F.4 Economics: News Analysis
F. 4A
Melissa Ho (15), Kelly Yu (40)
Newspaper article
Retailers on prowl for land
Tuesday, May 18, 2010 The Standard
Retail operators are considering increasing their land bank as mainland and Hong Kong
prices come under pressure owing to recent tightening measures.
Parkson Group (3368) will spend up to 1.2 billion yuan (HK$1.4 billion) this year on opening
five department stores and acquiring properties.
Chinese Estates (0127) director Lau Ming-wai noted the firm is keen on commercial and
residential plots across the border.
"I believe Beijing's curbs on the mainland real estate market will take effect," said Parkson
chief financial officer Wong Kang- yean, adding rentals will not be a burden.
"On the contrary, we won't rule out possible acquisitions if property prices keep going down,"
Wong added.
The operator opened a department store last month in Shaoxing, Zhejiang province. Another
store will open next month in Beijing while three more are expected in Hangzhou and
Chengdu.
Parkson reported a 4.4 percent increase in first-quarter profits to 270 million yuan.
Same-store growth was 10.8 percent during the period. Parkson has maintained its annual
same-store growth target of 10 percent for the year, Wong said.
Locally, Chinese Estates' The One in Tsim Sha Tsui has an occupancy of 90 percent and the
29-story mall - with a total area of 400,000 square feet - will start trial operations in July.
Since inviting tenants, rentals have risen 20 percent. They now range from HK$60 to
HK$1,000 per square foot, Lau said.
He said ground-level shops facing Nathan Road are the most expensive, mainly occupied by
jewelry and designer brands.
While competition may rise as more new malls open in the vicinity, together they will lift
district retail sales together, he added. DEREK YIU AND SOPHIE HE
Describe
From the news, some retail operators consider to buy more lands for saving. Parkson Group,
which is a department store, plans to expand its business and open five more department
stores in different provinces in mainland, internal expansion is carried out. Parkson Group
chief financial officer also mentioned that they may consider taking over other firms and carry
out integration. In conclusion, different types of retailer in the news have earned their
expected revenue. The retail market in mainland becomes better so the Parkson Group and
Chinese Estates wish to buy more land for develop and to acquire properties.
Explanation
Recently, the economic development in mainland has been improved a lot. In general, there
is an increase in income of mainland citizens leading to an increase in demand for normal
goods (e.g. house). People are more capable for buying houses. Besides, the price of
housing is expected to rise in future as well as the increasing population size has caused an
increase in demand for houses in mainland.
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P2
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D2
D1
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House
When demand for housing rises, both equilibrium price and quantity of housing rise.
Quantity supplied of housing is therefore rises due to an increase in price.
Besides, the price of housing is expected to rise in future, so the property developers will
increase the future supply of housing in mainland. As land is in derived demand for housing,
more land is needed for suppliers to increase supply of residential buildings.
Parkson Group (3368) is a listed company with at least one shareholder and there is no upper
limit of shareholder. Public subscription is allowed, shares are freely transferable. As public
trading of shares is allowed, there will be wider source of capital. The type of market structure
for Parkson Group is oligopoly. There are several dominant sellers in the market; the goods
sold are usually heterogeneous.
Parkson Group will on open five department stores and acquiring properties this year. It is a
kind of horizontal expansion. This action can increase market share and brings about
economies of scale. Now the firm is in a long run situation, as all factors are going to increase
to increase output. In the long run, when a firm expands its scale, it will at first enjoy some
advantages called internal economies of scale. It can reduce the average cost of production.
It will have different internal economies of Scale .For managerial economies, large firms can
practice specialization more easily, hence productivity increases and average cost falls. And
for financial economies, large firms can borrow from banks at a lower interest rate due to
better business goodwill. Listed company can also issue shares and bonds to get capital,
average cost will also fall.
Locally, Chinese Estates' The One in Tsim Sha Tsui has occupancy of 90 percent and the
29-story mall will start trial operations in July. As Tsim Sha Tsui is a place where many
tourists go for shopping, the tourist industry expands as the mall start operations. The
industry will enjoy some advantages at first and it is the external economies of scale, average
cost will then fall. As more workers will be attracted, advertising cost can be reduced.