Thursday, 22 October 2020


In Part I we had discussed the overvaluation of Mr DIY's IPO and its hypergrowth-related problems. 

Now let's look at the actual growth prospects, and where the exciting opportunities actually lie. 

Mr DIY's long term challenge as a business is straightforward : deliver on the promise of more growth somehow, and maintain consistent earnings growth in unprecedented times for retail operators.

In other words, the strategy needs to evolve to cope with the times. There needs to be greater efficiency, and a serious rethink when it comes to product strategy, store placement, and store size, amongst others.

Profitability is not a constant. While recouping the initial investment is great, this is not a machine that will begin paying for itself with no added capital commitments.

One key metric is Same Stores Sales Growth (SSSG), which should be self-explanatory : it's the year-on-year increase in revenues for a retail chain's existing locations. How much the store sold this year versus the last.

Even before COVID times, Mr DIY's SSSG had been decelerating fast. 

We'd take the 2020 figure as an anomaly, but it leaves a huge question as to what's next. 

Like a nation's GDP, we need incremental but sustainable growth. What's important here is not for Mr DIY to get back to achieving 6% SSSG every year - that was back in 2017 when there were much fewer stores. 

What it needs to do now is maintain positive SSSG annually, which is going to be a tall task. History is replete with instances of retailers showing massive earnings volatility as they were at the mercy of the economy as well as the shift in consumer trends.

I have little doubt on the management's team capability to do all the right things to drive SSSG. Whether it's inventory management, aggressive promos, or customer data utilisation, they know their market and customers. They are already reaping the rewards from this major listing - hopefully they still have an economic incentive to continue what they have been doing. 

If you're going to be a shareholder, throw the question back to them, the industry experts. Go ask this at the next AGM.

Given the rate of store openings and the promise of further growth, what are your SSSG targets between now and 2025? 

See if they can answer this. I'm asking the SSSG question because in the prospectus I couldn't find an elaboration on what to expect.

Having a benchmark to refer to is always useful. If the company is being promoted as a growth story,  shareholders should be able to see concrete targets. Some KPI visibility is a start, and it's not optional; it's mandatory. 

The disconnect between what is aspirational (what we want to do) and something concrete (how we want to get there) is apparent. Are we looking at 1,200 stores within two years? RM3 billion in revenues? Is the company planning to capture 70% of the home improvement retail market?

And more importantly : what is the future here? Surely it can't be simply more Mr DIY stores selling the stuff they already sell. That market is saturating quickly.

Malaysia (and Brunei) can only take in so many new Mr DIYs. But what about the new flagship brands?


I have vastly different thoughts between Mr Toy and Mr Dollar. One of them is the key to the future, the other I think is an unnecessary distraction.

The intent behind these two brands is for Mr DIY to capture new markets. Below is the Mr DIY product mix, where the 'Others' section comprises toys and food and beverage items, and other things. 

It wouldn't be fair for me to comment on the footfalls or visitor figures to the Mr Toy outlets I've been at because of the current COVID anxieties. But the outlets clearly do not move products as fast as a Mr DIY outlet would.

As a brand in itself, Mr Toy can do decent business. Its only natural competition are either the malls or the auntie and uncle toy stores like the one you can find along the Jalan Raja Laut/Chow Kit area (if you're a KLite of a certain age and a certain lower-middle class background, as a child, this road would be your toy heaven).

In fact, a lot of the toys in Mr Toy can also be found in the auntie and uncle stores. They are predominantly imported from China.

The main issue with Mr Toy is that while cheapness is a strength, it's also a weakness.

With everything already cheap, promotional discounts may be a redundant or futile exercise. The average spend per customer may be on the high side, but toy stores do not receive as much recurring business as would a Mr DIY. 

For example, the Mr Toy branch in AEON Mall Taman Maluri, Cheras is almost as big as the Mr DIY that occupies the same floor. Is it necessary to stock so many items?

In fact, most Mr DIYs have a small but reasonably well-stocked toys section. In multiple instances, I found the same toys in both the Mr Toy and Mr DIY outlets that occupy the same mall. While that shouldn't come as a surprise, it's the duplication of resources that I'm more concerned with.

This shelf of toys is actually in a Mr DIY....

As a humble potentially would-be shareholder, here's my down-to-earth, totally unspectacular or hypergrowth-related suggestion : why can't every Mr DIY in the 'large store' category (square footage of between 12,000 to 20,000) simply have a dedicated Mr Toy section with the distinct branding? 

For starters, they currently have 125 large stores, or one in every five Mr DIYs currently operating. There's enough space there; why not try that out?

They can save on rental, drive footfalls from Mr DIY customers (call it a store-within-a-store-within-a-store, if you must), and keep the customers' kids occupied and happy. All in the same location. 

To drive sustainable growth, greater efficiency is a must. I'm simply thinking out loud solutions that don't involve the need (or urge) to open a 10,000 square-foot plus toy bazaar in every mall that exists in Malaysia. 

Mr DIY's store breakdown, by size

I can outline multiple reasons why toys is actually an extremely challenging business to be in. Just ask how the auntie uncle stores are doing, or - God forbid - go walk into any Toys R' Us branch in the Klang Valley and ask the salespeople how many customers they entertain per day.

To be fair, I don't have access to the research and I've only heard anecdotal accounts about the struggles of local toy retailers. The Mr DIY prospectus also did not go deep into the prospects of the toy industry, other than a line that said "the willingness and propensity of households in Malaysia to spend on products for babies and children provide us with an opportunity for growth" on page 86. 

