When Vietnamese Prime Minister Nguyen Xuan Phuc visited Thailand in August, a red carpet was rolled out for him at Central Group’s Central Ladprao, a shopping complex in downtown Bangkok.
The premier had been invited to attend the opening ceremony of a Vietnamese trade fair. He was greeted by members of Central Group’s founding Chirathivat family, including Chief Executive Tos Chirathivat, who reminded his guest that he wanted to invest more in Vietnam, the group’s biggest market outside Thailand.
Tos introduced the premier to his youngest son, who had just graduated from a U.S. university and will join the family business in the group’s online operations.
“He doesn’t know anything about retail,” Tos, laughing, said. “But the young generation, they know a lot about digital technology.”
International expansion and e-commerce are two challenges that Tos, a grandson of group founder Tiang Chirathivat, has been tackling as the traditional retail business faces slowing growth.
Like many other family businesses in Thailand, the Chirathivats are ethnic Chinese.
Founder Tiang emigrated from Hainan Island to Bangkok in 1925. While many other Chinese immigrants chose to start businesses in the city’s Chinatown, he set up his first shop in the Thonburi district on the outskirts of Bangkok and across the Chao Phraya River from the city center.
His shop was close to a large temple built by the royal family, so Tiang sold refreshments and provided a boat parking service for visitors.
He moved across the Chao Phraya River to a location near the grand Oriental Hotel (now the Mandarin Oriental), where he opened a store with his eldest son, Samrit, in 1947. In 1956, the family opened Thailand’s first department store in Chinatown.
Today, the 70-year-old group has become a dominant player in Thailand’s retail sector, with more than 60 department stores and shopping malls. It also operates hotels and restaurants, with a total of 5,000 outlets.
In 2016, annual sales amounted to 332.7 billion baht ($9.98 billion), up 17% from a year earlier, confirming its status as the largest retailer in Thailand. Its closest rival is The Mall Group, which operates such major Bangkok shopping malls as Siam Paragon and Emporium, with estimated annual revenue of 50 billion baht. Central Group is also larger than other major regional peers, such as the retail operations of SM Investments in the Philippines.
The Chirathivat family is the third-richest family in Thailand, with an estimated worth of $12.3 billion, according to Forbes.
Central’s growth has been supported by an expanding economy, a rising middle class and demand for new goods and services. It built malls and stores in competitive locations offering a wide range of products. But Thailand’s population is starting to age at a more rapid rate than neighboring countries, while they are spending more abroad. This is causing domestic demand to stagnate as competition intensifies and becomes more diversified.
“There are so many things that are happening now that affect department stores,” which account for about 40% of group revenue, Tos said in a recent interview. “The retail market is so much bigger than just department stores,” referring to various forms of retail operations from malls to discount stores and specialty stores.
The 52-year-old Tos said it is “pretty simple” for him to grasp industry trends given his long experience in the family business. “I’m good at looking at the big picture, investing and expert at finding money.”
Tos, the youngest of Samrit’s eight children, studied finance at Columbia University in New York and initially wanted to be an investment banker. He worked for a year at Citibank in Thailand. But he decided to return to the family business and launched a hypermarket chain, Big C, in 1994.
He also oversaw an expansion into rural areas, which now account for around half of the group’s retail sales, although a similar venture in China proved less successful.
Because of his largely successful track record in leading the group’s diversification, the board of directors strongly backed the appointment of Tos as chief executive in 2013, although he said he was reluctant to take up the post because he was already “personally satisfied” with retail. “He had outstanding talent and everyone in the family knew that,” one family member said.
He has since then spearheaded an international expansion drive by buying several European department stores, including Italy’s La Rinascente and Germany’s KaDeWe, as well as the local arm of Big C in Vietnam. International operations now account for roughly 30% of group revenue.
ONLINE AMBITIONS
But Tos expresses less confidence about his ability to keep up with online operations, in contrast to his deep knowledge about traditional brick-and-mortar businesses.
“Digital and e-commerce is the only unknown for me, but it is also the future,” he admitted. “I’m not sure in terms of execution and how to bring in growth. But you can see everywhere now that if it works, the value is incredible and crazy.”
Pressure is mounting. Although Southeast Asia’s e-commerce market is still relatively small with no dominant player, like Alibaba Group Holding in China or Amazon in the West, the market is growing rapidly. Amazon recently entered Singapore, while Alibaba has invested in Lazada, the largest e-retailer in Southeast Asia, and is planning to build a large logistics center in Thailand.
