Biz Daily Interview with Mohamed Salleh Marican, Founder and CEO of Second Chance Properties Ltd
Listed on the Mainboard of the Singapore Exchange, Second Chance Properties Ltd is a property investor as well as an established clothing and gold jewellery retailer.
Today, the group holds 70 properties that yield rental income and owns 41 stores selling Malay ladies’ fashion clothes under the First Lady brand name. It also sells gold jewellery through its business unit Golden Chance Goldsmith Pte Ltd at Singapore’s Tanjong Katong Complex.
In an interview with Biz Daily, Mr Mohamed Salleh Marican, Founder and CEO of Second Chance, shared why the group’s name is not a mere coincidence and how an aspiring entrepreneur turned misfortune into success.
When you first established Second Chance, did you have a vision that the company would grow into what it is today, or were your expectations different then?
I actually started the tailoring business in 1974 called M Salleh Enterprise. At that time, it was very common for people to call their businesses after their own names. As I was exposed to my late father’s men’s textile business as a young boy, I felt safe going into this area.
But my first shop failed after four months, and for several months after, I analysed what went wrong.
The wholesalers that sold textiles to tailor shops sometimes ordered materials that were not liked by customers. Or they re-ordered a highly popular material that arrived too late after the fad changed. As experienced tailors would not buy such outdated materials from them, they would sell them to new and inexperienced tailors. If I had employed someone experienced, this mistake would have been avoided.
When I subsequently set up my next business in 1975, I called it Second Chance Enterprises, which was a very appropriate name. This time, I brought in an experienced partner and let him run the shop, while I watched and learnt. This addressed the most important issue of getting the latest materials.
After you won the Malay Business Man of the Year award in 1988, your sales fell due to a perception problem that Second Chance was a Malay brand for Malays. On hindsight, what caused this problem?
I started mass producing and selling ready-to-wear clothes in 1978 and sold them at half the price of established brands then when the average Singaporean income was very low. In the 1970s, many poorer quality but cheaper Japanese textile materials started coming into Singapore, while people still preferred British materials. But by the early 1980s, the quality of Japanese materials was almost as good as British ones to the point where customers were unable to differentiate between the two. Yet, younger people still preferred Western brands.
From the beginning and even after the perception problem arose, Second Chance used better quality Japanese, Korean, Taiwanese and Thai materials although our ads used Caucasian models and customers saw us as a Western brand.
When I won the award, many existing customers changed their perception and began to think of Second Chance as a Malay brand for Malays. With the majority of my customers being non-Malays, sales dropped and I had to do something.
How did you respond to customers’ new perception of Second Chance as a Malay brand?
Although I started out selling the cheapest clothing in the market, I later faced increasing competition from new stores at shopping malls selling relatively lower-priced international brands.
I then realised that I was a very small player in that market and you can’t make big money without dominating the market like Pepsi and Coca-Cola.
So I did not rebrand Second Chance and decided to enter the Malay ladies’ clothing market instead, which was a totally different customer base. And I opened First Lady selling Malay traditional clothes.
In 1992, the situation in Singapore’s Malay clothing market was similar to when I first started out as a tailor. Malay ladies would buy the textiles and go to the tailor to make their baju kurung (a traditional Malay costume). Customers would have to come back two or three weeks later to collect them, and sometimes they do not fit very well. So, customers had to make multiple trips to the tailor just to make the right clothing.
I noticed nobody else made affordable ready-made baju kurung, and most players in this market segment were tailors. I did the same thing again by mass ordering the materials at favourable cost and mass producing the clothing. Then I sold them at about half the price of existing competitors. Within the first year of starting this new business in one shop, I made S$1 million. This compared with the S$1 million I previously made only once in 1988 with 18 outlets in Singapore!
Many competitors realised they could not compete with us on price, so they have gone into the higher end market segment. However, I don’t pursue a high end brand image as I feel going for the masses is a safer bet and any business, even those in the low end segment, is respectable as long as it’s legal and you make money.
I understand that the Second Chance board will consider whether the company should become a REIT when it meets all the requirements for a Singapore-listed REIT. If Second Chance becomes a REIT, what would become of your First Lady and Golden Chance businesses?
If that happens, we will still have a sizeable retail business. To reflect this, we will change the company name to Second Chance Retail, while retaining our First Lady and Golden Chance brand names. We will also have to expand our retail business to increase our profits. REITs need a managing company to manage them. If Second Chance Retail becomes the REIT manager, we can also earn commissions from sourcing for new properties on behalf of the trust.
How do you plan to use the additional cash retained from your Scrip Dividend Scheme to fund growth opportunities this year?
We want to focus more on properties, which contributes most to our group profit. Currently, our rental income amounts to S$10 million per annum. This money will be used to buy more properties to increase our rental income. In fact, we already spent about S$9 million for this purpose within the past month, including the purchase of a shop at Marine Parade for S$3.3 million and two office units at International Plaza for over S$5 million.
Why did Second Chance decide to stop awarding franchises for First Lady?
As Singapore’s Malay market is small, we decided to expand into Malaysia. We wanted to open 100 shops there and thought of franchising to make management easier due to the distance from our Singapore office. But we stopped awarding franchises because we ran into difficulties managing them.
We are not like McDonald’s where people “queue” to become its franchisees and it can award franchises to the largest companies of its choice. In contrast, our franchises were given to small Bumiputra companies supported by the Malaysian government that lacked professionalism and had no experience. Regrettably, they did not follow our franchise rules strictly and legal proceedings against those who breached the franchise contract took several years.
What benefits have you reaped by no longer awarding franchises for First Lady?
When you have a franchise, you need to sell to the franchisee at a lower price like a wholesaler as they also need to make money. So your profit margins are lower.
Although our operating expenses have remained high, without a franchise now, we no longer need to consider the franchisee’s margin and hence our margin is higher. Of course, our margin might still fall if I choose a wrong store location for example, which was a risk previously borne by the franchisees.
What advice do you have for entrepreneurs who face similar negative situations to what you experienced and wish to turn them into business opportunities for success?
Every business case is different. For fashion, rule No. 1 is you need to be alert and sell the latest design demanded by customers as it’s a very competitive business.
You will also have to determine your pricing strategy. If you want to sell cheap clothing to the mass market, you need to sell more. If you want to sell expensive clothing in a high-class boutique, you might need relatively fewer customers. But you would have to make your shop look very nice to project a different image and be located at the right place.
But my general advice especially for would-be entrepreneurs is that there will be two or three market players who will become very big, whatever the type of business. Depending on the market size, a few more players might still make lots of money. But the rest will struggle their whole life. So, aspiring entrepreneurs should identify market players that have many customers for example and study why they became successful.