InNature ramps up e-commerce to ease store-closure pain during FMCO

TheEdge Tue, Jun 15, 2021 04:00pm - 2 years View Original


WITH its retail stores forced to temporarily close under Malaysia’s Full Movement Control Order (FMCO) that took effect from June 1, InNature Bhd — the holding company of The Body Shop (TBS) — is doubling down on e-commerce.

“All 81 of our stores nationwide are closed, but we are ramping up e-commerce,” managing director Datin Mina Cheah-Foong tells The Edge in an interview.

“We will be running spike offers and different things online, and we’ve already increased our advertising on Google and other [search engines] to make sure that when people key in searches for skincare, pimples, hair loss and things like that, they would be directed to our site,” she adds.

Cheah-Foong says the aim is to get as many as possible of the usual walk-in customers to switch to online channels. Already, the Main Market-listed group had experienced a sharp rise in sales through its website and mobile app on the first day of the FMCO itself.

“The number of transactions [over our e-commerce channels] were up by just under four times compared to the same day last year; and in terms of turnover, it was up by 3.5 times. And these numbers don’t yet include TBS [sales] over Shopee, Lazada or any of the marketplaces. So, people will switch,” she states.

Nevertheless, a surge in e-commerce sales will not make up for the loss of business from the retail stores. Under normal (non-lockdown) circumstances, retail outlets account for close to 90% of the group’s total business, she says.

“We have 81 doors, so when we close all of them, it really is a significant impact. A lot of people still prefer to go to the shop, so that’s the worst thing about this full shop closure.”

Additionally, there is the matter of rent. Most TBS stores are located in malls.

“Generally, we have a very good relationship with our landlords. They’ve allowed us to go rent-free for the times when the stores have been mandated to close. However, some landlords still insist on collecting service charge, so that’s a sore point for us,” says Cheah-Foong.

Malaysia’s latest lockdown initiative to combat the recent surge in Covid-19 cases, which will run for two weeks unless extended further, has been frustrating for retailers like InNature as they had just started to see traffic return to stores.

Under MCO 3.0, which was in place prior to the FMCO kicking in, almost all TBS stores had been allowed to operate, albeit at slightly shorter hours.

The longest that TBS stores have ever had to stay closed was during the first MCO last year — stores were closed from March 18 and were able to reopen in stages only from early May that year.

Continued profitability seen

Despite the challenges, Cheah-Foong is confident that InNature will stay profitable in FY2021 and also be able to continue with its dividend policy of paying out at least 30% of its profit to shareholders.

“Based on our experience last year, when there were store closures during the first MCO, we still managed to record a profitable year. We don’t know how long this [current strict lockdown] will last, but overall, we still expect to be profitable this year. We’ve already locked in five months of trade as a group, and all five months have been profitable,” she shares.

Apart from Malaysia, InNature operates 38 TBS stores in Vietnam and two in Cambodia.

According to Cheah-Foong, Cambodia is “picking up” after three weeks of a blanket lockdown in the capital city ended on May 6. The group had kick-started its e-commerce channel there in April last year and this has helped cushion the impact of the store closures.

“[Our business in Cambodia] has actually improved this month versus the same month last year, so it’s doing well. As for Vietnam, Ho Chi Minh City is in lockdown so our 18 stores there are closed, but we are still trading outside of HCMC,” she says.

To its credit, InNature has managed to grow net profit every quarter on a sequential basis since the coronavirus pandemic started in 1Q2020, except in 1Q2021 when MCO 2.0 was in place. Net profit, at about RM5.1 million, was up 85.3% y-o-y but down 33.9% q-o-q. Meanwhile, revenue, which came in at RM38 million, was up 1.65% y-o-y but down 15.4% q-o-q.

Cheah-Foong points out that the fourth quarter is seasonally stronger with year-end festivities and the holiday season.

According to her, the Hari Raya/Ramadan sales this year — which took place in the second quarter — grew by a “high single-digit” compared with last year, thanks to the availability of multiple sales channels.

The silver lining for InNature during the various MCOs is that its products are considered daily consumables — people continue to need them. “There is a shift to focus on self well-being and less on outward presentation such as make-up and fragrance,” she notes.

‘Overzealous enforcement killing retail’

Having already gone through multiple MCOs, the group has learnt through experience how to keep business going. However, what makes things difficult is when the enforcement of the rules is different in various districts, Cheah-Foong laments.

“Each district council has a different interpretation of the rules … and that makes it so hard for retailers like us. For example, during MCO 2.0, people from the local council came into [one of our stores]. We showed them our letter from Miti (Ministry of International Trade and Industry) saying we were allowed to open because we sell daily necessities like shampoos and so on. One guy looked around and said, “Okay, but you cannot sell fragrances because they are not a daily necessity” … and so we had to [cordon off] the fragrance section in the shop,” she says.

“It’s this kind of over-enthusiastic, overzealous [enforcement] that is really killing retail. And retail is one of the largest employers within Malaysia. I think the government needs to understand that we are all on the same page — the safety of everybody is paramount in our minds. But we also want to keep everybody gainfully employed,” she stresses.

Cheah-Foong is certain that retail sales will recover strongly once vaccination rollouts pick up pace. “It’s all about consumer sentiment … it needs to improve. If you look at China, the US and, to a lesser extent, the UK — retail is booming [post-vaccination].”

Meanwhile, it remains to be seen whether InNature will close more TBS stores in Malaysia this year amid the weak retail footfall. It had closed one during the first quarter.

“For now, we will continue to monitor our store performance closely and if need be, take the necessary action to exit underperforming locations upon the expiry of the lease term. Subsequent to 1Q2021, we closed two underperforming stores in Malaysia,” says Cheah-Foong. The group may open two to three new stores in Vietnam this year, she adds.

InNature’s share price has gained 28.3% so far this year to close at 68 sen last Thursday, valuing it at RM480 million.

 

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