A.S. Watson & Company Ltd.

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A.S. Watson & Company Ltd.

Continental
11/F Watson House
1-5 Wo Liu Hang Road
Fo Tan
Shatin, New Territories
Hong Kong
Telephone: (852) 2606-8833
Fax: (852) 2695-3664
Web site: http://www.aswatson.com

Wholly Owned Subsidiary of Hutchison Whampoa Ltd.
Incorporated: 1828 as The Canton Dispensary
Employees: 98,000
Sales: HKD 88.78 billion ($11.74 billion) (2005)
NAIC: 446120 Cosmetics, Beauty Supplies, and Perfume Stores

A.S. Watson & Company Ltd. is one of the world's leading and fastest-growing retail groups, operating more than 7,500 stores worldwide. Based in Hong Kong—Watson's is the retail arm of that city's giant Hutchison Whampoa—Watson operates a variety of retail and restaurant formats throughout the world. The company also produces soft drinks, including the Mr. Juicy brand, and bottled waters. Retail, however, is Watson's core activity. The company's oldest format is the Watsons Your Personal Store chain, with 1,400 outlets in some 13 markets including Hong Kong and mainland China, most of Southeast Asia, and in Estonia, Slovenia, and Turkey. The Watsons chain has been growing rapidly in the early 2000s, opening as many as 130 new stores each year. Other Watson retail formats in Asia include the Park'n'Shop supermarket chain; the 70-store Fortress consumer electronics chain; Watson's Wine Cellar, with 13 stores in Hong Kong; Great, a food hall concept located in Hong Kong's Pacific Place; Taste, a "lifestyle food store" located in Hong Kong's largest shopping mall, Festival Walk; and the Nuance-Watson airport retail concessions joint venture, which operates 40 duty-free stores in airports worldwide. While Watson continues to build up its Asian holdings, especially in mainland China, the company has extended its reach to become one of Europe's leading retail operators in the health and beauty segment. Watson controls leading European retail formats such as Kruidvat, Marionnaud, Superdrug, Savers, ICI Paris XL, and Rossmann. The acquisition of these businesses since the beginning of the 2000s has enabled Watson nearly to quadruple its sales, to HKD 89 billion ($12 billion) in 2005. Europe accounts for some two-thirds of the company's total revenues; Watson itself generates nearly 45 percent of Hutchison Whampoa's turnover. The company is led by managing director Ian F. Wade.

FREE CLINIC IN 1828

A.S. Watson originated as part of the efforts of British and other missionaries to bring Western-style medical aid to the impoverished population in mainland China in the early decades of the 19th century. Although the first "dispensary" (as the medical clinics were called) was opened in Portugal-controlled Macao, the network of dispensaries soon spread to many of China's coastal cities. Canton, an important port city on the South China Sea (and later more familiarly known as Guangdong), became the site of a new dispensary opened in 1828. The Canton Dispensary, which received its supplies from Macao, was initially established to dispense free medical services to the city's poor. Like many of its counterparts, the dispensary quickly became a commercial hub for the growing foreign population in the region. By 1831, the dispensary began selling cures and medicines to the foreign community, then quickly branched out into general trade. The dispensary went beyond merely serving as a trader; in 1832, the Canton Dispensary became one of the first in the region—if not the world—to begin bottling soda water.

After the first Opium War, and Great Britain's takeover of the Hong Kong islands, the owners of the Canton Dispensary followed the foreign community across the channel, reestablishing itself as the Hong Kong Dispensary in 1841. The Watson family became involved in the dispensary in the 1850s. Thomas Boswell Watson was a British physician who had originally established a medical practice in Macao. In 1856, Watson sold his practice, and moved to Hong Kong, where he established a new and highly successful medical practice. Watson also made a number of investments, buying a stake in the Victoria dispensary, and becoming a major partner in the Hong Kong Dispensary. Watson, however, was preparing to return to Great Britain, and in 1858, Watson brought his nephew Alexander Skirving Watson into the business. The elder Watson returned to England in 1859, and died there at the age of 44 in 1860.

A.S. Watson became the Hong Kong Dispensary's first professional pharmacist; after his uncle's death, Watson and two physician partners took over the lease on the business, and by 1862, the dispensary had begun using the name A.S. Watson on a number of the products it carried. The popularity of the name led the company to change its name to A.S. Watson & Company in 1871; by then, the Watson family had exited the company's trade and soda water bottling operations, turning over its lease to Dr. John Humphreys and Dr. Arthur Hunt.

Under Humphreys and Hunt, Watson expanded its manufacturing capacity, adding a new factory in Hong Kong for the production of flavored soft drinks in 1875. Watson also began expanding beyond Hong Kong in the approach to the end of the century. In 1883, the company established its first foreign pharmacy, in Manila. The following year, the company constructed a soft-drink factory to serve that market as well. In the meantime, Watson had returned to the Chinese mainland, opening a number of pharmacies there. In 1886, the company was formally incorporated as A.S. Watson & Co. Ltd.

