Central Retail Corporation Public Company Limited (CRC) Earnings Call Transcript & Summary

Hello. I am Rangsirach. Welcome, Fund Managers, analysts to the CEO Forum of Central Retail today. So my name is Rangsirach, once again, and I will be the MC for today's event. I am very glad to see all of you again. We almost have a full house. This is the next leap for Central Retail, where we will show you our strategies and direction for the next 5 years. Our managers will come to tell you some business plan highlights for the year 2023. And as always, we are honored by the full management team who will enlighten us and answer any questions you may have. Please let me introduce first, Khun Yol Phokasub, President. Next, Khun Ty Chirathivat, CFO of CRC. So these 2 should be familiar to all of you, and now you may meet them in person. Number three, Khun Oliver Bron, Head of Central Department Store. You may not have met Khun Oliver yet. But Khun Oliver is very experienced formerly as the CEO of Galeries Lafayette in France. Finally, number four, Khun Olivier Langlet, Head of CRC Vietnam. You may have heard his voice and now you get to meet him. And today, we'll be hearing from all 4. They will to tell you on what they're working on. Thank you Khun Ty, Khun Olivier and Khun Olivier. Please wait before we invite you back up. Next, let's go on with the presentation where we have about 50 minutes. We'll begin with Khun Yol, who will speak of our records and accomplishments and our future plans. And now Khun Yol will take the stage.

Hello, investors, fund managers and analysts I am very glad to see all of you face-to-face. And thank you for honoring us and giving us time to attend our events today. And now that COVID is starting to fade, traffic is returning, which is a good sign. And now the dust is now a problem again. And this is part of life. Regardless, it's no different from doing business. There's always challenges to be met over time. For Central Retail, this is my chance to tell you some exciting news to share to all of you. I will focus on 4 agenda: first, what happened in 2022; next, our 5-year strategy and our goals; then number three, we're going to talk about our future outlook; and finally, number four, something very important for the next era of Central Retail, sustainable growth. In 2022 -- was a remarkable year for Central Retail, with 3 main factors. One, a major move we made as the first mover with moving from being a physical retailer to an omnichannel retailer, which we began 3 to 4 years ago. Now we are at a point where we can declare that we are the leader of omnichannel retail. And we've set the new industry standards for doing business, both here in Thailand and abroad. Next, number two, we have to admit that COVID had an impact on the Thai economy and CRC was hit. However, we have passed that time, and we have grown again similar to 2019 pre-COVID. Number three, we never stopped. And even though we have to move to the next chapter in life, we always have to embrace change. If we look at the accomplishments of Central Retail, they were born out of 3 things. One is from our winning DNA. Yes, our DNA consists of C,R and C. The first C is collective success. We move as one, think as one, work as one, and the individual success is the group's success. Next, we have resilience. Resilience is the thing we've always had, but it was extra important during the COVID crisis. We live in a world of uncertainty. So resilience is key. Central Retail has been highly adaptive. And finally, the final C is conviction. We stand by our corporate purpose to be central of life. It is what will take us to being sustainable. Next, our growth came from our strategy, which focused on 4 things: one, we always try to grow and expand our business capabilities; number two, the digital and omnichannel aspects, which we keep reinventing otherwise go obsolete; number three, we look for new businesses which will strategically fit with the group direction; and number four, we believe in growing together. We go through -- we do joint ventures and partnerships, and we believe in people. CRC has made success because we have a people advantage, which is different from anyone else. Now for some key highlights, we have 84 department stores in Thailand and 9 in Italy. We have Tier 1, Tier 2 and Tier 3 department stores with more than 500 brands and shops. Khun Olivier will give you more details later. Next, something we're very proud of [indiscernible] which we started off from 0. Now we celebrated the 12th year anniversary. We are now #2 and we are extremely proud that we created a business outside of fashion. Number three, the Vietnam business. 