open new stores in good and strategic locations and close those nonperforming stores without a future upon lease expiry,” ​said Lai.

The store numbers were split evenly between Asia and Europe. The firm currently has over 3,800 stores in China alone.

In addition to expanding store numbers, Lai highlighted that its stores needed to offer enhanced experiences to consumers.

“At the same time, we need to provide excellent service in stores, such as spa service, skin testing, and all these services, which make us very unique in the eyes of the customer for the shopping experience.”​

For the first half ending June 2023, ASW’s retail division recorded a revenue increase of 4% to HKD88.6bn (USD11.35bn).

According to the firm’s reports, the year-on-year improvements were primarily due to robust performances in Europe and Asia, as well as recovery in China.

The strong performances were partly offset by adverse performance in Hong Kong due to subdued consumer spending.