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Business

New World forced to take its Chinese department store private

Brick-and-mortar retailer being hammered by fierce competition from e-commerce

New World Development's logo

TOKYO -- Hong Kong conglomerate New World Development said Tuesday that it will acquire all shares of its Chinese department store subsidiary and take the company private.

The move was aimed at restructuring the group's growth strategy amid worsening conditions for traditional retailers due to the rising popularity of e-commerce in China.

New World Development currently owns a 72.29% share of New World Department Store China, a Hong Kong-listed subsidiary. According to Tuesday's announcement, the parent company will purchase all shares held by minority shareholders at HK$2 each, an offer of HK$934.5 million ($120 million).

The bid was approximately 50% higher than Tuesday's closing price of HK$1.33, causing shares to jump 45% at the start of trading on Wednesday.

New World Department Store China operates 42 stores in 22 cities such as Wuhan, Shenyang, and Shanghai. It expanded its presence in the country by attracting middle-class consumers. 

But as competition with online shopping and other shopping malls grows fierce, the department store has been struggling. Net profit for the fiscal year ending June 2016 fell 35% from the previous year, with revenue declining for the second straight year after peaking in the fiscal year ending June 2014.

New World Development said in its press release that "the [Chinese] retailing space has experienced unprecedented challenges in recent years, particularly from the rapidly growing e-commerce platforms, as well as the influx of large format shopping malls, which revolutionized the shopping habits of Chinese consumers significantly."

According to the press release, the privatization will allow New World Development and its department store unit to "make timely strategic decisions focused on long-term benefits, [while] not being distracted or pressurized to deliver short and medium term performance." 

According to a report by Deloitte, transactions in China's online retail market in 2016 are estimated to have grown some 30% from 2015. With the spread of smartphones, e-commerce companies, including Alibaba Group Holding, have been showing significant growth.

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