Watson grew strongly over the next decade, topping 35 stores by 1895, and 100 stores by the turn of the century. The company had also built up a catalog of some 300 drug, toiletry, and beauty items produced at its own factories. Watson then responded to the growing demand for fresh drinking water in Hong Kong and China, establishing subsidiary Watson's Water to produce bottled water.

The first half of the 20th century, however, brought a number of setbacks for the company. By 1910, the company had decided to shut down its operations in the Philippines. The company also scaled back its operations in mainland China, and then was forced to abandon its Chinese businesses altogether following the Japanese invasion of the mainland in 1937. Following the Japanese attack on, and subsequent takeover of Hong Kong in 1941, A.S. Watson ceased its operations.

INTERNATIONAL AGAIN IN 1987

Back in business by 1945, Watson rebuilt itself around its core operations in Hong Kong. Watson's growth soon attracted the attention of fast-rising Hong Kong conglomerate Hutchison Group, which took majority control of Watson in 1963. As part of a larger group, Watson launched a new expansion phase in the 1970s. This began in 1972, with the acquisition of the Park'n'Shop supermarket group, a leader in the Hong Kong market. The following year, the company acquired a chain of toy stores, Peter Pan Toy Shops. Over the next decade, Watson expanded its portfolio of stores to 75.

COMPANY PERSPECTIVES

PPF—Passion, Process and Fashion—is what makes us winners. We are Passionate entrepreneurs with Process, unlike some corporations who are pure process. We have adaptable people who are able to move all over the world and work in new cultures. We have stores and products which are fashionable and fresh.

Into the late 1980s, Watson made a new bid to establish itself as an international retailing force in the Southeast Asia region. In 1987, the company launched a new expansion drive, opening its first Watson's The Chemist shops in Taiwan and Macao. The company next entered Singapore in 1988, and then returned to mainland China in 1989. Further expansion in the region continued through the 1990s, with Watson stores opening in Malaysia in 1994 and Thailand in 1996. By 2002, the company had returned to the Philippines, and in 2005 the company added its first stores in South Korea, in partnership with that country's GS Retail.

Watson also had begun adding new retail formats. In 1990, for example, the company acquired the Fortress chain of consumer electronics stores. By 1998, Watson had opened its first Watson's Wine Cellar in Hong Kong. The wine specialist soon built up a network of 13 stores in Hong Kong by the middle of the first decade of the 21st century. In the meantime, Watson had formed a partnership with the Nuance group to form the Nuance-Watson retail airport concessions joint venture in 1998. That operation got off to a flying start, winning several concessions at the Hong Kong International Airport, then expanding to a global scale with 40 duty-free shops under its control. The company also developed the Fortress retail format into an international chain, opening its first store in Taiwan in 1998. In 2000, the company extended its food business with the opening of its Great Food Hall in Hong Kong's Pacific Place. A similar extension came in 2004 with the launch of the Taste food hall in Hong Kong's Festival Walk shopping mall.

During the 1990s, Watson made an effort to expand its manufacturing base as well. The company built a new water factory in Beijing in 1994, and then expanded its Chinese bottled water holdings with the purchase of Shanghai Sparkling Drinking Water in 1997. By the late 1990s, the company's bottled water division had brought it to Europe for the first time, through the acquisition of a number of bottled water brands on the continent. Yet by the end of the 1990s, Watson had moved to sell much of its manufacturing business, including its ice cream operations, originally launched in the 1970s, which were sold to Unilever in 1999. By 2003, the company had exited the European bottled water market as well, selling these holdings to Nestle.

GLOBAL RETAIL POWERHOUSE IN THE NEW CENTURY

Watson had set its targets on reshaping itself as a global retail leader, choosing the European market as its new growth target. The company's first move into the region came in 2000, with the acquisition of the Savers chain of health and beauty stores in the United Kingdom. Founded as Savers Drugstores in 1988, Savers had grown into a nationally operating chain of 177 stores. Under Watson, Savers grew more strongly still, and by 2006 the chain had topped 400 stores. Watson next turned to Switzerland, buying Badaracco S.A., a high-end wine wholesaler and distributor, in 2001.