10 years ago, we decided to join the Vietnamese market. We saw opportunity in Vietnam. And we found a business model that would cover malls and food in Vietnam with their hypermarkets, supermarkets, and today, we are #1 for -- as an international retailer in Vietnam, and the #1 in hypermarket, and #2 in malls, but we're not stopping there. We are determined to conquer all of Vietnam. In the future, retail will continue to grow, and Vietnam will contribute about 30% to CRC. Next, that we are extremely proud again with the first movers moving from physical retail to omnichannel. This has helped us to adapt during COVID very, very well when the stores were closed, for every THB 100 sale, 18% comes from omnichannel. And our customers convert from single channel to omnichannel. Now we want the time shares of our customers to have a platform that is the best. And for our omnichannel customers spend 4x more than a single channel spender. Most importantly, online, we can change everything to make it profitable in the last 3 years. The second topic, we are to enter into a new segment that we call wellness. Everyone will be well, live well and get well. And the basic of it, it's a new format such as the pharmacy, supplementary food and pets. Within the next -- within the past 14 to 15 months, we have expanded in those categories and these are really good starting points to scale in the future. Next, everybody knows, I hope that back in February 2021, we acquired COL, which had 3 banners: office made B2S and meb. We unlock their potential, and we leverage them for group strategy. For OFM, every business unit we acquired became fully omnichannel. At the same time, we made franchising models to reach the upmarkets and started including furniture. For B2S, we unlocked new synergies and created new formats to make a new format, a flagship store at Central [indiscernible]. And for meb, there was the involvement with the One and B2S. And this year on Valentine's Day, meb will be -- [indiscernible] will be IPO-ed. This is unlocking value of something we have acquired and the value of meb is valued at THB 9 billion. This shows us that the correct strategy and the ability to unlock potential will create value. Next, we are extremely proud to have received many awards from all over the world in ESA and in Thailand regarding customers, people or most importantly, we are trusted on sustainability and this emphasizes our corporate purpose. Now by -- in summary, our key message here is that we continue to dominate omni-fashion, hardline and food. Number two, in Vietnam, we have 3 killer formats, which Khun Olivier will elaborate upon. Number three, we are the first mover to second industry standard as an omni retailer. Number four, thanks to COVID, we have become healthier, leaner and fitter and we work even smarter. This is important to us and we were able to establish new growth pillars surrounding wellness. And finally, we're able to create exponential value. So finally, by the end of the year compared to our guidance we've exceeded our own guidance. We are slimmer, lower costs, and we are -- and we can sustain it that way and make it even better. On CapEx, we used THB 18 billion to THB 20 billion to invest in 2 key things, being strategic investments and proven formats, and we invest behind technology and platforms and people. So we closed out 2022 beautifully, thanks to everybody all the analysts, investors, fund managers who have supported us. Now let's look at the 5 year strategy, looking forward, how do we plan to proceed. There's no change in our strategy, but what has changed that we would plan to go faster and be better. We have the capability to execute we will go faster and be better. On sustainability, it's a very serious matter for us at CRC, a core of our business. Our aim for the next 5 years, whatever business is, number one, we plan to make them even stronger. Whatever business is not yet #1. We plan to make them #1. On the green aspect, Central To Life, we aim to be the first green and sustainable retailer in Asia and we are confident that we will make our community greener and pass it on to the next generation. In terms of investment, we have room to grow and room to borrow. So in 5 years, we hope to get to THB 150 billion, 20% of that will be from technology and capability. On future outlook, the global picture as a whole, currently is less bad. It's at a peak, inflation is at a peak. Interest rates are now more stable. Now there's no concern whether it will be stable or they will go up again, but I believe it will go up. If inflation goes down, we're studying whether it will be -- what impact we would have directly and indirectly. And on the whole, we're looking at a global growth of 2.9%. And as I mentioned to the APEC Forum, looking globally, Southeast Asia and Thailand is a safe haven. So what we see is that Thailand is going to keep growing, the only country to grow 2%, 3% from last year, which all other countries are getting less. Other countries might grow, but not as much. But what will make us grow now, auto services, retail and tourism. As the President of the Retailers Association in Thailand, we always [ suggest ] how to maximize tourism. Tourism is returning now, hotel bookings and lifestyles in general are going up 5x to 10x more than pre-COVID days based on the number of rooms and types of rooms booked. Working with the government, I tried to push them to create a sandbox to bring down lifestyle brands to unlock the full potential of tourism to turn to get into a duty-free zone. If that's successful, it will benefit everybody. Thailand might