KUALA LUMPUR: Jewellery retailer Tomei Consolidated Bhd, which fell into the red last year as a drop in gold prices hurt its gross profit margin, expects prices of the precious metal in 2015 to remain steady at current levels.
Spot gold is currently trading at US$1,220 (RM4,000) per ounce. After 12 years of a positive run, the price fell 29.2% in 2013 over a year before, to trade at US$1,199 an ounce in December 2013. It averaged US$1,412.85 an ounce in 2013.
“I think after all the plunge, gold prices should not fluctuate too much in the next one to two years,” Tomei group managing director Datuk Ng Yih Pyng told The Edge Financial Daily in an interview.
“I think the price has corrected substantially from its peak [in 2012]. In fact, it is below production cost already,” he said. Ng also said foreign exchange (forex) fluctuation is an important factor in determining the group’s earnings.
“In terms of the US dollar, the price [of gold] might have dropped, but in terms of the ringgit it might go the other way around. [For instance,] if the ringgit weakens, then in ringgit terms the gold price goes up,” Ng said.
For the first half ended June 30 of financial year 2014 (1HFY14), Tomei returned to the black, with a net profit of RM4.72 million compared to a net loss of RM4.79 million a year ago. Revenue fell 30.47% to RM283.74 million from RM408.09 million in 1HFY13.
It blamed the 1HFY13 net loss to a drop in gold prices, which had resulted in a lower gross profit margin earned as the stocks sold were carried at a higher purchase price.
Tomei, which last month secured the local right to distribute two Korean skincare and cosmetics brands — The History of Whoo and belif, plans to open its first two retail stores by the second quarter of next year, which will mark the group’s maiden foray into the cosmetics industry.
Ng said it will allocate RM10 million for capital expenditure to open 12 outlets of The History of Whoo and 15 belif stores during the time span of the distributorship agreement of three years.
For starters, the group has formed a new wholly-owned subsidiary called Flawless Skin Care Sdn Bhd to act as a distributor of the products from South Korea’s LG Household & Healthcare Ltd [LG H&H].
Ng said the move to diversify into skincare was to exploit synergy with its existing jewellery business, since both businesses are retail based.
The move is also part of the group’s strategy to elevate the Tomei brand and differentiate itself from competition.
“I won’t say that it is a coincidence for us to go into this business [cosmetic care]. All the while Tomei has been open to any business opportunity, but it must complement our [existing] business,” he said.
“While it is seen as a diversification, it is still a retail business. You can say it is a totally different business, but we share a lot of common ground,” he said.
Ng expects the new skincare and cosmetics segment to start contributing to the group’s revenue from FY16, even though jewellery retailing will remain Tomei’s key revenue contributor.
The group has set its sights on opening the 27 new outlets as standalone stores in shopping malls as well as counters in departmental stores, and is in the midst of discussion with mall and department store owners and managers.
“But we are not in the hurry [to open stores]. The principal [LG H&H] is realistic and understands that brand building and presence in a country takes time. We want to do it right, rather than do it fast,” said Ng.
According to Ng, The History of Whoo is the No 1 selling brand in South Korea, while belif is one of the fastest growing cosmetic brands there. In Malaysia, Tomei will position the two brands for the middle- and middle upper-income groups.
Ng noted that the group will be able to cross-sell the skincare and cosmetics products with its existing jewellery products as both share the same target customer segment.
“In skincare [business], in my opinion, if established, you can win loyalty. [It is the] same thing with jewellery… To me, it is harder to get new customers today, but it is easier to retain existing customers.
“So, a lot of focus will be put into it [skincare products]. If done well, we will be able to build up our existing customer base and retain them,” he said, adding that Tomei will bring in more brands if the two Korean brands take off.
“This is especially true for ladies as they won’t simply switch [skincare products],” said Ng.
As to why Tomei chose to distribute Korean cosmetic care brands, Ng said this is to tap into the Hallyu-wave (Korean wave) that has swept much of Asia.
Tomei shares closed up 1.74% at 58.5 sen last Friday, giving it a market capitalisation of RM79.7 million.
This article first appeared in The Edge Financial Daily, on October 27, 2014.