Success in the retail business requires discipline and long-term strategy. So does investment in retail stocks. Retail industry legendary money manager Peter Lynch’s principle No. 14 is: If you like the store, chances are you’ll love the stock. Some of his biggest winners came from going to a mall with his daughters, giving them some money, and seeing where they spent it.
A case in point is AEON Co (M) Sdn Bhd.
AEON Co. (M) Sdn Bhd (AEON) is a leading retailer in Malaysia. During the year under review, namely from 2001 to 2005, investors who bought AEON in the beginning of 2001 would have enjoyed a cumulative return of 160%, or 21% return per annum by the end of 2005.
What makes AEON a successful stock in the retail industry? AEON’s success is largely attributed to the strength of its store brand name, strong cash flow with well managed cash conversion cycle, and its forte in shopping-centre management.
Company Background
AEON was set up in 1984 following the Malaysian Government’s invitation to AEON Japan to help modernise Malaysia’s retailing industry. Riding on the AEON Group’s strength, the ‘JUSCO’ brand name is now well established among Malaysians. In fact, the AEON Group operates the largest general-merchandise store network in Japan. The group comprises 111 subsidiaries and 29 affiliated companies, with four key business segments: general-merchandise stores (GMS) and other retail-store operations; specialty-store operations; shopping-centre development operations; and service and other operations (including consumer finance).
Globally, competition in retailing is intense. However, the AEON Group, ranked twenty-sixth in the world in total retail sales and the second largest retailer in Japan after Ito-Yokada, has proactively responded to competitive challenges.
In August 2001, Jusco changed its name to AEON, which means “eternity” in Latin. It also announced its “AEON 2010 Vision”, which sets a corporate target of becoming a top-10 global retail group by 2010. It plans to achieve this through three strategies: global-local management, cost reduction and economies of scale. Following these strategies, Jaya Jusco Stores Bhd changed its name to AEON CO. (M) BHD in September 2004.
The first Jaya Jusco store opened in the city centre (Daya Bumi) in June 1985. AEON has subsequently changed its strategy by opening stores in the suburban populated by the middle-income group. Since then AEON has expanded beyond Klang Valley and capitalised on the high purchasing power of the middle-income population in major cities such as Ipoh, Melaka, Seremban and Johor Bharu.
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