KEY DATES

1828:: The Canton Dispensary is established in Canton (Guandong) in order to provide free medical care.
1831:: The Canton Dispensary begins selling drugs and medicines to the foreign community in Canton.
1841:: The Canton Dispensary re-opens in Hong Kong as the Hong Kong Dispensary.
1858:: Alexander Watson joins the company as its first professional pharmacist.
1871:: The company changes its name to A.S. Watson & Company.
1875:: The company builds a soft-drink factory in Hong Kong.
1883:: Watson opens its first foreign pharmacy in Manila, then adds a soft-drink factory in the Philippines.
1910:: The company exits the Philippines.
1937:: The Japanese invasion of China forces the company to abandon its Chinese operations.
1945:: Watson returns to business after being shut down during World War II.
1963:: The Hutchison Group (later Hutchison Whampoa) acquires control of Watson.
1972:: Watson acquires the Hong Kong supermarket group Park'n'Shop.
1987:: Watson relaunches international expansion, opening stores in Taiwan and Macao.
1989:: The company returns to mainland China with the opening of a new Watson store.
1998:: The company forms the Nuance-Watson airport retail concessions joint venture.
2000:: The company enters Europe with the acquisition of Savers in the United Kingdom.
2002:: The company acquires Kruidvat, in the Netherlands, with 1,900 stores in six countries, and becomes the leading European health and beauty retailer.
2005:: The company acquires the Marionnaud retail perfume store chain, with 1,100 stores in France and ten other countries.

Watson returned to the health and beauty sector in 2002, buying the Netherlands' Kruidvat. That company was by then the leading operator of health and beauty stores in Europe, with some 1,900 stores in six countries. Founded as a grocery store in 1928, Kruidvat had remained a single store operation until the 1950s, when it began a national expansion. In the mid-1970s, Kruidvat added its health and beauty store format, and by the end of the 1990s that operation had become its main focus. Following the sale of its supermarket holdings to Laurus in 2000, Kruidvat went on an expansion drive, acquiring the United Kingdom's Superdrug in 2001, and then acquiring a major stake in the Eastern and Central European operations of Germany's Rossmann. Kruidvat also had established itself in the fast-growing high-end retail perfume sector, through its holding of Belgium-based ICI Paris XL. The addition of Kruidvat to Watson's portfolio established the Hong Kong-based company as the world's number three operator of health and beauty stores.

Into mid-decade, Watson worked on redeveloping its existing store formats while remaining on the lookout for new expansion opportunities. In 2004, the company added its first operations in Eastern Europe with the purchase of the Drogas health and beauty chain, based in Latvia, with 100 stores in that country and neighboring Lithuania. The company also entered Malaysia that year, buying Apex Pharmacy Sdn. Bhd., as well as acquiring a 40 percent stake in Rossmann in Germany.

In 2005, Watson emerged as a leader in the European retail perfume market through its acquisition of France's Marionnaud. That acquisition brought Watson more than 1,100 stores in some 11 countries, and also provided the Hong Kong-based group with a strong brand with which to expand into the Asian retail perfume sector. The first Marionnaud store in Asia opened in Manila in 2006. In the meantime, Watson had gained a leading position in the European market through its purchase of the Merchant Retail Group and its holding The Perfume Shop retail chain in the United Kingdom.

Watson continued exploring new markets, buying the Saint Petersburg-based Spektr health and beauty chain in 2005, and adding Watson's stores in Estonia, Turkey, and Slovenia. The company also continued its aggressive expansion of the Watsons chain in mainland China, opening its 200th store there in June 2006. By then, Watsons was the top revenue generator for the Hutchison Whampoa group, providing some 44 percent of its revenues. With nearly 180 years behind it, A.S. Watson looked forward to its future as a global retail leader.

PRINCIPAL SUBSIDIARIES

A.S. Watson (Europe) Group AG (Switzerland); A.S. Watson (Health & Beauty Continental Europe) B.V. (Netherlands); A.S. Watson (Health & Beauty UK) Ltd.; A.S. Watson (Trading) Macao Commercial Offshore Ltd. (China); A.S. Watson Industries; Cosmo-Shop Guzellik Ve Bakim Urunleri Ticaret A.S. (Turkey); GSWatsons (South Korea); Guangzhou Watson's Personal Care Stores Ltd. (China); ICI PARIS XL Nederland B.V.; JSC "Drogas" (Latvia); Kruidvat B.V. (Belgium); Kruidvat Retail B.V. (Netherlands); Marionnaud Parfumeries (France); Nuance-Watson (HK) Ltd.; Parfumerie ICI PARIS XL N.V. (Belgium); Rossmann Magyarorszag kft (Hungary); Rossmann Spol S.R.O. (Czech Republic); Rossmann Supermarkety Drogeryjne Polska Sp. z.o.o. (Poland); Savers Health & Beauty Ltd. (United Kingdom); Superdrug Stores plc (United Kingdom); The Central Watson Co. Ltd. (Thailand); The Perfume Shop (United Kingdom); Watson's Park'n'Shop Ltd. (Taiwan); Watson's Personal Care Stores (Phils.), Inc. (Philippines); Watson's Personal Care Stores Pte. Ltd. (Singapore); Watson's Personal Care Stores Sdn. Bhd. (Kuala Lumpur); Watson's The Chemist.

M. L. Cohen