be a little behind when it comes to import taxation. And we are working hard with the government. Next, on the potential of Central Retail, whether it's about Thailand, Vietnam, we can see the #1 thing that tourism has returned. And FDI in Vietnam has grown massively. Anything that enters via Vietnam gives us a direct or indirect benefit such as supply chain and since COVID came along and war that happened, the supply chain got somewhat disrupted. So we invested in other places too. There's an upcoming election, which is another factor. The government is trying to drive the economy more to help the service industry grow. And here at CRC, we are well positioned to capture the full potential of this tailwind to make our business grow and be healthier. Next now. If we look after the -- now that we've looked at the next 5 years, we can look at this year now which I consider to be the next chapter of our journey. It's a new era for Central Retail. Strategically, not much has changed. If you look on the left, we are focusing on 5 things, which will be on the next page. Let me talk about the omnichannel, which got reinvented. We've changed it, our partners have changed, and we are always reinventing, Otherwise, we become obsolete. Number two, so we keep dominating and strengthening. Number three, Vietnam. We are not letting go of Vietnam. We will conquer Vietnam. Number four, this world is uncertain. Our projects and cost CapEx to which Khun Ty will elaborate upon. And finally, which I will bring back on the second half how we will open a new sizable business in Thailand and Vietnam. These are the 5 things that we are looking forward to in 2023 as the new chapter of CRC. Let's look now at the Central omnichannel. So people must be wondering what we're up to now. On the first phase, we're doing a first convergence, [ acquire ] physical retail, while important should complement online sales. and they must be integrated. Now it is clear that brands and partners want even more and customers want even more and they have more choices, and we must respond there. So how do we make the best transaction system, but what if it's not smart enough. The 3 things that we have changed. One is we replatformed our technology. We made a new platform. Some things were home made, for example, when the customer searches, the system used to be in-house. Now we connect search to a search engine to the best of the best of the world. And any time we find a better module, we substitute them in, and that's how our system is much more agile and much more efficient and more stable and faster. Number two is that we put our brain into the system, we've been training our system on machine learning. AI is part of our life now, more and more tangible than every business nowadays. And I want to build a brain for our system mainly from the data of the ecosystem. Number three is creating a new experience for our partners and customers. Now here are our plans to expand and renovate our stores. We have 86 department stores, we are planning 2 more and will be renovating 15 places. Thaiwatsadu had 79 last year, now we have 80. Tops Plaza is also going to be expanded. Robinson Lifestyle mall had 7 last year, now we have 28. And on GO, we made changes during COVID. We renovated 5 to 7 locations and they are ready to be unlocked. And we've started constructing 5 to 7 more stores. On fashion, I will omit this part for now because Khun Olivier will come and talk about how this new fashion platform has captured growth. On Hardline, Thaiwatsadu, we plan to conquer every province. Somebody might be asking if we have more opportunities to grow. And my answer is that yes. Yes, we do up to 20% to 25%, great opportunity. On Food, we are rebranding as you know, regarding Tops. Think of Food, think of Tops. We're launching new categories like the Wine Cellar, for example. On the Robinson Lifestyle Mall, we've gone beyond the shop and play. Now we create community platforms in every province that we are in. The most important being where local at height. We sell local products more and more, and we connect logistics between the provinces. On Vietnam, Khun Olivier will talk in detail on. They are some of our key highlights and focus. Next, we'll be talking about our green strategy. We hope that 30% of all our [ entity ] will be green. We plan to reduce our energy consumption and make better use of our waste. Now in summary, what's good about CRC. It comes down to 6 things: one, we're going to keep reinventing omnichannel; two, our portfolio captures growth, and we are very focused, and there's even more room for growth; three, we are a platform of trust for all stakeholders involved and we can differentiate ourselves in the market. And we have a people advantage last but not least. And on the next era, of our sustainable growth. Thank you.

Thank you, Khun Yol for giving us a detailed picture recapping our strength -- strong factors, mixed. Khun Olivier Bron, CEO of Central Department Stores will tell us more about the plans for Fashion in 2023. The next 2 presenters will be presenting in English. Please listen on the main channel and switch back.

