Padini prepares for next growth phase

KUALA LUMPUR: The hustle and bustle at a Vincci shoe store, even
during non-sale periods, is a telltale sign that local fashion company
Padini Holdings Bhd has come some distance from its genesis as a simple
garment maker four decades ago. Its success in making its mark on the
local fashion scene goes beyond the homegrown shoe label to its other
house labels like Seed and Padini Authentics.

Despite an upward
trend in its momentum, however, the company is setting aside the next
two years to iron out the creases in its supply chain and logistics.
“One thing that we are looking at seriously is making sure that the
existing doors have good growth rather than [to] keep expanding,” said
CY Cheong, creative director with Padini, in a recent interview with The
Edge Financial Daily.

The step back from expansion to
consolidation mode to perfect its core mechanics, he said, is necessary
to ensure the group can grow faster and more efficiently.

Despite the medium-term goal of perfecting its internal systems, Padini has scored well on its financial report card.

The
last four years have seen uninterrupted growth, despite the 2008/09
financial crisis. Between 2006 and 2010, revenue has risen from RM286.11
million in 2006 to RM520.88, an average of 16.2% a year. Net profit
surged from RM27.69 million to RM60.97 million, representing a 21.8%
compound annual growth rate over the past four years.

Its market
capitalisation stood at RM717.12 million as at last Friday’s RM1.09
close, being 10.58 times earnings for its current year ended June 30,
2011, according to Bloomberg data.
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Indeed,
some 40 years after its founding, Padini holds the enviable record as
the largest and most profitable of Malaysia’s listed homegrown fashion
companies. The company began in 1971 as a garment manufacturing and
wholesale concern. It entered the retail industry in 1975 with its
flagship brand Padini, while its other successful brand, Vincci, was
established in 1986. Its other brands include PDI, Miki and Rope.

With
its eye set to win more business in the region, Cheong said the group
knows its operations at home need to run even more efficiently.

“I
would say we are in quite a transitional stage of moving from a
domestic-based company to regional. And for that, the way of working
must change. The supply chain issue must be something we can address,
because when you talk about doing business overseas, late delivery can
sometimes be a problem, and also logistic[s],” said Cheong, adding that
the company is constantly looking at increasing same store sales though
physical store expansion may not be as aggressive for now. Money will
still be spent to keep existing stores vibrant, to continue attracting
customers while getting its existing loyal customers to buy more.

Even
though overseas revenues currently contribute less than 10% to Padini’s
total revenue, the Dubai Vincci store in Diera City Centre, is on par
with the group’s best stores in Malaysia, such as at Mid Valley
Megamall, Sungei Wang Plaza and Fahrenheit 88 (formerly KL Plaza) in
Kuala Lumpur, Cheong said.

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Cheong: I would say we are in quite a transitional stage of moving from a domestic-based company to regional.

And there’s good promise for growth. Notably, Padini’s partners
in the Middle East are local distributor heavyweights that also
distribute more internationally-recognised labels. For instance, Al
Shamsi Holdings Llc in UAE, Oman, Qatar and Bahrain handle Zara, Promod,
Stradivarius and Women’s Secret, Cheong said. Padini also has other
international partnerships in Morocco and Egypt.

He admits,
though, that some of its partner operations abroad aren’t doing as well
as the company would like due to certain gaps in its supply chain. The
need to bridge these gaps was even more evident in the last six months,
when the cost of manufacturing and raw materials escalated. As such, one
of the group’s top priorities is to ensure smooth and efficient product
movement, from manufacturing to delivery.

As a part of the
internal restructuring process, Padini has invested in a management
information system. In 2008, the company put out RM7.5 million to
acquire the SAP enterprise resource planning system which allows it to
streamline all its processes into fewer steps and coordinate sales based
on past customer demands. “SAP has been implemented and we do see
improvement and better control of our work process. We need probably
another year for our users to get used to the system,” said Cheong.

As
Padini develops its brand by creating a stronger foothold locally, the
brand will continue to provide what has been the key to its growth thus
far: adaptibility. “I think change is essential in order to keep the
business moving,” said Cheong.

“It can be a big change, but you’ve got to feel that what your customers want and need is reflected in your product,” he said.