Here’s Why Business at Challenger Technologies Limited May Improve

Challenger Technologies Limited (SGX: 573) is a well-known technology retailer which has more than 40 stores located all over Singapore.

It used to operate in Malaysia, but has since shuttered all its stores there. The company has many different store formats within its network – a megastore, superstores, mini stores, Valore concept stores and Musica concept stores.

The paperless-push

It was reported in The Straits Times on Saturday that Challenger is cutting out paperwork to reduce clutter and man-hours. At its newest store at Seletar Mall, customers can sign up to become members electronically through the use of a tablet instead of putting pen to paper.

According to The Straits Times, Challenger “expects to save about 600 man-hours a month once the system is rolled out to all 44 Challenger stores by the end of next month,” The tablet system is now only available at the company’s retail outlets in Eastpoint Mall and Seletar Mall. By going paperless, the company is able to save on printing costs and storage space, besides reducing manual labour.

The purveyor of high-tech gadgets is not new when it comes to jumping on the technology bandwagon. Here’s what The Straits Times’ article has to say about some of Challenger’s other recent technological initiatives:

“The company set up its own enterprise resource planning system in 2012 to link backend functions such as finance, accounts and merchandising to frontline operations.

This has allowed its retail operations to be “robust, reliable, quick and nimble”, said Ms Loo.

For instance, staff no longer have to match invoices for products delivered to the stores manually – they are able to use an automated system that saves Challenger up to 1,500 man-hours a month.”

Improvements that Challenger has up its sleeves with regards to further automation include a platform which allows staff to keep up to date on the company’s ongoing promotions. Loo Pei Fen, Challenger’s marketing head who was interviewed by The Straits Times, told the paper that the new platform can help reduce confusion among staff.

A look at staff costs

The Straits Times report added that the reduced “paper chase” has allowed the firm to employ 30% less workers this year, even though five more stores were opened as compared to last year.

More of such initiatives may in turn help to lower staff costs at the firm for the long run, thus potentially improving its bottom-line. With Challenger Technologies’ net income for the first nine months of 2014 falling by 22% compared to a year ago, the company’s going to need all the help it can get.

But despite the potential, for now, staff costs have not improved. For the nine months ended 30 September 2014, staff costs were 7.1% of revenue while exactly a year ago, it was at 6%; employee costs have risen despite having around 30% fewer workers.

It may be argued that this cost also includes staff incentives, among other things, and not just base salaries. But that said, a slight 2.3% year-on-year increase in staff costs to S$17.9 million despite experiencing a 14% year-on-year decline in revenue to S$250 million (for the first nine months of 2014) is still a concern. Theoretically, staff incentives should have been lesser anyway due to the lower revenue raked in. Increase in staff costs as a percentage of revenue shows that productivity gains and lesser headcount have not translated to a stronger bottom-line so far.

For further perspective,  staff costs were 6.3% of revenue in 2013; in both 2012 and 2011, the figures were slightly less than 6% each.

Foolish Bottomline

It may be interesting to watch how the increase in productivity at the IT retailer may in turn help to curb rising staff costs and help pull up the firm’s bottom-line. Challenger’s financial report card for the whole of 2014 should be released in February next year and investors might want to keep a close eye on that.

For more (free!) stock analyses and investing tips, sign up here for your FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock Singapore. It will teach you how you can grow your wealth in the years ahead.

Like us on Facebook to follow our latest hot articles.

The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.