Donki set for restructuring as earnings decline

Japanese supermarket chain Don Don Donki, favored by Hongkongers, needs restructuring this year, with earnings slumping due to overexpansion, the Nikkei reported.

During an earnings conference in February, Naoki Yoshida, the president of its parent company, Pan Pacific, had called on investors to "please give us a little more time in Asia," stating the company should "slow down" and "establish a solid management structure."

The discount retail chain operates 10 stores in Hong Kong after launching its first store in Tsim Sha Tsui in 2019.

Since 2017, it has opened 40 stores across six countries and regions, including Hong Kong and Taiwan, expanding fast.

The company saw record profit in the second half of last year, as the net profit surged 31 percent year-on-year to 48.2 billion yen (HK$2.49 billion) for the period between July and December.

However, Pan Pacific's operating profit margin slumped to 3.1 percent in fiscal 2022 as compared to 15.1 percent of Uniqlo parent company Fast Retailing. The two companies had almost the same level of profit margin of 5.6 percent and 5.7 percent respectively.

Business in Hong Kong's Donki stores was reported to shrink significantly, as an increasing number of Hongkongers shopped in mainland malls, including Sam's and Costco.

Some customers said that the competition was fierce and they were concerned the brand would "not be able to survive." There were also reports citing criticism from Hong Kong residents, regarding its high price, low quality, and decreasing Japanese products.

Unlike its American stores, its Asian stores mainly sell imported products from Japan, resulting in high costs, the newspaper reported. The selling, general and administrative expenses for sales in the first half of last year accounted for 35 percent, higher than the previous year.

Other stores in the SAR were also pressured, with over 10 closed on the last day of March, including Mount Zero Books and Goteborg restaurant. The closing of restaurants may weigh on the commercial property market.

Meanwhile, Wheelock Properties executive director Ricky Wong Kwong-yiu acquired shops in Ki Lung Street in Sham Shui Po for HK$16 million, bringing his investment in this street to HK$52 million.

A Chiu Chow restaurant now rents the store for nearly HK$50,000 per month, resulting in a return rate of nearly 3.8 percent.