Friday , March 29 2024

Chairman’s dream of making Hoa Sen Housing billion-dollar retail giant has to wait


The chairman of steel giant Hoa Sen Group hopes to make subsidiary Hoa Sen Home the country’s biggest distributor of construction materials, but two years on, teething troubles continue.

After opening 100 new stores last year, Hoa Sen Home now has 112 outlets that sell almost everything needed to construct a building, from toilets and sinks to steel and paint.

The subsidiary is thought to be the last project for chairman Le Phuoc Vu, who has announced he will become a Buddhist monk in 2026.

“I want to put all my effort into this project as a legacy to employees and shareholders,” he had told shareholders in 2021 when embarking on the new venture.

“Do not be anxious. It would take two years to set up its system, technology, human resources, and distribution, and therefore the sweet fruit will not come early.”

As he had predicted, Hoa Sen Home remains a minor revenue earner for the parent company.

Last year it had sales of VND1.5 trillion ($63.57 million), or just 3% of the company’s.

Tran Quoc Tri, CEO of Hoa Sen Home, said it requires large areas for its stores in prime areas. The smallest store should not be less than 300 square meters and the lease should be for at least five years, he said.

The larger ones require 900 sq.m and 10 years.

Revenues are commensurate with size, with sales of VND3 billion a month likely for a small store and VND10 billion for a big one.

“[We] are yet to be able to confirm this project is a success, but as of now we know the market, direction and how to reach consumers,” Tri said.

This year opening stores would not be a priority as market conditions do not seem to be favorable, he said.

Only five to 10 stores would open this year and the focus would be on increasing sales and the number of items sold by tying up with more suppliers, he added.

Vu said he remains confident about the direction Hoa Sen Home is taking and is keeping a close watch on it.

Many companies have been having financial trouble or even pulling out of the market, and this offers opportunities for the company to increase its market share, he said.

There is always demand for home repairs and construction, and people are willing to spend up to VND1 billion on a typical single-family house, he pointed out.

This offers Hoa Sen Home an enormous opportunity to supply construction materials and equipment, he said.

It would not invest in manufacturing but only act as an intermediary connecting thousands of suppliers with buyers, he said. If suppliers require funding to remain in business, Hoa Sen Group would buy a 5-30% stake in them to get better prices, he said.

Analysts at MB Securities said in a report: “This strategy could help Hoa Sen Group stabilize its revenue streams and reduce borrowing. Profit margins will be stable in the long run as the number of stores grows.”

Vu said if Hoa Sen Home succeeds its revenues could reach $5-10 billion a year, five times its parent company’s all-time best performance.

But for this to happen, Hoa Sen Home has to be separated from its parent in the next two or three years when the number of its stores reaches 200-300, he said.

Hoa Sen Group would eventually pare its ownership to less than 50% when Hoa Sen Home goes public and lists on the Ho Chi Minh Stock Exchange, he said.

“I want to make Hoa Sen Home as big as Hoa Sen Group. When that happens, I can ditch my smartphone to have peace of mind.”

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