United family behind Central Group's success

As business at home is growing and secure from threats, the Central Group of Companies is seeking growth elsewhere to maintain momentum and fulfil its ambition to be Southeast Asia’s biggest retailer.

Aside from the expansion in Europe through Italian department-store chain La Rinascente, chief executive officer Sudhitham Chirathivat said the group was strengthening its presence in China through possible purchases of distressed assets. It also has footholds in Vietnam, Myanmar, Indonesia and Malaysia.

“I’m looking for the family – the third, the fourth, the fifth generation – to continue to be united to get their act together, to get together and run the business smoothly. That is what I look for. It is my duty to plan that,” Sudhitham said in an interview with CNBC’s “Managing Asia” programme.
In the interview aired late on Friday, he said overseas business should contribute 30 per cent of the group’s sales and revenue in the next three to five years from 10 per cent at present.
“If we keep on having problems in Thailand – political ones or economy-wise – then we better diversify our investment, so that is why I’m saying we want to grow overseas more than Thailand ... We feel that it is time to expand outside Thailand. Our family is ready,” he told the TV programme.

Overseas business will keep the growth path in balance should anything unfavourable happen in Thailand, he said.

Still, he said it was necessary that the family maintain a conservative policy, as it started from nothing under his father, Tiang, and does not want to lose it all. He views the setbacks of past years as good reminders. In the decades after his father started the first department store in 1927, the group prospered. Then the 1997 financial crisis erupted, forcing the group to undergo a restructuring where some parts of the business were sold. The 2004 tsunami killed appetite for shopping. At the height of the political turmoil, CentralWorld was set on fire. Last year’s floods then forced closure of some malls.

“Our father taught us only a few things that you have to do. You just have to work harder than your competitors and then you will excel, and that is very simple.”

On political violence, Sudhitham said he had no idea how the rift happened. But as CentralWorld in downtown Bangkok was shown to be vulnerable, the security unit was strengthened, with more senior personnel, including an ex-Army general to ensure that all buildings are protected in the absence of government protection. Although last year’s floods dampened revenue by Bt1 billion in two months, the retail business is recovering fast, and total revenue this year should be 30 per cent higher. This is despite the rise in the minimum wage, which has increased costs for the retail empire that employs 80,000 people.

“We will benefit from the rise in wages. That increases costs but we feel that they deserve it, so we don’t feel sorry. To me as a Thai citizen, I love to see more middle class,” he told “Managing Asia”.

Challenges at home drive the group to make its presence felt overseas. La Rinascente was taken over in 2011 for US$271 million (Bt8.6 billion). Sudhitham envisages expansion of the department-store chain to other European cities outside Italy, and even the Middle East or Asia. He also sees the possibility of more acquisitions if there are good deals. The group also looks for good merger and acquisition deals in Asia and seeks partnerships to build on its strengths.
“Well, I’m looking to always be the No 1 retailer in Thailand. We want to be No 1 in Southeast Asia. I want the Central name to be even stronger – our brand has to be a symbolic brand, an iconic organisation that Thai people are proud of,” he said.

Expanding overseas could introduce new challenges. With three stores in the Chinese cities of Shenyang and Hangzhou and one more in Chengdu to be opened in August, the group learned it still had a lot to do with suppliers who were barred from putting products in its stores if they do business with competitors. This will be fixed before it seeks expansion in the retail business in all cities. It will take some time to get all support required, Sudhitham admitted.

“I would say another couple of years [for Central to start making money in China]. Yes, it is not a tough market. It is not a difficult market. We have our own formula, we have our own look, but we were protected and that you cannot overcome. One day we will succeed,” he said. In property development, Sudhitham said Central Pattana still had a chance to prosper in China, though it was held back. He said the company went into China a little late, as property prices rose exorbitantly. Still, there are opportunities, as financial problems may force some companies to sell assets.

He said Central Pattana could wait and didn’t need to be in a haste, given development activities in Thailand, Vietnam, Myanmar, Indonesia and Malaysia. He is convinced that the company can compete against such heavyweights as Singapore’s CapitaMall Trust and the Philippines’ SM Prime Holdings with know-how, a well-tested success formula, and huge cash flow, which is now about Bt28 billion.

Sudhitham noted that a family rule was in place in the business that involves a large number of members. Conflicts mostly stem from personnel issues, when the appointment to an available position is involved.

“Our father taught us to be very united. You are not all smart but put together you are smarter ... you work as a team. If you all separate, the money gets small. If you put the money together, you can expand. We have not had one person who has split out and opened a hotel or anything,” he told “Managing Asia”.

He admitted that his siblings were worried about their children.

“That is my most difficult task, where to locate them to make their parents happy. That is one of the most difficult tasks ... I have great CEOs, all nephews, not my age ... younger, all nephews who have excellent education. We are quite united. That really helps to run the company. Without their support, without their experience I don’t think I could run the company. We act and we think with strategy.”

The group has identified a successor, but it is also open to outsiders.