Tos has responded by bringing in outside experts to help. Last year, the group started recruiting non-family executives into top management posts that resulted in a team dominated by outsiders for the first time. The new team, which reports directly to Tos, is aimed at strengthening the group’s shift to online operations.
Nicolo Galante, an Italian and former McKinsey consultant who has revamped online operations and created new marketing channels for European retailers, became the group’s chief operating officer. He is initiating reforms by adding online shopping channels for each retail business from department stores to sports specialty outlets and attracting talent to new posts, such as chief technology officer.
“In the next two to three years, the picture of e-commerce in Thailand will change dramatically,” Galante said. Unlike Europe, where the traditional retailers found themselves far behind Amazon by the time they decided to shift online, the developing e-commerce market in Southeast Asia means that “we are not yet late,” he said. “We have the unique opportunity to write the history for ourselves. But it is going to happen very fast and very soon.”
Former bankers have also joined the group to provide financial expertise essential for supporting e-commerce. Yol Phokasub, former head of Siam Commercial Bank, was appointed to the newly created post of president. Prasarn Trairatvorakul, a former Bank of Thailand governor, is serving as a senior advisor.
“Central has been aggressively adopting experts and foreigners as executives under Tos,” said Natenapha Wailerdsak, a lecturer at Thammasat Business School. This is a positive move, she said, since relying heavily on insiders could “restrict the businesses from expanding beyond the abilities of its family members.”
FAMILY DOMINANCE
Nonetheless, Central is often seen as one of the most family-dominated conglomerates in Thailand compared with other groups, such as Charoen Pokphand Group, the agribusiness-to-retail-to-telecoms empire led by Dhanin Chearavanont.
Family members fill all of Central’s 15-member board of directors and seven-seat executive committee. Most of its group companies are private, with a few exceptions like development unit Central Pattana.
In contrast, most of CP’s major assets are listed and its management includes non-family executives who head core listed subsidiaries such as Charoen Pokphand Foods and 7-Eleven operator CP All.
“My grandfather and father, we wanted all the family members to be in the company if they wished,” Tos said. “But CP, they say they don’t want family members in the group. They are more aggressive and want the best professional people to run the business.”
Dhanin said in his autobiography last year that just before he became president of CP Group when he was 30, he asked his relatives, including his older sisters and the wives of his brothers, to leave the company and he replaced them with young professionals.
He also forbade hiring the children of family members for CP core businesses. “Bringing a son on board could also jeopardize the company’s future,” Dhanin said. “Not only would the company lose valuable [outsider] executives [who feel they will not be able to get a promotion], it would have trouble ensuring a smooth transition from one leadership to the next.”
The Chirathivats share “a different philosophy,” Tos said. The group has a “stricter” management selection process that requires at least 75% approval from the family-dominant board. “They must have a trust in you, think that you are capable and good for the family,” he explained.
The extensive Chirathivat family provides plenty of potential candidates. Founder Tiang had 26 children with three wives that resulted in roughly 220 Chirathivat offspring, of which 51 are involved in the business.
To keep the family bonds strong and avoid disputes, Samrit Chirathivat, the founder’s son who built the foundation of the retail business, insisted that the family should live together. He built a house in Bangkok’s central Sala Daeng district that housed nearly 50 Chirathivats across three generations.
“We were brought up together and interacted with each other a lot,” said Suthiphand Chirathivat, another of the founder’s sons and a group executive. The children worked in the group’s shops as clerks during school holidays.
Although the central Chirathivat residence is now old and too small to hold many family members, some of them still live together in three main compounds in Bangkok.
Family members also keep in touch through an online messaging group. Every year on July 10, the anniversary of the founder’s death, the family gathers at a temple near where the group had its first shop.
A family council headed by Suthichai Chirathivat, another son of the founder who was the group’s first CEO and current chairman of the board, discusses issues such as marriage, education and the family budget that is financed by income from unlisted group companies. “We provide funds for those that aren’t involved in the business, too,” said Suthiphand Chirathivat.
Central Group has put in place a succession plan to avoid internal disputes, which includes family and outside candidates. “The more pressing challenge for the Central Group when it comes to top management is how to transform it from a tightly family-dominated group to a more open and professional one,” said Pavida Pananond, associate professor at Thammasat Business School. “They need to address the strategic need to become a more regional and global player in retail.”
Tos certainly recognizes that. “The company is growing faster than our babies,” he said. “To keep growing, we will need outsiders to take care of the group.”