Cover Story: New model steers Cosway to growth path

This article appeared in Corporate page, The Edge Malaysia, Issue 790, Jan 25-31, 2010

“We are moving away from the red ocean where competition is so fierce and moving to the blue ocean,” says Chuah, the CEO who founded Cosway in 1979 and sold the company to Berjaya Corp Bhd in the 1990s.

In October last year, Berjaya Corp injected Cosway into Berjaya Holdings (HK) Ltd, which is listed on the Hong Kong Stock Exchange.

Chuah’s blue ocean strategy is rather simple. He realised that in the multi-level marketing business model, the hefty commissions paid to the layers of distributors are a heavy cost burden.

Chuah wants to eliminate the layers along the distribution chain. Thus, the birth of Cosway’s “free store concept”. Instead of keeping inventories in a big warehouse waiting for distributors to collect and sell the products, Cosway’s model is to display the products in retail outlets so people see and buy them. The group sells a wide range of consumer products, ranging from skincare products and foodstuff to lingerie and cookware.

Cosway bears all the costs of the shops, including inventories, rental and utility bills, and pays members chosen after training and tests to operate the stores a 5% commission on the sales revenue.

Cosway shops have sprung up in other countries in the region as well since the company adopted the new business model. Already it has more than 1,500 retail outlets in Asia-Pacific, including Hong Kong, Taiwan, South Korea, Singapore, Brunei, Indonesia and Thailand. And it has plans in the pipeline to enter the US, Japan and China markets soon.

Reflecting its speedy expansion, Cosway’s net profit has doubled in two financial years. For FY2009 ended April 30, the group achieved net profit of RM60.7 million versus RM46.6 million in FY2008 and RM30 million in FY07. The group’s gross margin was at 40.7% while net profit margin at 7.8% in FY2009.

Revenue grew to RM774 million in FY2009 from RM578 million in FY2008 and RM442.9 million in FY2007. Between FY2006 and FY2009, Cosway’s net profit recorded CAGR of 45% and revenue 27%.

The group’s expansion plans in new markets will certainly help to lift its earnings in the future should the products sell well.