I did not find a shiny Frost & Sullivan report about how rosy the toy sales trend is in Malaysia. 

To my lizard brain, declining birth rates means lower expenditure on toys in the future. It's a demographic and generational shift. It expedited the demise of the US operations of Toys R' Us. 

And if lower priced toys can feasibly drive more sales, these toys can't get any cheaper, really. I'm not knocking on them, by the way; the toys are actually pretty good. 

A quick list of the challenges:

- Cheap toys make for a low(er) margins business.

- Cheap toys hinder the potential of discounts or promotional activities (usually retailers would opt for a membership program to get repeat business).

- There is intense competition, sometimes by the same anchor malls that house these Mr Toy outlets.

- The lower quality of products is understandable, but there is a real risk of these stores (Mr Toy and the malls) carrying made-in-China toys that look and feel essentially the same. There is little differentiation.

- Inventory overload and too big a space may mean that hard-to-move products will stay in shelves for a long time, which makes for a stale product offering (in contrast, a department store's toys section is much smaller).

- Establishing a brand identity is difficult. Rather than Mr Toy being the premier 'toys at reasonable prices' store,  it may be labeled as 'just another toy store selling cheap Made-in-China products' if its offerings are indistinguishable from the auntie-uncle/department stores.

Of course Mr Toy can make tons of money if the company plays its cards right. But shareholders need to understand the overall strategy and the growth prospects in this segment, if there is one.


When it comes to Mr Dollar, I can immediately understand the appeal. It's simple, it's beautiful, and it's the real growth driver for a company chasing the next big growth story. But it comes with a catch.

The dollar store concept hardly needs refinement : cheap sells, and the fast moving consumer goods sell fastest when it's cheapest.

The brand identity is immediately apparent in the slogan. For Mr Dollar it's 'Always RM2 or RM5'; slightly clunky but let's not be the least fun person to talk to at parties, yes?

Impulse buying driven by the sheer cheapness of the items can lead to higher spend per transaction; without realising it, your purchases of RM2 or RM5 items can lead to a surprisingly hefty bill. 

After picking out some interesting snacks and drinks, my own basket came to RM60 in total. Yet I have no qualms about coming back soon.

Now imagine a family of five coming in to get their supply, and then imagine them coming back every week. 

The average spend per transaction is going to be far higher than RM25.20 at a Mr DIY (as of the first half of 2020), and very lucrative for the business. In a growth context, this meets my expectations. It's the kind of business I would invest in. Opening 50 new stores in 2021 is not a ridiculous target to set, in this instance.  

So here's the catch : Mr Dollar will be a welterweight up against a heavyweight.

There's Eco Shop, which already has 154 stores in Malaysia. They can do big sizes or small, shoplots or malls. 

It was even mentioned in the prospectus due to a common shareholder in both Mr DIY and Eco Shop. Yes, you read that right.

But the prospectus ingeniously omitted mention of Eco Shop being a direct competitor - or as I like to call it, an existential threat - to Mr Dollar. But ya lor, this prospectus was about Mr DIY only kan.... :)

Their promise of 'Always RM2.10' is a formidable one, and their stores tend to be crowded, especially on weekdays after work hours and on weekends (anecdotal observation again, but I have been to Eco Shop branches in KL, Melaka, and Negeri Sembilan, multiple times).

They dominate this space, and Mr Dollar wants to gatecrash this party. By 2021 they want to get to at least one third of Eco Shop's total store network. 

In order to succeed, Mr Dollar will need to be aggressive, not just with their expansion, but also product strategy. 

I do not rule out a scenario where it's literally a battle of the brands. They may end up in the same neighbourhoods, within spitting distance of each other, enticing customers to dump one store for the other. 

They will fight in the malls. They will fight in the suburbs. Winner takes all. 

But if anyone has the resources and expertise to pull this off, it would be the biggest retail home improvement chain in Malaysia. And in my view, to truly stand out, it's going to be all about the products.

To really stand out, they can champion quality Malaysian made products and snacks, and it does not necessarily have to be the cheapest confectionery available to humankind. 

They can do deals with manufacturers to repackage exclusively for Mr Dollar to make sense in an 'always RM5' context, for example. They can do placements for hip local F&B brands whose current presence is predominantly online. 

It would be a win-win : actual, cool products at a dollar store, and an exposure to physical retail for online sellers. 

While a lot of the products at Mr Dollar is quite similar to Eco Shop, there were some real standouts. Some are brands of snacks and drinks that can rarely found in other supermarkets. 

For dollar stores, cheapness will remain an emphasis, but quality can be cheap too. And differentiation matters.

By highlighting all these issues over this two-part series, I do not mean to excoriate Mr DIY or their listing aspirations. Using the rotan is not a good way to start a thoughtful conversation.

I want them to do well, and I see their potential in serving a purpose far beyond just being a cheap home improvement retailer. They do, and can do much more, to promote local products and local manufacturers. 

You want to catalyse local businesses and help boost their livelihoods and the economy? Damn, I'm in. Go for it.   

In fact, it would be quite a statement if one day Mr DIY becomes known for having a high concentration of local products that consumers are happy to buy and use. I would in turn be a happy shareholder, because their hearts are in the right place. Mr Dollar may well be that avenue.

It's a great brand but an overpriced IPO, so it's a shame. But I will still keep coming back to the stores.