Start by describing a bit what we're talking when we're talking about Central Retail Fashion. Central Retail Fashion is actually an ecosystem. We have 2 main customers. Of course, B2C [indiscernible] which is the end customer, where we aim to provide the best products, best services and nowadays more and more best experiences. And then the other side, which is about our brand partners. Of course, we are the #1 seller for brands in Thailand and for Fashion, Beauty and Home. And we have to manage carefully brand management and maximize the value for our partners. It's very important. It's how we create differentiation. [indiscernible], we are creating a unique value proposition for our customers. And we have this fantastic chance here at CRC to be -- to have a holistic perspective on the on the partners and brands. We have, of course, Central and Robinson department stores with CMG, Rinascente, and of course, our Central tech teams, Supersports, which is actually providing a unique solution for customers. And then we have the chance to be part of Central Group with a unique department store portfolio that is unique in the world. It's a great chance for us to learn, exchange and get the best for our brands and for our customers. But of course, it's a very challenging market, but we are convinced that we are the leaders today and we'll keep this leadership in the future, but we have to reinvent a little bit the model. This is why we launched last year a big transformation in the program based on 3 main pillars: the first one is about modernization; the second one is about differentiation; and the third one is about professionalizing the ways of working, the processes, tools and systems. In order to be the best on all our channels, stores, personal shoppers, social commerce, online, leveraging this fantastic asset that we have at Central Group, which is this data. And we're getting -- and we're using more and more of this data right now to be way more precise on the way we're understanding our customers and also the way we're addressing their needs. I'll come back to that. I have a fantastic example about discount management, which is showing some concrete fruits right now in our business and in our P&L. We have, right now -- if I'm zooming particularly about department stores and Central department stores group, we have actually 2 banners, Central and Robinson which are actually segmented Tier 1, Tier 2 for Central and Tier 3 for Robinson. Actually, this is the vision right now. It's a little bit mixed and it's demonstrating great results. We've done that in Megabangna. We've done that in [indiscernible], in Udon. And each time we're shifting a Robinson store to Central, we are premiumizing the assortment and actually corresponding to customer needs and is demonstrating fantastic results. This is why we want to push in that direction. It's also clarifying the positioning of each of the banners in order to make it very, very clear for the customers and very clear also for our brand partners, as I explained at the beginning. But actually, with these department stores, we think and physical stores, we are only targeting like -- I mean, limited numbers of provinces in Thailand, about 39. And for the rest, we have now new channels in order to address these customers that we don't and we can't address with proper physical stores. We have, of course, our online platforms. We have our social commerce. We do consider right now that we are the leaders on social commerce in Beauty, Fashion and Home categories. We are doing about 8,000 lives per month right now in our stores and in our head office, which also a fantastic way to catch and address our customer needs. And we will keep pushing on this one because we are convinced that this is a fantastic growth opportunity for the future. And the third pillar is about the personal shopping, and I will come back on that in a few minutes. So right now, with all our assets and all our channels, we can definitely address all the premium base of customers in Thailand. So zooming on 2023, what is our perspective and what do we want to do? Exactly in the direction that Kuhn Yol just described. In 2023, we will accelerate this transformation program. 2022 has been a fantastic year for testing, trying, finding new solutions for customers in order to improve our value proposition for customers and improve value proposition for the brand. And we identify fantastic levers that we want to bring to full potential next year, exactly what we want to do. We want to keep modernizing our store network and coming back to that. We will strengthen our present positioning with the Central App, we will keep professionalizing our new sales channel, meaning particularly a personal shopper, remote personal shopping and social commerce. And we will keep optimizing our operating model in order to deliver best customer service with lower cost. Let me zoom on each of these 4 pillars. The first one is about the modernization. We will accelerate the modernization and the renovation of our stores. Why are we doing that? We are doing that because each time we're renovating, we are showing growth, and we are proposing a far better experience to our customers and to the brands. It's working. We renovated Ladprao, Rama 2 I talked about Khonkean and it's giving results. Actually, we can see an inflection point, and we can see growth compared to the peers. So it's working. The second thing, as I said, we have a fantastic opportunity to premiumize our assortment. The best demonstration of that is actually Chidlom. We just launched a renovation of our key flagship the only stand-alone department store in Thailand, and we will build Chidlom, the #1 luxury department store in Southeast Asia. The end of the renovation will happen, probably Q2 2024. This is probably the biggest [ investment ] department stores are ever done. And we plan actually to renovate 75% to 80% of our store portfolio in the next 5 years. It's a massive ambition, it's a massive investment, but it's giving concrete results. Some of the other stores that we will renovate and as I was talking, we will shift Rama 9 from Robinson to Central. Perfect example. When we look at our customer base, when we look at our customer data, we can see that there's a strong appetence for our customers to premiumize the assortment and to buy different branding. This is exactly what we're going to do. We have other stores like Pinklao and Megabangna. Pinklao will premiumize and renovate Megabangna, we will expand the space because we have a strong potential in this mall, and we have limited space, we have a fantastic potential to premiumize the assortment. We will also open 2 new stores as Khun Yol just explained. So Robinson [ Jungceylon ] in Phuket and Central Westville in Ratchaphruek and we'll keep bringing newness to our store. This is good to have modern stores. This is good for the brand, good for the experience of the customer, but we also have to come back to routes, meaning renewing the assortment. This is how we are building this unique proposition to customer, which is actually differentiating Central and Robinson Department Stores from any other retail proposition that you can find in Thailand. And actually, as you can see, we are actually opening more than 1,000 brand doors next year. So it's a fantastic renewal of our current assortment, much more than what we used to do in the past and much more than what you can do in -- and see in competition. We will, overall, as I said, have a massive investment program for renovating these stores with about THB 15 billion CapEx for the renovation of the stores in the next 5 years. The second pillar, which is a very important one for us for growth, for sure, but also for addressing our customer needs. Right now, our customers are starting their journey online, buying offline or sometimes the opposite. It's a total omnichannel experience. This is exactly why we're doing online. We're doing social commerce, creating all these channels because it's extremely important to be everywhere the customer is. And actually, we're accelerating, as Khun Yol said, we are replatforming our online platform with a brand-new technology, which, of course, bring like more stability, more speed, et cetera, and propose really a state-of-the-art in terms of experience for the customer. But we are also buying -- building, sorry, omnichannel theaters because this is the key differentiating points versus pure players, online pure players right now, and we are convinced that this is how we are building this best experience online, offline, social media that customer can get here in Thailand. We plan actually to grow by 35% CAGR from '22 to '27. And we are investing about EUR 500 million on this online later. Third pillar is about this new sales channel. COVID has been also an opportunity for us to fantastically explore new ideas, new technologies, new services for customers, and actually, it worked very well. We managed to keep the relationship with the customer, which is extremely important and to keep serving the customer with actually this remote personal shopping experience. And our customers are extremely engaged with our personal shopper teams. It's now representing a significant part of our total sales and total customer relationships. But we need to keep improving and enhancing the experience by bringing more tools to our staff in order to again bring the data to the front line. That time, the back office is totally useless. Data is relevant, what is coming to the right point of contact with the customers. It's exactly what we're trying to do here, meaning that we're building tools that actually providing data to our front line to be more precise in the way they are addressing the customer. And we're using also this data in order to be more performance in social commerce as well, which is a fast-growing channel for us in order again to be where the customer is and to address all their needs. We plan actually to grow this new sales channel by about 12% to 15% per year in the next 5 years. And the last point is extremely important because it's not only about investments and of course, innovation, but also it's about strengthening our core. We keep focusing on getting a very efficient route to market and we keep working on leaning the stores and supply chain in the way we're addressing the customer. This is what we've done over the past 12 months, giving results, and we will keep pushing in the next few years. The second pillar is about managing the margin. We know that we have a pressure on costs, utility costs. We're investing also a lot, but we need to get more from the model by partnering with the brands. And this is exactly what we're in, managing the high-margin categories, but also managing the mix is something we can do also leveraging data from whether it's product and brand data or whether it's customer data and is giving results. And the last point, which is showing great results and what we've done and worked a lot over the past 9 months is about -- around the optimization of discounts and promotions and everything we're doing in terms of mass campaign. We significantly reduced store-wide campaign, meaning like discounts and promotions, address noncustomized discounts and promotions. We are now way more precise, we are customizing these discounts and promotions to specific customer targets, to specific big brand depending on their elasticity, we are way more sophisticated in the way we're giving discount to the customer. And it's showing great results, and we're really expecting 2023 to be the first step of this full potential of everything we tested in 2022. And we are expecting strong results and strong impact on our profitability starting in 2023. Just for information, all these levers already gave strong results in 2022 because we managed to achieve a higher profitability than in '19 already in 2022 despite the challenging context of COVID that we had in 2022. And 2023 will be probably the highest margin that we get for years, leveraging these actions. All right. So coming to the end about the future of department stores, we are absolutely convinced that we have a fantastic platform for growth. We have a unique format. We are often the unique value proposition in some provinces and location. We are absolutely convinced that department stores is a model for the future of Fashion, Beauty and Home category. The second thing in order to get the full potential of it, we need to keep transforming the model. This is not only true for Thailand. Department stores is actually a model that is -- has challenged everyone in the world but has a unique position right now in Thailand, but we need to transform it and we need to keep innovating. And then, of course, we cannot do that without delivering a sustainable top line growth and profitability. Thank you very much.

So thank you, Khun Olivier for detailing the deployment store transformation program to us. Next, Kuhn Olivier Langlet, CEO of Central Retail Vietnam, who will highlight the plans for Vietnam this year. The presentation will be in English.